Alphabet Inc (NASDAQ:GOOG), the parent company of Google, commands respect as one of the most consistent stocks in the modern economy. Indeed, money manager and research firm Bespoke Investment Group, LLC estimated last month that anyone who had retained GOOG stock purchased 12 years ago during its $85.00-per-share initial public offering (IPO) would have seen those shares increase in value by 1,780%.
But here is something for those with a pessimistic streak that constantly see doom and gloom in every inch of the world: is it possible to structure a solid argument that GOOG stock’s dozen-year run cannot go on much longer?
Google Stock Following Multiple Leaders
On the surface, making an argument against Google stock seems like the ultimate in foolishness. After all, the very word “Google” has become synonymous with search engines, and the Google web site handles about 3.5 billion search queries a day. (And if you don’t believe me, look it up on Google and make query number 3.5 billion plus one!)
But in reviewing its history, a striking element is realizing that Google has been curiously late in getting involved in many of the basic corners of Internet life. For example, its “Gmail” e-mail service did not become available to the public until 2007, while the “Google Chrome” web browser didn’t go online until 2008. And the “Google+” social media network wasn’t ready until 2011, long after Facebook Inc (NASDAQ:FB) took dominance of that online sector. (Some would argue that Google+ is still not ready for prime time, but that’s another story.) More recently, Google is making up for lost ground by trying to challenge the “FaceTime” app with its “Google Duo” product, and it is taking on Uber Technologies Inc. and Lyft, Inc. with a carpool invitation feature in its “Waze” social navigation app.
On a more prominent scale, Google’s late-to-the-party behavior has been on display in the cloud computing market. And the company certainly has work cut out for it—Alphabet ranks a distant third behind Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) among cloud computing entities, and “Google Cloud” is such a minor aspect of the wider corporate environment that it is not even cited in Alphabet’s quarterly earnings report. (Source: “Can Google Cloud Really Catch Up With The Cloud Leaders?”, AmigoBulls, August 16, 2016.)
Yes, Google stock is quickly playing cloud computing catch-up through its recent $625.0-million purchase of the application programming interface (API) platform provider Apigee Corp., which is designed to strengthen Google’s enterprise offerings. (Source: “Here’s Why Google Is Acquiring Apigee,” Forbes, September 13, 2016.)
But the obvious question, it seems, is why did Google wait so long strengthen its position here?
One problem might be that Google stock is going in so many different directions that its’ planning process could be the digital equivalent of throwing spaghetti at the wall. Some of its ideas, such as the computer eyewear “Google Glass” and the company’s self-driving car project, attracted more media attention than customers. Curiously, a relatively benign endeavor like the U.S. version of “Google Compare for Mortgages,” an online comparison services for home loans that was launched last November amid heavy publicity, was shut down after an extremely brief four-month run, due to unspecified problems. (Source: “Google Shuts Down Mortgage Compare Service,” National Mortgage Professional Magazine, February 26, 2016.)
But while Google was wise enough to pull the plug on its mortgage site once failure became apparent, sometimes the company is unwilling to admit it is making a mistake: “Google Access,” formerly “Google Fiber,” only acquired 200,000 subscribers in the two years following its 2012 launch, and today doesn’t even bother to count how many people are using it, although it is obviously far below the original five-million target. (“Google Fiber Has Been a Huge Disappointment,” Madison.com, August 29, 2016.)
O Ye of Little Faith in Google Stock
Yes, Google can be accused of being a few steps back from the cutting edge and in a seemingly perpetual state of trying to catch leaders when it comes to breaking new ground in products and services. But none of this appears to have dented GOOG stock.
When Alphabet announced its second-quarter earnings in July, the company posted earnings of $8.42 a share on $21.5 billion in revenue, which is a good step above the analysts’ expected earnings of $8.04 a share on $20.76 billion in revenue. Alphabet also stated that its quarterly sales rose 21 percent year over year, while its investment arm Google Ventures (now known as GV) enjoyed $185.0 million in revenue for the quarter, which is above analysts’ expectations of $168.2 million. (Source: “Google parent Alphabet’s earnings: $8.42 per share, vs. expected EPS of $8.04,” CNBC, July 28, 2016.)
The healthy earnings report was greeted with enthusiasm through most the industry, with “buy” ratings being reissued or reaffirmed by the likes of Jefferies Group LLC (NYSE:JEF), Argus Research Inc., Deutsche Bank AG and Mizuho Financial Group, Inc., and Vetr Inc. raising its rating from “hold” to “buy.” Wedbush Securities was the odd man out here, reissuing a “neutral” rating. (Source: “Alphabet Inc. (GOOG) Given Buy Rating at Jefferies Group,” The Cerbat Gem, September 12, 2016.)
And, to its credit, Google stock has a knack of putting its money in the right companies at the right time, most notably when its October 2015 investment in the software developer Niantic, Inc. paid off this summer with that company’s monster hit game Pokémon Go.
Don’t laugh, but a Nobel Prize in Medicine could be in the company’s future. Google’s subsidiary Verily Life Sciences LLC’s new joint-venture partnership with French drugmaker Sanofi SA (NYSE:SNY) is on track to develop the next generation of treatment solutions for diabetes care. (Source: “Sanofi (SNY) forms Diabetes Joint Venture with Alphabet,” NASDAQ, September 12, 2016.)
The Takeaway Regarding GOOG Stock
Yes, it is puzzling that a very successful company like Google is too often elbowing its way to a forefront carved out by other entities. But that peculiar habit has not diluted the effectiveness and attractiveness of GOOG stock.
This is not to say that GOOG stock may someday find itself much too late to the party, or that other more nimble companies will muscle them off to the fringes. But in the current environment, there does not appear to be any fear of that happening.
Can a case be made against GOOG stock? Sorry to disappoint the chronic naysayers, but that case cannot be made by this writer.