Growth stock: Alphabet Inc. (Google)
Today, Google, as we all know it is deeply embedded in our culture, controlling a large part of our lives.
We find things as Facebook, Twitter or Amazon on it, we are able to watch videos of cats and scenes from movies on Youtube. But that’s what most of us think if Google.
However this is only the outside of it and there is so much more underneath. Here we are getting deep into Google and its stock’s previous, current and future endevours.
The search engine has unarguably changed lives of all of us. Introduced very good, useful and cool things and also some doomed and even dangerous ones.
But that is what life is and Google openly represents it. It has all of our data and is feared by our government entities for having ability to do pretty much whatever it wants with it.
How did it end up with all this data?
The story goes way back to the late 90s and it surely wasn’t the first giant on the internet to break it. Jerry Yang and David Filo started Yahoo! in 1994. It pretty much blew away the internet providing the best web directory and revolutionary banner ads that worked like magic for advertisers.
Money started flooding in to young Jerry and David’s pockets. As a result of mainly concentrating on the banner ads, Yahoo!’s once so accurate search and relevant website results suffered. It then also became more than a web directory, Yahoo! also introduced portals which had had an incredibly destructive effect on their competitors like Excite.com.
Yang and Filo, the founders of Yahoo! were not seeing much value in their search though. And at the same time, a pair of Stanford candidates, Sergey Brin and Larry Page were astounded of an idea that search could become a really big thing if done properly.
Not long after, after much work and persistence, these two young fellows had developed a backlink-based algorithm that would preview the most relevant search results of all.
After developing Pagerank, the algorithm, Page and Brin decided to go and try to sell it to Yahoo!, as it was the main whale in the field. The asking price was 1 million dollars and the algorithm did not seem too attractive to Yahoo!’s board as they thought it would not bring any profit to the company, even crush the revenue.
So, after the unsuccessful pitch, friends Larry and Sergey figured that it would be best for them to try implementing the algorithm themselves, in other words, to start a company.
So the heroes dropped out of Stanford. During the first years of Google’s operations, it had gained a massive audience of loyal users because of the quality search it had.
As everyone was getting used to the internet at the time, many of the “freshman” on the web started on Google, using it as their first search engine and directory. And the old dogs, Yahoo!, Excite, Ask and others were getting pretty mad about this new application and started seeing it a large threat.
Now the giant Yahoo! itself armed with a new CEO went and tried to buy Google, just now for 3 billion dollars.
This time Larry and Sergey had not been so eager to sell it to anybody. They made a counter offer of 5 billion, which is almost exactly how much Yahoo! was worth at that time. So the answer from the new CEO was automatically, no.
There wasn’t much left to do for Yahoo! except for trying to compete with the new whale. Introducing the same technology for paid ads took 2 years for Yahoo! to develop. And it was still way behind. Even after a number of company acquisitions in a post-dotcom bubble Yahoo was not able to outrun Google in any way.
So Google had become the number one search engine, a merchant for advertising space and the go-to web directory. Today it’s one of the largest companies in the US and the world by its market cap, a conglomerate having products being used by anybody and everybody all around the world.
Name a single tool from a dozen you need to use today, Google has it. Well, not like a toothbrush or a towel directly, but it will immediately and very likely refer you to Amazon for physical products. Flight tickets, films, fitness, finance, different software, phones and electronics, even those it has.
As Google wants to grab a larger and larger share of the market it goes to all directions and becomes a conglomerate. However, it’s better to focus on the most important stuff. And we are sure Google concentrates, puts the most important things on the right pedestals in their humongous offices.
But here is a thing. It innovates very little at these moments. Peter Thiel, the famous venture capitalist and one of the PayPal founders claims that Google does not innovate at all. Why keep all the profits when so many, even more great things can be built for the future.
There are some things worthy of being discussed about Google stock. First things that come to mind when thinking about its shares is that although the company is worth more than some European countries put in bulk, the trading volume rarely reaches 2 million per day.
While Microsoft has around 35 and Apple has 174 million on average in trading volume (shares executed) as of today for example.
So, what does this fact tell us?
It tells us that the Google stock, compared to other competing company stocks is less popular for trading, meaning it is more stable than others.
The trading and the stock popularity volume of Google is a really interesting phenomenon because the stock belongs to the so called FAANG division of shares. FAANG can be translated as Facebook, Apple, Amazon, Netflix and Google.
It’s an acronym referring to the most influential companies and their stocks, having the largest market-cap in the US. However, all of these other stocks than Google are a lot more liquid in terms of trading volume and it is hard to tell why.
From our perspective, it’s because much more people are holding Google long-term.
Long term investors think that there isn’t much value in swing or day trading Google’s stock. We too think that. Regarding the long-term investing, Warren Buffet is known to feel a bit guilty for missing out on Google.
It’s all-time chart often seems like an about 35 degree straight line heading to the east. We, like any other investor like seeing that a lot. Also we would like to mention that because of the high price and rare splits of the stock, people are often discouraged from buying it. However today, more and more investment platforms allow buying fractional shares.
In terms of the competition, Google has many sides. For example it has one side which is fighting Amazon for the world champion belt in cloud computing. Amazon’s AWS (Amazon Web Services) can’t be beaten so quickly,even by Google Cloud.
One of the other sides of Google triumphs in its victory against Microsoft’s search engine Bing. There are many more industries Google is in fight for: ad revenue, self-driving cars, quantum computing and so on.
As mentioned earlier, we think that Google had taken too many tasks for itself and has a weak concentration on its main purposes.
And those additional tasks Google had taken are already being completed by new and more innovative companies, depending on the field of course. Cloud computing, browsers evolve, blockchain is being implemented in so many industries.
Nvidia had risen recently to become one of the leaders in quantum computing as well. Google really has to grab onto some projects and invest that revenue from ads, become a technology company again. It would be really unfortunate if Google does not invest largely in the emerging markets.
We have of course been talking about Google here, that’s what Alphabet’s buildings are called, but the it is actually a group of companies and other subsidiaries. The structure of this extremely large company is quite interesting.
As you may have seen on the internet, there are many arguments which stock of Alphabet’s should one invest in, because there is quite a bit of them. The restructuring of its shares happened right when Alphabet Inc. became the parent company for Google in 2015. Alphabet is basically a public holding company.
This restructuring of Google and its subsidiaries was actually inspired by Warren Buffet‘s management structure of Berkshire Hathaway. So Eric Schmidt, Larry Page and Sergey Brin were strongly decided where to go for advice.
And now the holding company has more than 10 divisions under its wing. Calico, DeepMind, Google, Jigsaw, X, Capital G, Waymo, GV, Loon, Verily, Wing, Sidewalk labs and Google Fiber. These include AI, self-driving cars, incubators, venture capital, human health and of course, internet access.
The finishing reference should probably be that Google’s search engine is irreplaceable, at least by this time. However, when it comes to lawsuits against Uber and getting into self-driving cars, we strongly think they should leave it.
Suits aren’t any good for anyone, anyway and self-driving cars are currently being slowly figured out by new and revolutionary companies such as Comma.ai and which had recently released their second edition of their product. Tesla is also doing its best to solve self-driving cars. More on Comma.ai in the future.
As far as Google’s venture capital, robotics, anti-aging research, incubators and internet services go, they are one the shows to watch. Eric Schmidt has claimed in the Internet Association event that eventually Alphabet is going to have 26 subsidiaries in total.
And that’s great, Alphabet just needs to make sure to aim it’s focus to the most critical things needed for the future of all of us. Because for example, spending so much time and resources on self-driving did not drive this company anywhere.