Companies like Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB) have dominant positions in several of the key segments of technology, like mobile, AI (Artificial Intelligence), the cloud and video. These opportunities represent huge market opportunities — and should be drivers for long-term growth.
But there is one other company that holds major footprints in all these segments — that is, Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG). Then again, the main advantage is that the initial vision of the company remains so powerful, which is “to organize the world’s information and make it universally accessible and useful.”
Because of this, Alphabet is the de facto destination to, well, find things to buy. And yes, this has turned the company into a cash machine. Last year, the revenues hit a staggering $90.3 billion and GAAP net income came to $19.5 billion. Keep in mind that when the company came public in 2004, the prior year’s revenues were $961.9 million and the earnings were about $105.6 million.
In light of this amazing growth, is it any wonder that GOOGL stock now sports a market cap of $667 billion?
Of course not.
But to achieve this, Alphabet has taken “conventional” approaches. In fact, whenever there was a new product or acquisition, there was usually quite a bit of skepticism and head-scratching. Might the company be losing its touch? What about monetization?
Well, management did not care about the buzz — and did not get overly concerned about the GOOGL stock price. The focus was always about the long-term vision. To this end, it made bold acquisitions, such as for YouTube, Android, Applied Semantics (which was the precursor to Google Maps), Waze and DeepMind (which is a top player in AI). All these were essential in making it much easier for users to search and benefit from the power of the internet.
As of now, GOOGL has leadership positions across the following:
Mobile: There are over 2 billion monthly active devices that run on Android. In terms of global market share, this translates into 80%, which compares to AAPL’s 17%. Then again, Android is open source, which means there is no charge to use (the monetization instead comes from ad opportunities). This has made it easier to get wide-scale adoption, especially in emerging economies.
Video: YouTube also has a commanding position, with 78.8% of the global marketshare (this is in terms of video and multimedia site visits). The No. 2 player is Netflix, Inc. (NASDAQ:NFLX), with 8%. Something else: the most avid viewers of online video are those between the ages of 25 to 34, which is a valuable demographic for advertisers.
AI: Actually, there is not a good way to measure this. After all, AI is still in the early phases. But as for GOOGL, the company has made substantial investments in developing this type of technology. Consider that CEO Sundar Pichai has indicated that the company is “AI first.”
An example of this is Google Assistant, which is a powerful app that is voice activated and is being leveraged across Android. But the company has also been integrating AI features across various Google properties like Maps (which allows for parking predictions).
The company also has its own AI programming language, which is called TensorFlow. It has quickly become a standard in the category, with over 6,000 projects on GitHub.
Cloud: OK, GOOGL is a bit of a laggard in this segment, but the company has still made quite a bit of progress. The head of the cloud division, Diane Greene, has said that GOOGL has a “shot at being No. 1 in five years.”
And this is more than just PR smoke. Let’s face it, GOOGL has tremendous advantages like datacenters, sophisticated security systems and cloud apps like the G Suite. Keep in mind that the company has been snagging marquee customers, including the fast-growing Snap Inc (NYSE:SNAP).
Bottom Line on GOOGL Stock
Even though GOOGL stock is up about 24% this year, the valuation is still reasonable. Note that the forward price-to-earnings ratio is at about 24X. Oh, and yes, the growth rate continues at a nice ramp. During the latest quarter, the top-line saw a 22% increase to $24.75 billion.
In other words, for those investors looking to find a way to play multiple megatrends in tech, GOOGL stock still looks like a pretty good play.
Tom Taulli runs the InvestorPlace blog IPO Playbook as well as OptionExercise.com, which provides interactive tools & services for employee stock options of pre/post IPO companies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
