You would think that irrelevant ads on mobile devices and desktops would go away, yet Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) defies that belief. The search engine giant is as relevant as ever, and its targeted advertising model is a favorite for advertisers and marketing teams.
Near a yearly high and at a price-to-earnings ratio of around 31 times, the company faces no headwinds. Competition from Facebook Inc (NASDAQ:FB) is hardly a concern, even after GOOGL’s weak Google+ offering.
Alphabet’s Electronic Money Business
Google’s Gmail for the web now allows for sending money from within the Android app. This could threaten PayPal Holdings Inc (NASDAQ:PYPL).
For now, though, PayPal need not worry. Google users may not even know about this money-transferring features. PayPal’s branding is so solid that it, along with investors, should not expect an erosion in its business. So, Google Wallet, and even Apple Inc.’s (NASDAQ:AAPL) Apple Pay, have too little of the market share in electronic payments at this time.
Still, GOOGL’s foray in this business is a necessity. It cannot rely entirely on advertising for all of its revenue.
Despite Google and Facebook dominating the digital advertising space, Google’s reliance on ad clicks is a clear risk. In the fourth quarter, the company faced higher hardware costs, as it invested in the new Pixel phone, Daydream View Virtual Reality and Google Home.
But the good news is that Google’s revenue growth of 22% year-over-year to $26.06 billion allows the company to invest. Investors are hardly worried: the stock bottomed at the $800 per share range on Feb. 1 and has surged over $860 a share.
Increasing ad content to grow profit margins brings risks for GOOGL shareholders. Google’s search results will worsen if it continues pushing too many paid ads or its own services before it connects the user to the proper search results. Just do a search for a “car,” The search results display at least five ads before the useful results show up below them. On the desktop, this is not entirely unusable because the user gets the results on one screen. On mobile, the ads add to scrolling time for the user. The more frustrating the user experience, the more likely users will start abandoning Google.com in favor of Microsoft Corporation’s (NASDAQ:MSFT) Bing or DuckDuckGo.