Q1 earnings reports - Part 1
Portfolio: Beachman's take on recent earnings reports
If you are a long term investor and parent like me, you have multiple things competing for your time and attention. You would like to manage your personal finances effectively while investing smartly to build wealth and fund your life’s goals.
The last few years have amplified the amount and volume of “noise” that is being thrown at us. So much information-overload, so many differing opinions, way too much confusion…which generally leads to either inaction or too much trading….often resulting in the loss of opportunity to build personal wealth.
This newsletter attempts to cut through the crap out there, give you the straight story, share some of my opinions, describe my simple yet effective approaches to personal finance and investing and ideally draw you into a conversation through which we will all learn.
I strive to keep my writing brief, actionable and to the point so that you can digest it in a few minutes. I don't write reams on earnings that glaze your eyes over. I don't just report the numbers without putting context behind them. I don’t just copy and paste from the earnings call...lazy reporting, imo. I do not write long white papers that do little to increase your knowledge.
As a former Fortune 5 executive, I have worked hard to improve how I communicate. My goal is to increase your understanding and provide actionable insight. I use forward-looking and backward-looking trends for analyzing company fundamentals. This approach helped me buy NVDA at the 2022 lows. My top 2023 pick became my 9th multi-bagger in a short 6 months. My top 2024 pick became my 15th multi-bagger in just 3 months. And my latest 2025 pick is well on its way to joining the club.
Today, we will discuss earnings for two Beachman stock picks for 2025.
We will take a look at the most interesting positives from the reports, the key risks that could derail them, valuations and the bottomline. As always, I will give you the most important highlights along with actionable insights…”actionable” being the key word here. I will also tell you if the stock will remain on or be struck off my Beachman’s Picks for 2025 list. And you can always find my preferred buy points, trim points and technical signals in the portfolio file pinned here.
Welcome to the Beachman community, where we follow the most pertinent market signals that you need to know as an investor…AND…the context and the key takeaway for each of these developments.
Our best pricing of the year, our Mother’s Day sale, is now live for just a short time. Upgrade to an annual subscription to lock in our lowest rate forever.
Thank you for your time and for your readership. We continue to grow because you support us, you share our work with others, you contribute to and nurture our community in many ways. So please keep those likes, comments and questions coming. Every engagement feeds into the algorithm that helps others find our work.
Beachman’s Investing Brief is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
Table of contents
GOOG earnings report
NOW earnings report
For short term trade ideas, check out Beachman’s Salty Trades.
On the daily, you can find Beachman in four places…
Beachman’s Substack chat line here
Beachman’s Substack feed here
Beachman’s X feed here
Beachman’s Threads feed here
Please check out the must-reads listed on the About page and the Roadmap page.
GOOG Q1 earnings report
Three industry sectors watched with bated breath as Alphabet GOOG reported their Q1 earnings - AI, adtech and streaming. All three gave out a sigh of relief as they digested GOOG’s numbers and forward look.
GOOG maintained their Beach scores: 8 for fundamental strength, 3 for forward growth (which is not ideal) and 6 for valuation. These scores are each out of a max of 10.
GOOG demonstrated a strong start to 2025 with robust revenue growth of +12% yoy to $90.2B beating consensus estimates on the top line and bottom line. Their growth was broad-based, with Google Search and other advertising revenues increasing by +10% yoy to $50.7B, driven by strength in financial services, retail and travel. YouTube advertising also saw a healthy +10% yoy rise to $8.9B, fueled by both direct response and brand advertising. Google Cloud (GCP) continued its strong trajectory with a +28% yoy revenue increase to $12.3B and subscriptions, platforms, and devices grew by +19% yoy, surpassing 270M paid subscriptions. RPO growth continues along its upward trend, now averaging +6% qoq for the past six consecutive quarters. The company also highlighted the positive traction in its AI initiatives, with AI Overviews reaching 1.5B users per month and increasing commercial usage of their LLM models across all 15 products with more than 500M users each. Waymo continues to expand into new cities and now completes over 250k rides per week. GOOG increased their quarterly dividend by +5% and authorized a large $70B share repurchase program.
Q1 2025 earnings also revealed some areas of deceleration and increased expenses. GCP’s Q1 revenues showed a slight deceleration from the 30% growth in Q4, even while they reiterated their plans to spend $75B on AI related capex in 2025. Additionally, network advertising revenues continued their decline, falling by -2%. Depreciation expenses grew by +31% yoy, driven by capex investments in technical infrastructure to support AI and cloud growth. The Other Bets segment continued to incur an operating losses of -$1.2B. Furthermore, Alphabet acknowledged potential headwinds in its ads business for the remainder of 2025 due to changes in the de minimis exemption, primarily affecting APAC-based retailers. Finally, I continue to believe that GOOG needs a new CEO. Sundar Pichai is too slow to slash expenses, too soft spoken as an evangelist for the company and too risk averse against the competition.
Morningstar retained their fair market value of $237 for the stock suggesting that it is still reasonably priced. Current PE is 18 and forward PE is also 18…these are some of the lowest for this MAG-7 stock in recent times. Morningstar presents a bear and bull case range of $175 to $266 along with a sum-of-the-parts fair value estimate of $248 per share. On a related side note, we learned that GOOG has been an investor in SpaceX since at least 2015 and this investment brought in about $8B in unrealized gains.
