Google’s Growth Seems Unstoppable as Governments Take Action

Fat search profits have made Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) stock 2021’s hottest “Cloud Czar.”

Source: achinthamb / Shutterstock.com

The company has earned $103.84 per share over the last four quarters. That let the stock rise 65% while the price to earnings ratio remained at an almost-reasonable nearly 29.

Google’s early dominance was based on search advertising. But as I’ve written here before, the latest surge is based on TV. YouTube gives TV advertisers the same personal targeting at the same low cost with the same huge inventory they find in search.

The effect on the rest of the industry has yet to be fully felt.

The Profit Monster

What this means for Google is clear: enormous profit and growth with no change in how the company operates.

During the third quarter, Alphabet nearly doubled operating income and increased margins while growing 39% in constant currency at scale. That’s net income of nearly $19 billion, diluted earnings of $27.99 per share, on revenue of over $65 billion.

This means Google Cloud can keep losing money, $644 million in the quarter, while bragging about its growth. Google Cloud brought in nearly $5 billion during the third quarter, up from $3.44 billion a year earlier. Google’s share of the cloud market remains stuck at 10%. It’s the “other” group, those outside the halo of Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Google, whose growth isn’t keeping up at 27%.

The Antitrust Monster

Google’s success has governments paying attention.

The U.S. Senate finally confirmed President Joe Biden’s choice to head the Department of Justice’s antitrust division. Jonathan Kanter is a fierce Google critic. Over a dozen states are alleging in court that Google maintains an illegal monopoly in online ads. A suit by Ohio newspapers says Google and Meta Platforms (NASDAQ:FB) now have over half the online ad market.

In Europe, Google has lost its appeal of a $2.7 billion antitrust fine. EU competition chief Margrethe Vestager has grown tired of imposing multi-billion dollar fines on Google. She’s demanding the company change its behavior.

Individual countries within Europe are echoing the call. The U.K. is calling Google’s Android and the Apple (NASDAQ:AAPL) iPhone a duopoly. Google has agreed to give the U.K. more oversight over its tracking cookies and is starting to pay French papers for links to their news.

What Monster?

Analysts are ignoring the government threat.

Add to it on every dip, writes one. Still a buy, writes a second. GOOGL stock is the king of the FAANG stocks, writes a third.

As cloud stocks in general have been hammered in December, shares of Alphabet keep climbing. Of 30 analysts following Alphabet stock at Tipranks, 28 say buy it, with a price target 18% higher than its current price.

The only bearish commentary I could find was from analysts who think the whole market is about to crash. They predict fast interest rate rises will bring the bull market to a halt.

The Bottom Line on GOOGL Stock

The problem with the bears’ argument is that tech companies like Google are our primary weapon against inflation — that’s what GOOGL stock represents.

When you automate your ad buying, and automate your business processes, you’re saving money. You’re reducing costs. Clouds create paths around supply bottlenecks, even substituting scarce materials with more abundant ones.

The Cloud Czars, their software and hardware providers, and companies building services on them, have cemented America’s dominance of the global economy. Alphabet can easily afford an $18 billion capital budget. It’s cash flow from operations. It’s not debt.

There’s only one monopoly in the world. It’s the cloud, and it’s America’s.

On the date of publication, Dana Blankenhorn held long positions in AAPL, AMZN and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for the holidays he has a collection of COVID-19 stories https://www.amazon.com/Bridget-OFlynn-Virus-COVID-19-Pandemic-ebook/dp/B09K8PSQC8/ at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.

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