Coverage: Alphabet beats expectations, overthrows Apple as world’s most valuable company

Alphabet, the parent company of Google, announced its first earnings report on Monday, and the results were positive.

Not only did the company beat Wall Street expectations, but the good news boosted company shares enough to have Alphabet overtake competitor Apple as the world’s most valuable company based on market capitalization.

Conor Dougherty of The New York Times broke down the company’s earnings:

The results were the first foray of Alphabet, which unveiled its reorganization plan last summer, into segment reporting. That means that for the first time the company is letting investors see its search and advertising businesses — now a subsidiary called Google Inc. — next to the costs of the various projects like self-driving cars, which generate a lot of talk but not much money.

Alphabet’s total revenue, barring currency fluctuations, increased 24 percent to $21.3 billion, when compared with the same period in 2014.

Analysts will spend the next few days using those results to rejigger the models they use to rate Alphabet’s stock. In a conference call to discuss the results, they found innumerate ways to ask two simple questions: How fast is the traditional Google business growing, and how much of its money will be funneled toward “moonshot” projects like self-driving cars and drones that deliver packages?

The revenue rise was attributed to strong growth in mobile search and YouTube, which is significant because investors had long been looking for signs that the core search business was making a smooth transition from desktop computers to mobile phones, and that YouTube was becoming a driver of new growth.

“Above all, our Q4 results show the great momentum and opportunity we have in mobile search and across Google’s range of businesses,” said Sundar Pichai, the chief executive of the Google business, during the call.

Net income was $4.9 billion versus $4.7 billion for the same period a year ago, beating Wall Street expectations. The company said its “other bets” category — the moonshots — had revenue of $448 million.

Shares of Alphabet were up more than 5 percent in after-hours trading.

Google was notorious for its indifference to Wall Street. But Alphabet has been a model student, reining in its expenses, using $5 billion of its $73 billion cash hoard to repurchase company stock and, with this latest report, giving investors more insight into how Google’s core business is performing.

Deborah Todd and Anya George Tharakan of Reuters explained how the company addressed analysts during its quarterly conference call:

In a call with analysts, Chief Financial Officer Ruth Porat attributed the strong earnings to “increased use of mobile search by consumers,” as well as “ongoing momentum” in YouTube and programmatic advertising, referring to the automatic buying of ads.

Kelly at Recon Capital said he would not be surprised if YouTube saw a surge in advertising revenues beyond the 17 percent increase it saw during the 2015 fiscal year.

Total operating losses on the Other Bets – which include glucose-monitoring contact lenses and Internet balloons – increased to $3.57 billion in the 12 months ended Dec. 31, and $1.2 billion in the fourth quarter.

The Google unit houses its Internet and related businesses such as search, ads, maps, YouTube and Android as well as hardware products such as its low-cost Chromebook laptops.

Google Chief Executive Sundar Pichai said on the call that its Gmail service crossed one billion monthly active users last quarter, joining Search, Android, Maps, Chrome, YouTube and Google Play in topping that mark.

He also touted the company’s performance during the holiday shopping season, saying that programmatic video impressions doubled this season compared to last, and that 60 percent of them came from mobile devices.

But Porat, without providing figures, said the company planned to accelerate capital expenditures in 2016 compared to the previous year.

Google’s shares rose almost 5 percent in after-hours trading. Alphabet’s combined share classes were worth $549 billion, compared with Apple, which had a value of about $534 billion.

Davey Alba of Wired explained how the company’s earnings beat helped make it the most valuable company in the world based on market capitalization:

On Monday, Alphabet released its fourth-quarter earnings, for the first time in its short existence. (As a quick refresher: Google gave itself a parent company last year so that it could separate its riskier businesses from the core earners.) These results today are split in two: Alphabet’s massively profitable search and advertising business (which includes Google), and its “other bets”—the so-called moonshots—which include Google Fiber, its high-speed Internet service; Venture and Capital, its early and growth-stage investing arms; and X lab, home to such efforts as self-driving cars and delivery drones; among others.

Whether it was smart for Google to split itself up in such a manner had remained to be seen until today. Now, it’s clear this was a great move. The company just reported a net income of $8.67 per share on revenue of $21.33 billion, up 18 percent from the same period one year ago. And that handily beat Wall Street’s estimates, of an income per share of $8.10 on revenue of $20.8 billion.

That good news sent company stock shooting up nearly 10 percent in after-hours trading. Best of all for Alphabet investors, this success means the company is now worth more than Apple—for the very first time in the history of both companies. Alphabet’s market cap is now about $560 billion, surpassing Apple, which currently sits at $540 billion.

Oddly, this also means that the most valuable company in the world is now one many people haven’t even heard of.