The investment thesis for GOOG rests on its market leading position in digital advertising, particularly in search and YouTube and the significant growth potential of its cloud computing platform GCP, fueled by the increasing demand for cloud services and AI capabilities. The company's aggressive investments in artificial intelligence, via 200+ advanced models like Gemini and the integration of AI into its core products, are also central to its growth strategy. Furthermore, GOOG’s "Other Bets," including Waymo, offer potential for long-term value creation, although they currently represent a drag on profitability. This is a fundamentally strong company with expanding margins, expanding cash flow margins and a solid balance sheet.
However, antitrust scrutiny remains a concern, with ongoing cases in multiple continents, potentially leading to structural changes in Alphabet's businesses, particularly its search dominance. That said, I am not concerned if they are forced to break up or break out some of their business lines because this will release hidden shareholder value in the form of shares in the new business(es). The competitive landscape in AI-powered search, with the rise of platforms like ChatGPT and Perplexity AI, also poses a threat. Younger generations are more apt to use AI based search on mobile devices and GOOG needs to serve these users where they congregate - their latest AI mode search is a step in the right direction. I have been beta testing it for a few months and love it! Additionally, macroeconomic uncertainty and potential slowdowns in digital ad spending, as well as the increasing depreciation costs associated with heavy capital expenditures, could impact future performance.
Bottomline, Alphabet's Q1 2025 earnings demonstrate a company with strong underlying businesses and significant momentum in key growth areas like cloud and AI. The robust revenue growth, margin expansion in Google Services and Cloud as well as the increased return of capital to shareholders are positive indicators. While challenges such as decelerating cloud growth (albeit at a still high level), increased capex needs and ongoing antitrust risks need to be considered, the company's strategic investments in AI and cloud infrastructure position it for long-term growth.
Given all of this, I am cautiously optimistic and will continue to hold my current 6% allocation which is now fully hedged. I will continue to monitor the critical success factors I mentioned above and I am glad that I took major gains off the table in this stock earlier this year.
GOOG remains on my Beach Picks list for 2025.
NOW Q1 earnings report
ServiceNow NOW delivered a strong Q1 2025, exceeding its own guidance across revenue growth and margins. Their fundamentals remain strong scoring 7 out of 10. Growth score remains on track at 5 points, while the valuation score came in at 4.
The company reported subscription revenues of $3B +19% yoy. Total revenues reached $3.1B +19% yoy. RPO came in at $22B +25% yoy. The company now has more than 500 customers with annual contract value (ACV) of > $5M +20% yoy growth. NOW highlighted a +33% yoy growth in AI-related deals. Internal use of AI is reportedly driving meaningful operating efficiencies, contributing to strong profitability and free cash flow. The renewal rate remained high at 98%. The U.S. federal business and the manufacturing sector showed particularly strong growth in net new ACV. They slightly raised their 2025 revenue guidance and maintained their earnings outlook for the year. Management seems confident in their ability to weather any DOGE or tariff impacts.
While the first quarter results were overwhelmingly positive, there are a few nuances to consider. Subscription revenue growth of +19% yoy was about 20% lower than that of Q1 2024. Overall gross margin & subscription gross margin both ticked about 1% lower each. There was some new contract slippage from Q1 to Q2 due to elongated deal closure timing. RPO growth was flat this quarter and continues to decelerate. Net new ARR was also lower as compared to Q1 2024.
Morningstar raised their fair market value for the stock to $1010 predicated on a CAGR of +18% for the next five years. This implies a 2025 enterprise value/sales multiple of 15 times, current PE of 128 and a forward PE of 55. All this is a tad expensive imo. But then I have often found NOW to be richly valued by the market.
The investment thesis for NOW rests on its "land-and-expand" strategy, starting with a strong position in service management and then expanding horizontally into other enterprise workflows like HR, customer service, and finance. Once it is in place, the switching costs ramp up quickly resulting in strong retention rates of close to 100%. Forward growth is slated to be consistent at 19-20% yoy for the next several quarters. Their strong margins and cash flows continue to expand on top of a very strong balance sheet. Generative AI-driven agentic AI solutions are a key emerging growth driver for potentially the next five years. NOW is marketing this new product line to prospective customers as a means to drive out internal costs…a particularly attractive message for the C-suite in the current economic uncertain environment.
Even though NOW’s 2025 guidance remains in place, I am a bit skeptical that it will hold if we have a recessionary slowdown in the US. NOW’s customers are businesses that are in turn dependent on consumer spending which drives about 68% of the US economy. While agentic AI could be a major catalyst, there is still risk of it cannibalizing existing seat based license revenue. The high stock valuation also means that any execution missteps could significantly impact the share price.
Bottomline, NOW delivered an excellent Q1 2025 report, demonstrating strong growth across key financial metrics and significant momentum in its AI initiatives. The company's strong market position, expanding product portfolio, fundamental strength and the early impact of its AI solutions reinforce my high conviction investment thesis. However, the high valuation for the stock keeps me from buying it, especially in this macro landscape.
NOW will remain on my Beach Picks list for 2025.
Cheers.