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This Tech Stock Is the Gift That Keeps on Giving – and Growing

Alphabet's (NASDAQ: GOOG) balance sheet is one of the best in the world. In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on Jan. 5, Motley Fool contributors Brian Feroldi and Brian Withers discuss how Alphabet's revenue continues to soar even after two decades of double-digit growth.

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Brian Feroldi: Onto a little company called Alphabet (NASDAQ: GOOG). I think I'm saying that right, Alphabet. This is a company that just put up revenue growth of, wait for it, 41%. Holy cow. How amazing is that this company has essentially grown at a double-digit rate for two decades now, and then it grows 41% to $65.1 billion. Now that company translated that huge sales gain into even higher margins, especially on an operating basis. Operating margin for this company increased 800 basis points to 32%. You combine those two things together and net income grew 60% quarterly net income to $18.9 billion or $28 a share. Speaking of those shares, during the quarter, the company bought back 4.6 million shares of its stock, spending $12.6 billion. As usual, the company's balance sheet is one of the best in the world, $146 billion in cash in equivalents, only $13 billion in debt. Even Apple (NASDAQ: AAPL) looks at that balance sheet and says, that's amazing. Now, if you look at all of the company's segments, in particular, they are all growing rapidly. One that I am particularly excited about is YouTube. YouTube is "only" doing $7.2 billion in revenue so it's just about 12% of total revenue. But what's so interesting about that YouTube revenue is that the quarterly revenue came in at $7.2 billion. Now, for comparison, Netflix's (NASDAQ: NFLX) quarterly revenue was $7.5 billion. YouTube's revenue is on the cusp of surpassing Netflix's revenue, and Netflix is a $250 billion business. I'm pretty sure too that YouTube has higher gross margins than Netflix so that's interesting to note. The disappointment for me here, if you could even call it that, would just be that the Other Bets segment continues to be a rounding error. I've been hearing about the Other Bets segments for a decade now, I'm pretty sure, and nothing. It's pretty much just like, hey, we get these projects going on eventually one of them could pay off. But so far nothing has happened there. Now, believe it or not, management opened up the call by talking about Search and how much innovation is happening in Search. They just went over to this new thing called the Multitask Unified Model, or MUM, which they claim is 1,000 times more powerful than their previous system, which they were calling Bert, and it is especially helpful with doing search results and things like text and images. Also a big push into integrate Google Shopping into its search. You can now use the Google Search Bar to get access to 24 billion product listings. Android 12 is out there. It was launched last quarter. It's getting great reviews, but the long term, there's no other way to look at this report and come away and say, this company is just a growth machine and it's still not done.

Brian Withers: Yeah. Google is a great example of what happens if you invest for the long term. I just look back and Google purchased YouTube in 2006, just over 15 years ago, for $1.65 billion, and they got $7.2 billion in YouTube ads this quarter.

Feroldi: This quarter?

Withers: What a way to scale that business and incredible ROI. But I was curious, as a YouTube content producer yourself, do you like the product?

Feroldi: Yeah, when you think about all the different ways that are out there to advertise yourself, especially on social media and such, YouTube is the best way for a person to do that because it's the easiest one to monetize. Essentially, you just got to click a button once you get to a certain level, and ads start showing up, and they pay you essentially half of all the ad revenue. You compare that to say, [Meta Platforms' (NASDAQ: FB)] Instagram, where you get nothing, Twitter (NYSE: TWTR), where you get nothing, Snapchat (NYSE: SNAP), where you get nothing, YouTube's a pretty good deal. But watch out, because apparently, Web3 is coming, and it's going to take over, things like that. Long-term, Web3 is something for investors in this company to watch.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Brian Feroldi owns Alphabet (C shares), Meta Platforms, Inc., and Netflix. Brian Withers has no position in any of the stocks mentioned. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Apple, Meta Platforms, Inc., Netflix, and Twitter. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.


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