Google Express, the e-commerce delivery arm of Alphabet Inc (GOOG, GOOGL), is going through a bit of a rough patch.
Re/code reported late Thursday that the service was set to lose its third major executive in the last year, raising eyebrows about whether GOOG really knows what it’s doing in the area.
By no accounts is Google Express a game changer for the company or GOOG stock, as 90% of the company’s revenue still comes from online advertising.
So why not just throw in the towel and concede that same-day delivery will never be the crux of Alphabet’s business?
The answer is that Alphabet actually needs Google Express desperately. Not because the service in and of itself is vital, but because it defends Google’s current grip on online advertising.
Google Needs e-Commerce to Bolster Advertising
I don’t know if you’ve heard, but Amazon.com (AMZN) is known for being somewhat of a company-killer. It basically single-handedly put Borders and Circuit City out of business, and many small businesses have also been disrupted by Amazon’s deadly grasp on the market.
So the fact that AMZN is going head-to-head with Alphabet (and somewhat tangentially with Uber) in the delivery business shouldn’t be taken lightly. As for Alphabet, here’s what I noted a few weeks ago:
“Alphabet is also getting into same-day and overnight delivery with Google Express, meant to combat the e-commerce dominance and compelling offerings of Amazon Prime. GOOG is even planning on getting into the grocery delivery market later this year — a market Amazon has already ventured into.”
In short, the reason that Alphabet so desperately needs Google Express is Amazon itself. You may not think of AMZN and GOOG as direct competitors, but I assure you the folks in Mountain View, California feel differently.
You see, every time an online shopper starts their search on Amazon.com — instead of Google — GOOG is missing out on some serious advertising coin.
Product searches are inevitably some of the more lucrative search queries for Google, since retailers that sell said products are more than willing to advertise against search queries that clearly amount to qualified, interested consumers of its products.
The thinking is that if Google itself can become an e-commerce destination — something that services like Google Express could help jump-start — then some of this Amazon bleed would come back GOOG’s way.
Bottom Line on GOOG Stock
Given the recent spate of executive departures, it looks like Google Express is having more difficulties than people might imagine. It might also simply be coincidence, but you’d think execs would stick around for a bit longer if the service was thriving.
If the service ultimately fails, that may mean GOOG’s e-commerce plans go kaput as well. And unless Google diversifies away from its dependence on advertising sometime soon, that would be a crippling blow to one of tech’s largest companies.
I don’t think investors should read too deeply into the news here … but it’s definitely something GOOG stock holders will want to keep an eye on.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
