That call has worked out pretty well, so far. Since my article, Tesla stock is down about 12%. Meanwhile, Alphabet shares are up about 12%.
Earlier this week, both companies released their Q1 2021 earnings. And what’s interesting is that the market reacted very differently to the two companies’ quarterly reports.
Tesla’s Q1 earnings
Tesla’s results were decent. For the quarter, revenue came in at $10.4bn, up 74% year-on-year. Meanwhile, income from operations came in at $594m, up 110% year-on-year. Non-GAAP earnings were 93 cents per share versus 79 cents per share expected. Total deliveries for the period was 184,887 vehicles, up 109% year-on-year.
The market wasn’t so impressed by these results however. One reason is that sales missed analysts’ estimates slightly. Another reason is that the group’s performance was boosted by sales of regulatory credits during the period ($518m) and a $101m positive impact from sales of Bitcoin.
Alphabet’s Q1 earnings
By contrast, the market was very impressed with Alphabet’s Q1 results, which smashed analysts’ forecasts. For the quarter, total revenues here were up 34% year-on-year with YouTube and Cloud revenues up 49% and 46% respectively. Meanwhile, earnings per share came in at $26.29, up from $9.87 in the same period last year, well ahead of the consensus estimate of $15.82.
Incredibly, Alphabet generated free cash flow of $13.3bn during the period. And, on 23 April, the board approved an additional stock repurchase of up to $50bn. CNBC’s Jim Cramer described these results as “remarkable” and said that Alphabet’s Q1 might be one of the “single greatest quarters” he’s ever seen.
I’d still buy Alphabet over Tesla
Comparing Tesla and Alphabet, I still see Alphabet as the better stock to own from a risk-reward perspective.
While Tesla is growing rapidly, it’s still making very little in the way of profits. At its current valuation ($670bn), I see the stock as very expensive, given the level of competition it’s going to face in the years ahead. To my mind, there’s considerable risk to the downside here, even after the recent share price pullback.
Looking at Alphabet’s Q1 results, it’s clear to see the company has very strong momentum right now. Not only is it seeing huge growth in Google and YouTube ad revenues but it’s also seeing massive growth in cloud revenues. Importantly, it’s generating big profits and a lot of free cash flow.
The best bit about Alphabet is that, relative to some other tech shares, the stock isn’t actually that expensive. If Alphabet can generate earnings per share of $80 this year (my own estimate and I’ve been conservative), its forward-looking P/E ratio is only about 30.
Of course, Alphabet shares aren’t without risk. Right now, regulators all over the world are looking at the company’s business model. So, there’s some regulatory risk here. Another risk is advertising revenues could fall if economic conditions deteriorate.
Overall however, I’m very bullish on Alphabet. All things considered, I see it as a great growth stock and a safer pick than Tesla.
Edward Sheldon owns shares in Alphabet. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares) and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.