Why Google Stock is Better as “Alphabet”
Alphabet Inc (NASDAQ:GOOG) is giving us a reason to get excited about consumer electronics again. The company is working on a new generation of groundbreaking devices which could open the ceiling on Google stock (GOOG).
Before I get to these devices, it’s important to remember that most of Google’s revenues come from online advertising, at least for now. The entire success of Google stock has depended on programs like “AdWords” and “AdSense.” They are the cash cows which made GOOG stock into such money-maker.
But then something big happened: Google became Alphabet.
It wasn’t just an ordinary name change. Google wasn’t trying to rebrand because, after all, why would they? They had one of one of the most well-known names on the planet. It wouldn’t make sense to abandon that familiarity for nothing, so management must have had a very good reason for adopting the “Alphabet” moniker.
Well, they did. Google became Alphabet because management was restructuring the entire business. Alphabet was supposed to become a conglomerate with dozens of other businesses underneath it, among which Google was just one. The company would have other subsidiaries for things like healthcare or venture capital.
Can you imagine how much potential this shift unlocks in Google stock? If the company could recreate its dominance in fields other than Internet searching, there’s no telling how high GOOG stock could soar. These changes aren’t abstract concepts either; they are unfolding almost every single day.
For instance, the ink is already dry on a deal between Alphabet and Fiat Chrysler Automobiles NV (NYSE:FCAU). The tech giant has agreed to license out its driverless technology to Fiat. In doing so, the company has gained all the upside of self-driving cars without any of the upfront costs associated with manufacturing. It’s a brilliant move that could pay off big-time for Google stock.
But in order for this transition to be fully funded, Alphabet needs more than just AdSense or AdWords. It needs revenue from new products.
What Hardware Means for GOOG Stock
That brings us back to the matter at hand: the new consumer electronics products and what they mean for GOOG stock. There are two new products I want to focus on.
- The first is something that could eclipse the success of the “iPhone.” It’s a voice-controlled speaker called “Google Home.” For those who may not know, Amazon.com, Inc. (NASDAQ:AMZN) has seen enormous demand for its voice-controlled speaker, the “Amazon Echo.” Tech companies have finally perfected the software needed for a computer to understand human speech. That means we don’t have to whip out our smartphones every time we need to access the Internet. Instead, we can simply ask Google Home a question or command it to control our other devices. It’s probably going to become a gateway device for the Internet of Things (IoT). Almost all analysts, myself included, think these types of speakers are the next big thing in consumer electronics.
- The second new product doesn’t sound impressive at first blush, but don’t underestimate its potential. Google is releasing a laptop and a tablet. See? It sounds unremarkable. The tablet will be developed by Huawei Technologies Co., Ltd and will be marketed by Nexus, but there’s a twist. Both devices will run on a single operating system, a platform called “Andromeda.” This is big news in the tech community. Until now, “Android “was the operating system for Google’s smartphones while Google laptops ran on “Chrome OS.” That meant the devices couldn’t be perfectly paired. It left room for competitors like Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL). By creating a new operating system (OS), Google is taking the fight to both rivals. It could mean spectacular gains for GOOG stock. (Source: “Google said to debut Android-Chrome OS hybrid on new laptop, tablet,” CNET, September 26, 2016.)
What impresses me about Google stock is that it continues to evolve. The company is ever-changing and innovative enough to clear any hurdle in its path. Rather than growing complacent, founders Sergey Brin and Larry Page continue to push the envelope. They always aim higher. Here’s Alphabet’s goal in their own words (my emphasis):
We liked the name Alphabet because it means a collection of letters that represent language, one of humanity’s most important innovations, and is the core of how we index with Google search! We also like that it means alpha‑bet (Alpha is investment return above benchmark), which we strive for!
(Source: “G is for Google.,” Alphabet Inc, last accessed September 26, 2016.)
It’s clear that these are two guys who know how to make great tech and, better still, know how to make huge profits at the same time. For all those reasons and more, I remain incredibly bullish on Google stock.