Here’s Why Google Stock Could See Further Upside
There is a reason why Alphabet Inc (NASDAQ:GOOG) is one of the largest companies in the world by market cap: it excels at everything. However, I believe that in the future, the biggest catalyst for Google stock is not search, not “Android,” not YouTube, and not even electric cars. The greatest asset that Google has—the one that could propel GOOG stock to new highs—is data.
If you have been paying any attention at all to the tech world this week, you would have learned about the Microsoft-LinkedIn deal. On Monday, Microsoft Corporation (NASDAQ:MSFT) announced that it would acquire online professional network company LinkedIn Corp (NYSE:LNKD) for $26.2 billion. After the announcement, LinkedIn shares skyrocketed 48%. (Source: “Microsoft to Acquire LinkedIn,” Microsoft Corporation, June 13, 2016.)
How is this related to Google stock? Well, if you take a look at why Microsoft is buying LinkedIn, you’d see how special Google is.
When Microsoft acquires LinkedIn, it’s going to have access to LinkedIn’s data, meaning its 433 million professional profiles and their connections. This would help Microsoft tremendously because many of its users—such as those who use the “Office” productivity suite—are on LinkedIn. If Microsoft can convince LinkedIn members to use their identities across its different products and services, the information it could get would be invaluable.
But how does knowing the users help one’s business? The answer is simple: the more you know about them, the better you can design a product or service to cater to their needs.
That’s why Google is special. It knows absolutely everything.
Take search as an example. Google started with search, and has now become the most dominant player in the business. In April 2016, Google had a whopping 89.4% global market share in the search engine industry. Yahoo and Bing—the second- and third-place finishers for the month—had less than eight percent combined. (Source: “Worldwide Desktop Market Share of Leading Search Engines from January 2010 to January 2016,” Statista, last accessed June 16, 2016.)
What this means, first of all, is that Google can make a lot of money on advertising. Also, by being the most widely used search engine on the planet, Google also benefits from the network effect: the more it’s used, the better it gets. So, its competitive advantage could extend well into the future.
But there’s more. As the most dominant search engine in the world, the company also learns a great deal about almost every Internet user on Earth. This could create all kinds of monetizing opportunities.
For instance, Google’s vast knowledge of consumers would be well-suited for an e-commerce platform. The company can make serious money by letting e-commerce companies use some of that information. Or better yet, Google could start building its own online shopping platform.
As a matter of fact, the company is already expanding its role in e-commerce. Google has partnered with numerous merchants and online vendors to launch “Google Shopping,” a service that allows users to search for products on online shopping web sites and compare prices between different vendors.
Don’t forget, Google doesn’t just get data from its search engine. The company also owns YouTube, which is the leading multimedia platform in many parts of the world. In May, YouTube had the highest visits of any video-streaming platform in the U.S. with a giant 76.9% market share. (Source: “Leading Multimedia Websites in the United States in May 2016, Based on Market Share of Visits,” Statista, last accessed June 16, 2016.)
Just like with search, hundreds of millions of YouTube viewers not only represent a huge advertising opportunity, but also an incredible amount of quality data. Think about it: Google knows the personal tastes of hundreds of millions of people. If it were to invest in original content and produce its own films and TV shows, it knows exactly what would work.
The Bottom Line on Google Stock
Today, terms like “big data” and “artificial intelligence” are used by almost every company in the tech world. They know that going forward, data will be the key for both hardware devices and software services. But while many companies are in the game, Google has an unrivalled amount of user data, and the network effect allows it to sharpen its competitive edge.
Even though Google stock is not cheap, it could still have a huge amount of potential. That’s why it may be one name to own forever.