Gracefully maturing

Google and Amazon grapple happily with maturity

Alphabet and Amazon are grappling happily with maturity. The $450 billion holding company for Google is returning lots more money to shareholders. The $260 billion internet mega-retailer delivered profits. Both operations are growing so fast, and throwing off so much cash, that they can act as responsible stewards of capital while still chasing the next big thing.

Third-quarter results showed both firms overcoming challenges from rivals. Despite consumers spending more time on Facebook, and Apple rolling out mobile ad blockers, Alphabet managed to increase revenue by 13 per cent. While advertisers paid 11 per cent less per click, the number of paid clicks rose 23 per cent. The waters of internet advertising are rising faster than rivals can divert them, and that's carrying Alphabet higher.

Moreover, newish finance chief Ruth Porat showed her influence on sensible capital allocation, with the company announcing its first big buyback. Of course, Alphabet hasn't settled down entirely. It is still pursuing moon shots from robotics to bioinformatics with vigor. It hasn't given up its nerdy humor either - the buyback figure represents the square root of 26, which is the number of letters in the alphabet. None of this will dent the balance sheet. Alphabet can invest and repurchase, as its cash hoard has increased by $10 billion over the past year to $73 billion.

Amazon isn't nearly as profitable. But it is in the black, and the company is growing far faster: 23 per cent at the top line in the quarter. Its retail operations are chugging along, and the company expects a blockbuster holiday season. But, the real gem is now its Web Services division, which provides on-demand computing. It's expanding at more than 75 per cent per annum. And margins, as the company defines them, are now at 25 per cent and rising.

True, it's hard to nail down the profitability of this business. Amazon strips out various costs such as stock-based compensation. But, the company can easily afford to take on all comers. Amazon's operations overall threw off $2.6 billion of cash in the quarter, and that figure is nearly 50 per cent higher than it was a year ago.

Alphabet and Amazon are sharing some of the benefits of maturity with their shareholders, but they aren't giving up the exciting perks of youth.