Alphabet CEO Larry Page has long admired Warren Buffett’s business acumen in creating the industrial and investment conglomerate Berkshire Hathaway.
And now analysts and investors are noticing Alphabet’s investments in emerging disparate businesses are starting to bear fruit — including YouTube, autonomous cars and cloud computing — drawing comparison to Berkshire Hathaway’s success.
The internet giant reported better-than-expected second-quarter earnings Monday, driving Alphabet shares to a new all-time high the following day. It generated adjusted earnings per share of $11.75 versus the Wall Street consensus of $9.59 for the quarter. Alphabet also posted a $1.06 billion gain in its equity investments for the time period.
“Our investments are driving great experiences for users, strong results for advertisers, and new business opportunities for Google and Alphabet," said Ruth Porat, CFO of Alphabet and Google in the earnings press release Monday.
As a result one well-known investor believes Alphabet has a shot of being the Berkshire Hathaway of tomorrow.
“What I'm really talking about is the diversified nature of what [Alphabet is] building away from the ad platform, in much the same way as Berkshire reinvested the float from insurance premiums into other investments. I guess I am also talking in terms of longevity, not just size,” Josh Brown said in an email Tuesday. “This quarter witnessed a host of Google's other investments throwing off profits. Larry and Sergey were very open about their intention to create something Berkshire-like when they first announced the new structure and Alphabet.”
Brown is CEO of Ritholtz Wealth Management, a New York City-based investment advisory firm. He is also a CNBC contributor.
Warren Buffett spent the last five decades building Berkshire Hathaway into a massive holding company for various businesses ranging from insurance and railroads to machine tools and ice cream. Along with his dozens of operating subsidiaries, Buffett manages a stock portfolio of more than $170 billion.
In 2014 Larry Page told the FT if there is a person who has the qualities that he wanted to lead Google into the future, it was Warren Buffett. In the following year, Google restructured itself, moving the brand under the new Alphabet umbrella. Similar to Buffett’s management structure, Page explained his role as capital allocator and executive manager.
“Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related. Alphabet is about businesses prospering through strong leaders and independence,” Page wrote about the changes. “We will rigorously handle capital allocation and work to make sure each business is executing well. We'll also make sure we have a great CEO for each business, and we’ll determine their compensation.”
A few years later Alphabet is already the most active corporate venture capital investor out there. It invested in 103 deals last year, according Crunchbase data.
And Wall Street is enthusiastic over the large growth opportunities from Alphabet’s previous technology bets.
KeyBanc Capital Markets reiterated its overweight rating for the stock, predicting Alphabet’s investments will generate strong returns.
“Alphabet currently has a unique combination of strong positioning and extremely large addressable markets in ad-supported video, hardware, cloud, self-driving cars, and healthcare,” analyst Andy Hargreaves said in a note to clients Monday. “Over time, we believe each of these categories can develop into very large businesses for the Company, which should help sustain a pace of overall revenue growth that exceeds current consensus expectations and drives meaningful incremental profits.”
Hargreaves raised his price target to $1,430 from $1,230 for Alphabet shares, representing 18 percent upside from Monday's close.
Even the Oracle of Omaha himself is a fan of the company, which may signal Alphabet is an heir apparent to the Berkshire throne.
In May, Warren Buffett said he made a mistake by not investing in Google-parent Alphabet.
"I made the wrong decisions on Google and Amazon," he said at the Berkshire Hathaway 2018 annual shareholder meeting on May 5. "We've looked at it. I made the mistake in not being able to come to a conclusion where I really felt that at the present prices that the prospects were far better than the prices indicated."