Alphabet (GOOG/GOOGL) reported excellent 4Q15 results.  Revenue trends accelerated for the second consecutive quarter and operating profit margins expanded.  It appears that Google is finally benefitting from the transition to mobile internet.  There have been long standing concerns about whether search on mobile could maintain its high growth rate and profitability.  The worries related to a greater use of apps versus mobile web and the ability to get good pricing for search ads.  Google has now shown better than expected search volume without further deterioration in search pricing for two straight quarters.  This strongly suggests that the shift to mobile is not a headwind and could finally be a tailwind, as it has been for Facebook.

This was the first quarter where Alphabet broke out revenue, cost and capital spending between its core Google business and what it calls Other Bets (self driving cars, Google Fiber, Verily, Nest, weather balloon internet, etc.).  Since the company came public and especially in the last few years when spending on the many non-core initiatives seemed to accelerate, Alphabet has only reported consolidated results and offered little detail on the amount of investment going to the Other Bets.

The news on this front was also good for the stock even if losses in 2015 at Other Bets of $3 billion were higher than expected.  It is a bit perverse but larger losses at the Other Bets mean that profitability of core Google has been higher than expected, and it is core Google that drives the valuation of the stock.

The bottom line is that a very strong quarter for core Google suggests the growth and profitability outlook remains bright.  Maybe more importantly, the company seems to finally be benefiting from the transition to mobile, undercutting a key risk to the long-term growth profile of Alphabet.  Finally, the new CFO has initiated a more shareholder friendly culture that includes better cost controls throughout the company, greater accountability, more transparency in financial reporting, and return of cash to shareholders via share repurchases.

Alphabet’s accelerated growth is likely to hold for several more quarters until comparisons get more difficult.  This should allow the P-E multiple to rise to 25X 2016 estimated earnings resulting in a stock price of $875.  While only 10% upside from current prices, in the difficult stock market environment this year, it pays to stick with strength and that is exactly what Northlake plans to do with client positions in Alphabet.

GOOG and GOOGL are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.  GOOG and GOOGL are net long positions in the Entermedia Funds.  Steve is portfolio manager and managing partner of Entermedia, long/short equity hedge funds focused on media, entertainment, leisure, communications, and related technologies.