Alphabet Inc.

The stable outlook reflects S&P Global Ratings' expectation that Alphabet Inc. will sustain its leadership position in the online search and display advertising market, and continue delivering very good operating performance with revenue growth near 20% and EBITDA margins in the mid- to high-30% area over the next two years. Ample cushion within the rating to allow the company to pursue M&A and shareholder returns also supports the stable outlook. We think a downgrade is unlikely over the next two years. We could lower the rating if the company sustains leverage above 1x, which we think would only occur as the result of an acquisition or a change in financial policy. To reach this level, the company would have to

...The company has a very strong position in the fast-growing digital advertising market, but limited product diversity. Alphabet is the global leader in digital advertising with market share forecast to be above 30% in 2019 according to eMarketer, and leading franchises in search, mobile, and digital video. However, 85% of revenue came from advertising in 2018 and in our opinion an even higher share of profit resulting in limited product diversity. Operating performance has been very strong. Revenue growth has exceeded 20% in the past three years with above-average EBITDA margins that we expect to be the 36%-37% range over the next two years. Annual cash flow has been in the low- to mid-$20 billion range over the past three years. The strong balance sheet provides ample capacity for mergers and acquisitions (M&A) and share buybacks. At the end of 2018, the company had $109 billion of cash and only $4 billion of debt. There is significant cushion to our 1x downgrade threshold, which provides...

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