Fundamental Analysis Alphabet Inc. GOOG GOOGL
Alphabet Inc. is the parent company of Google and Google’s former subsidiaries.
The Company’s growth strategy aims worldwide market penetration and gaining a leadership position in those markets. Alphabet’s expansion and domination rely heavily on its innovations.
Alphabet’s main source of revenue is its advertising business (90%). And the revenue from ads is generated primarily by Google properties, i. g. on Google.com, the Google app, YouTube, and other Google-owned and operated properties like Gmail, Google Maps, and Google Play.
Alphabet continues to generate double-digit revenue:
The Company’s success heavily depends on its Artificial Intelligence (AI) and social media business. AI increases the efficiency of all Google products.
For example, AI learns from every search on Google, makes the Google’s search more efficient by providing better search results. Positive user experience leads to more usage which feeds the AI with more data and strengthens the Company’s dominance in the search business. The high search efficiency that is getting more and more hard to replicate has already become an important competitive advantage for the Company and it is the main cause for the Google’s dominance.
The importance of social media lies in collecting personal information, especially about engagement with the Company’s products. Social media also helps Alphabet to promote its other products. All the data collected by Youtube, G+ and other Google’s products feed AI which makes Alphabets advertisement business more efficient and more competitive.
And of course, Alphabet builds its own ecosystem, like other tech giants. The company integrates its products to each other which means every product benefits from the ecosystem, especially from the common user base, and contributes to the ecosystem. Each product promotes the use of other products. Thanks to the ecosystem, Alphabet’s new products, and services can experience very fast adaptation and diffusion.
Google Assistant and Internet of Things IoT:
Google assistant is an interface using Google’s artificial intelligence and stored personal data, can communicate with people like a human and fulfill certain tasks for them. It is a personal assistant similar to Apple’s Siri, Amazon’s Alexa and Microsoft’s Cortana.
Thanks to google assistant, all Google products can participate and also benefit from Google’s artificial intelligence. The virtual assistant can promote the usage of all Google products and improve their user experience.
But Alphabet can tremendously widen its ecosystem and the potential use of the company’s services and products if Google integrates the Google Assistant with more devices, services, and products we use in our daily life:
On 28 Sep. 2017, Google announced that the google assistant can be used on Android TV, starting with NVIDIA SHIELD TV today and later with Sony Bravia TV.
“With your Assistant on Android TV, you can jump right into your favorite show, find the latest blockbuster, check the score of the big game, dim the lights and more— all with just your voice. To get started, accept the Google Assistant system update on your SHIELD and press your remote’s mic button after the device restarts. From there, you’re ready to sit back and relax with the help of your Assistant.” Jian Leong Associate Product Manager, Google Assistant
On 23 Aug. 2017, Google announced its partnership with Walmart and the users can link their Google accounts with their Walmart accounts in order to get personalized shopping experience by using google assistant.
“If you’re an existing Walmart customer, you can choose to link your Walmart account to Google and receive personalized shopping results based on your online and in-store Walmart purchases. For example, if you order Tide PODS or Gatorade, your Google Assistant will let you know which size and type you previously ordered from Walmart, making it easy for you to buy the right product again.” Sridhar Ramaswamy, Senior Vice President, Ads & Commerce
Smart Home Business:
Alphabet also tries to penetrate into the smart home market by offering its Google assistant via Google Home which is rival to Amazon’s Echo.
Users can control the Google Home with their voices to make requests to use Google’s products, i. g. Chromcast, Google Play Music, Youtube Play Music etc., and also smart home devices, for example, with its connection to Nest, Google Home can manage the home security system and the home temperature.
Google Home enables its users to ask questions to Google Search just by speaking to the smart speaker, for example, about the weather, traffic, finance, sports, local businesses etc.
Integration with Google Search is the most important advantage against Amazon’s Alexa and Apple’s Siri. But the competition is not too far behind.
Almost all Alphabet’s products are experiencing network effect. For example: as mentioned before, the more people use the search engine the more Google gets efficient and the more content providers try to be found in google search. And google search dominates not only in the USA but also worldwide. The same principle applies to youtube, google+ and alphabet’s advertising business.
The other important economic moat of the company is the Alphabet’s ecosystem. Every particular product is supported by the ecosystem and therefore almost every new product can dominate the market by fast adoption and diffusion.
The Brand of the company plays also a very important role as a competitive advantage in certain businesses. For example, the services cloud computing and google wallet require very high reputation and trustworthy brand.
The company’s revenue heavily depends on advertising business which is getting more and more competition from Facebook.
Alphabet’s advertising revenue comes mainly from the search engine, see the table above. If the company loses Google’s monopoly the revenue and PE ratio of Alphabet will dramatically decrease.
Company’s business environment requires continuous innovation.
(1) Alphabet’s ecosystem has tremendous growth potential and,
(2) Eventually, the company will overcome its strong dependence on the search engine Google.
(3) Because of the highly innovative business environment, the competition should be closely watched by investors, especially Facebook, Apple, Amazon and Microsoft.
For the List of Corporate Analysis, click here
For the List of Technical Analysis, click here
No Investment or Financial Advice.
GET UPDATES VIA EMAIL
Sign up Now
You can unsubscribe at any time.