With Alphabet Stock Trading Higher, Is it Time to Sell?
In light of Alphabet's (NASDAQ: GOOGL)(NASDAQ: GOOG) recent loss of three high-level talents, Dylan Lewis and Daniel Sparks talk about investing in the company.
Watch the clip below to find out how the stock has performed this quarter, why investors shouldn't worry too much about the brain drain, and why Alphabet's impressive growth doesn't show signs of slowing anytime soon.
A full transcript follows the video.
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This podcast was recorded on Aug. 12, 2016.
Dylan Lewis:We talked about the impact that these segments have on Alphabet's overall numbers, pretty small. I think it's worth talking about what actually happened in the most recent quarter with Alphabet, and really specifically the Google and internet property segment, do a rundown there since we underscored that that's really where the money is being made and that's where investors should focus.
Daniel Sparks: Yeah. The most recent quarter they reported on July 28, so not too far away. Revenue for Alphabet was up 21%, 25% in constant currency. Obviously, Alphabet was the main driver here in the company's business. I had already mentioned that Alphabet's other bets segment actually reported an operating loss of nearly $900 million, approaching $1 billion there. It's interesting to highlight, the investors really like the report. Alphabet's core business pleased investors, which is advertising. The stock is up, it's about up 6% since they reported results and up 24% in the past year. The stock is doing really well. The stock is trading at a P/E of 30 now, which is pretty pricey. I don't know, what do you think about that, Dylan? What do you think about investors as far as how they should approach thinking about selling the stock or holding it as the stock trades higher?
Lewis: Yeah, that's always tempting once a company starts to hit a frothy valuation. I'll say, though, you look at the double-digit growth that they're posting in constant currency, it's how it was stated, but in what is kind of a legacy business for them, right? They've been running this ad business forever. That's impressive. There's still a pretty big runway there. I know my thesis for a long time with Alphabet has been, "OK, the ad side of the business is just going to print money and fund pretty much everything they want to do. One of the other bets at some point is going to take off, become material to the business and be a driver of top line, and hopefully bottom line growth."
I kind of think about their other bets segment, the way that people invest in venture capital, where you take a lot of small calculated risks, and the idea of being one of them will really explode. That's kind of in my thesis in them, I don't have any intentions of selling anytime soon. I think that it's worth paying a premium for a company that has a very solid business. They are a staple of most people's lives and they have a great product. There are plenty of different growth avenues available to them.
Sparks: Yeah. It also highlights a general idea of, how should investors think about selling stocks when they have a good business in their portfolio that's performing well, but the valuation might get a little bit pricey. Generally, I think it's my philosophy and I think it's something we think here at the Fool is, as long as a business in your portfolio is doing well I like to hold on to that company, keep it in my portfolio and give it room to run. Like you said, there's these other bets that could pay off and the reason you have confidence that they could pay off is because of Google's execution in the past. I think that I'd like to hold on to this company if I did own it. I don't but I made a Fool Caps pick on it a while back and I've never thought about ending that pick just because the valuation is higher. It's a great company, performing well, I definitely want to hold on to it.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Daniel Sparks has no position in any stocks mentioned. Dylan Lewis owns shares of Alphabet (A shares). The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.