Alphabet Inc. (NASDAQ:GOOGL) shares have surged by 26.4% year-to-date, outperforming the Computer & Technology sector’s 26.1% growth. This success is largely driven by the robust performance of the Google Services segment, which includes Search, YouTube, Android, Pixel, and its first-party web apps.
YouTube’s Vital Role
YouTube has been instrumental in enhancing Google Services’ prospects. Alphabet continues to expand YouTube’s capabilities to improve user experience. According to a 9to5Google report, Alphabet recently redesigned YouTube Music on the web. The new layout features a dual-column design with album information on the left and songs on the right, along with a blurred background for a more dynamic experience.
Additionally, Google has added a new feature to YouTube Music that remembers the last played song for quick playback. This quality-of-life update retains the docked player and Up Next queue for albums and playlists, allowing immediate playback.
Strategic Partnerships
Partnerships are crucial in increasing YouTube Music’s adoption. Alphabet recently partnered with Garmin (NYSE:GRMN) to expand YouTube Music’s reach. The YouTube Music app is now available on Garmin IQ Connect smartwatches, offering a similar experience to Wear OS watches with features like music and podcast search and physical buttons for play, pause, and skip.
These efforts help Alphabet capitalize on growth opportunities in the music streaming market, which is expected to grow at a CAGR of 14.4% between 2023 and 2030, according to Grand View Research. These initiatives also help Alphabet close the gap with Spotify (SPOT), the dominant player in the music streaming market, which holds a 32% market share, per Statista.
Other YouTube Initiatives
Beyond YouTube Music, Alphabet is continually enhancing its overall YouTube capabilities. The latest Cast menu redesign of the YouTube app features a floating bottom sheet with rounded corners, allowing users to control volume, voice search, and providing remote control options for televisions.
Alphabet also expanded its YouTube Create video editing app for Android to 13 more countries, including Australia, Brazil, Spain, and the United States. This app simplifies short-form video creation, making it accessible to creators without the need for high-end computers.
Google’s partnership with Peloton Interactive (NASDAQ:PTON) further strengthens its YouTube business. This partnership requires Peloton All-Access members to have a YouTube TV subscription to watch content on their machines, potentially expanding YouTube TV’s subscriber base.
These efforts are driving YouTube’s subscriber growth. In Q1 2024, YouTube surpassed 100 million Music and Premium subscribers globally, and YouTube TV recorded over eight million paid subscribers.
Financial Performance
The strength of YouTube, supported by its robust portfolio and expanding partner base, continues to drive Alphabet’s Google Services segment, which is the company’s primary growth driver. In Q1 2024, the Google Services segment grew 13.6% year-over-year to $70.4 billion, accounting for 87.4% of total revenues.
Conclusion
Alphabet’s strength in the Google Services Segment, along with its robust cloud division, growing momentum in Google’s mobile search, and strengthening generative AI capabilities, makes it an attractive stock for investors. The Consensus Estimate for 2024 total revenues stands at $291.26 billion, indicating a year-over-year growth of 13.6%. The consensus estimate for 2024 earnings is pegged at $7.60 per share, indicating a 31.03% rise from the previous year. Alphabet is trading at a discount with a forward 12-month P/E of 21.82X compared with the Internet Services industry’s 22.41X.
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