You’ve probably seen it in the news during the last few days – Alphabet is officially the biggest company in the world.
Shortly after trading opened on Tuesday Alphabet reached a market cap of a staggering $570 billion. That’s almost two Tesla’s worth more than Apple at the moment, whose market capitalization lays at $535 billion during writing. Not only does it speak for the success of Google’s (surprising) corporate restructuring endeavour announced just four months ago. It also comes hand in hand with Apple’s future potential being increasingly called into question.
You may have noticed Apple being increasingly criticized over the last few months. With companies of this size, actual financial results and forecasts are only one part of their valuation. The potential that investors see in a company also plays a huge role. The main criticism of Apple is its dependence on the iPhone. This criticism has been growing for months now – Apple is desperately trying to find a viable alternative, the next big thing. Will it be the Apple watch? That’s still questionable, to put it lightly. The point being is, that as strong as the restructuring has made Alphabet, it has also been helped on its path to the top of the ranking by the slow decline of the previous titleholder.
The restructuring has been a success because it vastly increased Alphabet’s potential in the eyes of investors and analysts. This becomes even more apparent if we consider the fact that Apple is still the company with the higher profit numbers and cash reserves.
Alphabet released its Q4 results for 2015 on Monday. They were highly anticipated, as they were the first results to be released since the restructuring. And boy, they did not disappoint. The company reported an 18% increase in revenues, profits of $4.92 billion, and growth of 17% in its core business of online ads. After close on Monday, the stock shot up by about 12%, leading to the new leading market cap of $570 billion.
The purpose of the restructuring was to streamline Google’s many business unit. They’re now all a part of the new conglomerate, Alphabet. It allows the company to better follow its strategy of acquiring and investing in innovative ideas and companies while making serious money with its core business units. Google, under new CEO Sundar Pichai, can now focus solely on their own business and doesn’t have to worry about the likes of Google Ventures, Nest Labs, and the ominously named “X” (previously Google X).
The first set of financial results show that it’s working so far. Investors and analysts seem to agree that the company now shows higher potential for future growth than ever before. Being the first “world’s most valuable company” that doesn’t sell a physical product is also an exciting development that underlines the changes of the global economy over the last decade. It will be interesting to see just how long Alphabet can remain at the top.
Written by Lorenzo Heinbuch