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Does Alphabet Inc (GOOGL) Stock NEED Smartwatches?

Although the euphoric phase of smartwatch mania has come and gone, Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) is in the unusual position of just now getting serious about the market.

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Source: Brad Moon

It’s launching not one but two second-generation Android-powered, wrist-worn devices in early 2017.

Other manufacturers are also expected to unveil smartwatches based on the Android operating system during the coming year, distinguishing its smartwatch business model from the one employed by Apple Inc. (NASDAQ:AAPL). Only Apple makes smartwatches that utilize the iOS operating system.

Will Alphabet do what Apple wasn’t able to do, which is measurably improve the value of GOOGL stock by tapping into the relatively new category of consumer technology?

Maybe, but if it does, it’s going to take a massive paradigm shift that hasn’t even come close to taking shape yet.

Numbers Don’t Lie

Most owners of GOOGL stock may not even realize that Google actually beat Apple to the smartwatch market by launching one in 2014. Indeed, that’s a key tenet of the problem. If people don’t realize Alphabet makes such a device already, it’s because the company has done a poor job of marketing itself.

Fortunately for Alphabet shareholders, this shouldn’t be an impasse with the upcoming unveilings.

Unfortunately, better marketing and more consumer familiarity with the idea of wearables isn’t going to help much.

See, the smartwatch market is not a significant market for companies that drive tens of billions of dollars worth of revenue per year selling goods and services other than smartwatches. As of the most recent tally, only 39.5 million U.S. adults are expected to be smartwatch users by the end of the year. Initial estimates from a year ago said that figure would be 63.7 million.

For comparison, as of the end of last year, 68% of the nation’s 242 million adults own smartphones. That’s 164 million smartphone owners, most of whom just don’t see the advantage of yet another piece of technology on their person.

We’re seeing comparable metrics on a global basis.

What’s It Going to Take?

To answer the overarching question of marketability, look at the feedback consumers have served up about the Apple Watch and other smartwatches. Each device has some rabid fan because … well, there’s always someone who finds something to love about anything. But some of the criticisms have been repeatedly voiced.

One criticism? It simply didn’t do enough to improve or ease the user’s life. Another reason owners stopped using them is rooted in the complicated (and small) interface.

Consumers who have yet to buy one have suggested the same concerns as reasons for not purchasing a smartwatch … they just don’t see much point.

Both balks underscore a key headwind for all smartwatches. That is, form matters just as much as function, and the necessarily tiny device’s form doesn’t deliver enough reasonable function. Even if the electronics could be further shrunk, wearer’s fingers aren’t going to shrink. Vision isn’t going to improve (watch face/screens are small). And any advanced electronic device is still going to require lots of button-pushing per function, yet still won’t be able to do it all as well as a smartphone counterpart does.

There’s the rub for any hope that GOOGL stock will be catapulted by its new smartwatches — the device causes more problems than it solves.

Until and unless Alphabet/Google comes up with a device that’s a decidedly better tool than a phone, a smartwatch won’t be a game-changer for consumers or for their makers. And there’s nothing about the upcoming Android watches that says any of the devices are going to cause such a paradigm shift.

Bottom Line for Google Stock

To be fair, even the first generation of Google’s watch was impressive. Ditto for Apple. Expectations weren’t terribly high, though, and now that most consumers have seen them, the reaction has mostly become “meh.”

It’s not a reason to avoid owning GOOGL stock. Indeed, yours truly here has pegged Alphabet stock as one of the few must-have names to own in the coming year. But that bullishness had nothing do with success in the smartwatch arena. It was rooted in everything else Alphabet does well.

Any shareholders looking for Alphabet to perform above and beyond current expectations on the back of new smartwatches are going to be disappointed.

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

Article printed from InvestorPlace Media, https://investorplace.com/2016/12/alphabet-inc-googl-stock-need-smartwatches/.

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