Alphabet — the company that owns Google — took over the title of the most valuable company in the world in after-hours trading on Monday, unseating Apple, and beating analyst expectations in its latest earnings report.
The search giant reported revenues of more than $21.3 billion in the fourth quarter, blowing past estimates by roughly half a billion dollars. Profit came in at $4.9 billion versus $4.7 billion for the same period a year ago. In its financial statement, Alphabet said it also saw $74.5 billion in sales for all of 2015, up from $66 billion in 2014. Shares jumped by about 5 percent in late trading Monday.
The most valuable companies in America are now squarely in the tech sector. Google and Apple are in a category of their own with market values of $543 billion and $535 billion respectively -- heights never before reached in corporate history. Behind those two companies sits Microsoft at $433 billion. Facebook, at $328 billion, took fourth on Monday, surpassing Exxon Mobile ($318 billion).
The crown won’t pass officially until regular trading begins on Tuesday. But the substantial gains in Alphabet’s stock in after-hours trading and broader shifts within the tech economy had many analysts forecasting that Alphabet would keep the crown of most-valuable in the world for some time to come.
The transition between tech titans comes days after Apple reported the slowest-ever sales growth for the iPhone and revealed that its business in China is facing headwinds. In contrast, Alphabet makes very little money off hardware and does almost no business in China.
When China was seeing double-digit economic growth, Apple’s burgeoning business there was seen as a strength. But investors have been punishing Apple’s stock since a dramatic slowdown began to play out in China and the U.S. dollar gained strength, which devalued sales made in foreign currencies. Apple's stock has fallen more than 27 percent since July.
Colin Gillis, senior technology analyst for BGC Partners, wrote to investors that Alphabet — not Apple — will become the world's first trillion-dollar company. That won't happen overnight, he said, but the trend lines are good.
Why? Sheer numbers, for one, Gillis said in an interview. "Think about the number of services they have with a billion users: Google Search, YouTube, Maps. Some of those are used multiple times every single day," he said.
Monday's earnings report by Alphabet also marks the first time investors have been able to gauge the performance of Alphabet's next-generation, "moonshot" technological projects. These include the self-driving car, drone-based parcel delivery and Google Fiber, its ultra high-speed Internet service.
Although these and other initiatives — what Alphabet refers to as its "Other Bets" — pulled in $448 million in revenues last year, the whole group of subsidiaries wound up losing the company $3.5 billion, up from $1.9 billion the year before.
As this is our initial glimpse into the Other Bets, it's hard to say how each of those bets have fared individually. That's because Google is only reporting their results in the aggregate.
Still, the enhanced transparency is encouraging investors who now have a better understanding of Google's main properties — search, YouTube and its other Web businesses.
"Incremental disclosure around Alphabet's 'Other Bets' … should provide investors with greater conviction in the economics of its core business," said Michael Nathanson, an analyst with MoffettNathanson, in a research note last week.
Gillis said the reorganization has put pressure on the employees running these experiments to turn in results. He pointed to recent reports that Alphabet is working on solar-powered Internet-connected drones, which he said demonstrates that the company knows exactly how to show investors its future promise.
He also credited Chief Financial Officer Ruth Porat, who came to Alphabet from Morgan Stanley last year, with instilling discipline.
"There's a little more pressure to push forward; you don't just want [research and development] to hide," he said. That stands in stark contrast to Apple, he said, which is notoriously secretive about its future businesses and experiments. "Google is uniquely positioned because what they’re doing now is the best of both worlds — making sure investors feel comfortable that the big bets are being looked after correctly."
Rob Enderle, principal analyst at the Enderle Group, agreed that Google's recent success simply shows it has won the Web with its core business.
"They're the dominant provider and conveyor of Web advertising," he said of Google. "It's hard to compare the two firms. Apple is a product company and Google's an advertising company — though they do everything they can think of to tell you otherwise."
The upshot of Google's recent success, he said, is that it has finally realized the potential of all those years of trying to dominate the Web. "In the great Internet land grab, they won," he said.