Alphabet Inc (NASDAQ:GOOGL) closed April 18 at $853.99, up 7.8% on the year. That’s a good showing when compared to the S&P 500, but GOOGL stock is a long way from hitting $1,000, the holy grail of stock prices.
Word has gotten out in recent days that Google is working on a new recruitment tool that will help companies find quality recruits while managing the application and hiring process.
Dubbed Google Hire, it’s currently in limited testing, and could be a threat both to job boards like LinkedIn and job application tracking software such as Greenhouse and Lever.
Huge Boost to Alphabet
I’ve never understood why Google wasn’t directly involved in the HR business given its understanding of information and its paying customers use it.
Privacy concerns aside, if this product is remotely helpful in improving the hiring process for both employers and potential employees, it could be a huge boost to GOOGL stock. Here’s why:
Almost everyone who pays Google to advertise on its various platforms — InvestorPlace contributor Dana Blankenhorn recently reminded readers here that Alphabet is still growing ad revenues by 20% year-over-year on a quarterly basis — has some need for growing their businesses; one of the most important aspects is hiring the right people.
The HR software market is said to be worth $14 billion annually in the U.S. alone. According to Aptos, Calif.-based research firm HRmarketer, companies spend $785 billion annually on employee benefits products and services, just one segment of the human resources pie.
It’s an industry that employs more than 1.6 million people in the U.S. whose job it is to manage their employer’s talent.
Potential Category Killer
HRmarketer divides the HR marketplace into seven separate categories: Recruitment and staffing, compensation/payroll, employee benefits, talent management/employee relations, training and development, workforce planning and analytics, and legal and compliance.
Google Hire is focusing on one segment of the HR marketplace, but there’s no reason why it couldn’t broaden its scope to cover some of these other areas.
For example, if you’ve ever done any work with Google Analytics, you know how deep you can dive. Google has absolutely the right technology and people to compete in HR analytics. And that’s just a second category.
Now, I’m not saying that Microsoft Corporation (NASDAQ:MSFT) and all the other software behemoths out there can’t do the same, because they can, but Google sits in a particularly convenient position to take advantage of this marketplace, one that is still very fragmented despite its size.
“Forward-looking organizations are also beginning to employ simulations and gaming to connect with talent, particularly Millennials, and analyze whether candidates are primed to succeed in a given role,” suggested Deloitte authors Michael Stephen, David Brown and Robin Erickson in a February 28, 2017, article about talent management.
Some 71% of the global business leaders surveyed for the article rate their company as weak at using gaming and simulations to attract and assess potential candidates.
GOOGL Stock Would Be Less Dependent on Ad Revenue
There’s no reason Alphabet can’t use its $36 billion in annual cash flow to roll up businesses currently competing in the various categories of the HR marketplace.
In December, I warned investors that GOOGL stock was a must-own in 2017, in part because of the revenue growth of its cloud business. Google Hire could become another tool in Alphabet’s kit to generate more revenue from initiatives other than advertising which accounts for 89% of its overall sales.
If you can book a flight through Google Flights or manage your communications and other business activities through Google Gmail and Google Drive, why not use Google to manage your hiring process and other HR-related activities?
Soon, you’ll be able to. And that’s a great thing for GOOGL stock.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
