Alphabet: On a Growth Path Despite Challenges with Acquisitions

Alphabet, the parent company of Google, recently impressed with strong quarterly results. The company achieved capital expenditures of $13 billion in the last quarter. Furthermore, Alphabet plans to invest $2.5 billion in dividends and $16 billion in share buybacks. While revenues from search engine advertising have not been affected by AI so far, Google's cloud business saw a 29 percent increase in revenues through the expansion of its customers' AI capabilities. Despite cost reductions and layoffs, operating margins remained above 30 percent, and Google shares benefited from a general shift towards large tech stocks. The company's current market capitalization is $2.3 trillion. However, there is little activity in mergers and acquisitions (M&A) at Alphabet at the moment. Reports indicate that the prominent cloud security startup Wiz has ended talks of being acquired by Alphabet. Rumors of a potential purchase price of $23 billion, significantly above Alphabet's previous acquisition expenses, have circulated in recent days. Wiz is now focused on achieving annual recurring revenues of one billion dollars and planning an IPO. It is believed that members of Alphabet's board are concerned about provoking the Biden administration, which has made mergers in the big tech sector practically impossible due to antitrust concerns. Microsoft had to go to court to enforce a $75 billion acquisition of Activision, and Adobe ultimately abandoned a $20 billion acquisition of Figma. A potential takeover of the publicly traded software company HubSpot, with a current market capitalization of $25 billion, has also reportedly been put on hold. Currently, Google is facing a federal court case over the alleged abuse of its dominance in the internet search business to block competitors. Despite quarterly revenues of $10 billion in cloud computing, advertising remains Alphabet's dominant business. In the long term, however, this business could be threatened by AI, government regulations, or enforcement actions. Therefore, it is understandable that Alphabet is seeking new growth areas for diversification. The regulatory environment remains unpredictable. Overall, the discussion in the boardroom highlights the dilemma of an otherwise successful and well-managed company on how aggressively to pursue new opportunities.