Don’t Believe the Bears on Google Stock
For more than a decade, the company now known as Alphabet Inc (NASDAQ:GOOG), formerly Google, delivered spectacular returns to shareholders. Every so often, however, Google stock would take a slight dip.
Sometimes it was because of subpar earnings; sometimes it was because of the broader economy. Regardless of the reason, Google stock eventually picked back up.
At the time, those dips could be scary, particularly when you have people screaming about a tech bubble. Those luddites use scare tactics to force the stock into the bargain bin, but it’s never worked for long.
Google stock always rebounds in the end, breaking through previous highs and making shareholders rich. The hard part is resisting the fear. Most investors let the anxiety creep into their decision-making, causing them to do irrational things.
Every time I need a reminder of why Google stock is a great investment, I try to remember these three factors:
- Self-Driving Cars: Although Google gets a ton of press about its driverless car program, the company’s share price doesn’t seem to reflect the potential earnings from this business. Google stock fell eight percent in the two weeks since its last earnings announcement, despite signing a partnership with Fiat Chrysler Automobiles NV. Google is finally licensing its self-driving tech, something analysts have been waiting for since the revolutionary system was unveiled years ago. The company has run more than 1.4 million miles of test runs. Now, it is leasing that technology to Fiat, allowing both companies to continue specializing in their respective fields. The division of labor could help bring driverless cars to the market much sooner than expected.
- “Little Winners”: Another reason to love Alphabet is the company’s “Little Winners.” Products like “Chromecast” and the “Google Cardboard” virtual reality (VR) headset are not major factors by themselves, but they pad the company’s income statement. Earlier this year. Google had shipped as many as five million Cardboard VR headsets, which amounts to roughly $100 million in revenue. (Source: “Google has shipped 5 million Cardboard viewers so far,” Wareable, January 28, 2016.) That’s a drop in the bucket compared to Alphabet’s $17.26 billion in revenue last quarter, but it helps spread the load. You don’t want too much of the firm’s future resting on a single business line.
- One “Big Winner”: A lot of “Little Winners” are great, but one “Big Winner” can lay the foundation for a new chapter of growth. Back when Alphabet was Google, the company scored a major win. It developed a mobile platform and gave it to smartphone manufacturers for free. I am talking, of course, about “Android.” The mobile operating system was smooth and state-of-the-art, which convinced analysts that Google was making a huge mistake. Why give it away for free? Everyone was dumbfounded, but Google’s logic became clear soon enough. By giving away Android for next to nothing, the company was throwing a lifeline to drowning manufacturers. Apple’s “iOS” was kicking their butts; they needed Android to compete. Now Google owns 62% of the world’s mobile platform market. Considering that a major portion of online advertising is shifting to mobile, it seems like Google’s Android move was prophetic. (Source: “Mobile/Tablet Operating System Market Share,” Net Market Share, April 2016.)
So yes, Google stock fell by eight percent, but the company’s fundamentals remain as strong as ever. Remember these three factors the next time you’re besieged by bearish investors.