Pixel Is the First Step in Alphabet Inc’s Grand New Plan (GOOGL)

GOOGL stock - Pixel Is the First Step in Alphabet Inc’s Grand New Plan (GOOGL)

Source: Google

On Tuesday, Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGLunveiled Pixel at an event in San Francisco. Pixel, the company’s completely in-house designed Android smartphone, arrived with a muted response if the lack of movement in GOOGL stock (up just 0.30% Tuesday) serves as indication.GOOGL Stock: Pixel Is the First Step in Alphabet's Grand New Plan

Pixel represents the “perfect example of best of Google smarts combining to make a great user experience,” said Rick Osterloh, head of GOOGL’s hardware division.

The market is taking a wait-and-see attitude before reacting to Alphabet stock, which has risen just 3% this year, underperforming the better-than 5% rise in the S&P 500 index. But ignoring the long-term growth opportunity in GOOGL stock could be a mistake.

Although Pixel is its first real dive into hardware, the phone itself is a part of the company’s grand plan to enter the smarthome market — an untapped area where Apple Inc. (NASDAQ:AAPL) and Amazon.com, Inc. (NASDAQ:AMZN) have already poured their own foundations with respective products like the new-generation Apple TV and Echo — Amazon’s speaker-centric personal assistant.

How Pixel Is a Part of the Bigger Picture

“We’re moving from a mobile first to an AI first world,” Alphabet said at its I/O conference in May. Google Assistant is the company’s response to the current version of Apple’s Siri. On Tuesday, GOOGL used the Pixel unveiling to take a deeper dive into the home by showing off its own smart speaker — Google Home. As with Amazon’s Echo, Google Home encompasses a conversational voice assistant, which acts not only as a secretary, but also a music hub and a smart home controller.

As with Echo, which responds to “Alexa,” Google Home is always listening and users need to simply say, “OK, Google” and then issue a command. Google Home can manage a shopping list and send it to your Pixel phone. And not only can it use Google Maps to provide traffic details about your work or home commute, Google Home — like Siri — can also provide a tailored morning briefing with your schedule and whatever news is important to you.

The success of Amazon’s Echo likely inspired Alphabet’s deep dive into the home. Reports suggest that Apple is working on its own response in the near future. And for GOOGL, Pixel was the perfect catalyst. Before Pixel, Alphabet relied on original equipment manufacturers to design and sell Android phones. With its largest OEM Samsung (OTCMKTS:SSNLF) forced to recall various versions of its Galaxy Note 7 due to battery problems, GOOGL can no longer afford to tie itself to poor user experiences it can’t control.

Bottom Line for GOOGL Stock

And while the arrival of Pixel signals Alphabet’s intent to focus on hardware, the home automation market remains its largest growth opportunity. The fact that Pixel integrates with Google Assistant is perhaps the most important. You’ll be able to buy Google Home for $130 starting Nov. 4. But you can buy GOOGL stock starting today at what appears to be a discounted price.

Alphabet closed Tuesday at $802.79. GOOGL shares have a consensus buy rating and an average analyst 12-month price target of $940, suggesting 17% premium from current levels.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.

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