It’s Crazy to Avoid Google Stock Over Minor Setbacks

Google stock seems to have special rules. Typically, when a publicly-traded company is up 19% on a year-to-date basis, few find reasons to complain. But when that company is Alphabet Inc (NASDAQ:GOOG,NASDAQ:GOOGL), nothing is ever so simple.

Since closing at a record high of $1,004.28 on June 8, Google stock is down 6%. Although modest volatility alone is not cause for panic, Google might be a little stretched.

One of the few recurring criticisms of Alphabet is its revenue stream; specifically, the advertisement industry accounts for nearly 90% of total revenues.

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In prior articles about Google stock, I argued that overexposure to advertisement dollars wasn’t a problem. Of course, analysts from both sides of the fence will take issue with my seemingly cavalier attitude. But the reality is that Alphabet owns the internet, so the overexposure is a moot point.

Earlier this year, I characterized Google stock as “unstoppable.” I have no reason to change my thesis since Alphabet shares are up double-digits since the article was published. But on a fundamental level, internet users overwhelmingly use Google for their browsing needs. Both Microsoft Corporation‘s (NASDAQ:MSFT) Bing and Verizon Communications Inc‘s (NYSE:VZ) Yahoo are a distant second and third respectively.

Alphabet is the top dog, and it will probably stay that way in perpetuity. At any given moment in time, Google accounts for roughly 90% of search-engine traffic. Alphabet’s YouTube platform controls nearly 80% of multimedia traffic, beating out Netflix, Inc‘s (NASDAQ:NFLX) comparatively measly 8%.

Is it a problem for Google stock that Alphabet’s revenues are overwhelmingly levered to advertising? Only if it’s a problem that Ford Motor Company (NYSE:F) gets most of its sales selling cars.

Questions about Alphabet’s Advertisement Addiction

Naturally, an excess dependence on any one sector is worrisome. It’s common knowledge not to put all your eggs in one basket. This is sage advice, particularly if the basket is structurally defective.

If the advertisement industry isn’t healthy, and, worse yet, the industry nosedives, then my bullish arguments are rendered moot. It simply won’t matter how much I play up Google stock. If a table loses a leg, it and its contents are going to the floor.

InvestorPlace contributor Vince Martin argues that potential Google investors should be aware of this risk. Furthermore, declining cost-per-click advertising metrics suggest that Alphabet’s margins will be pressured heavily. Finally, Alphabet and Facebook Inc (NASDAQ:FB) have a de facto monopoly on internet advertising.

Compounding matters is the fact that while Google has diversified away from its core money-maker, the extra businesses are fluff. Alphabet seemingly created these businesses merely to satisfy Google stock investors that it was doing something about diversity.

One of the more intriguing bearish arguments is that Alphabet has an ugly stance on free speech and censorship. Advertisers boycotted Google when corporate brands unfortunately became associated with hateful YouTube videos.

I take a different stance than most about YouTube censorship. “Hate speech” management is a slippery slope, because it violates the human right to express ideas, no matter how distasteful. Personally, I think racists are a waste of time. The real threat is the power to arbitrarily define what racism is.

In today’s fractured America, “racist” often means Trump voter. But does that mean roughly half of America is racist?

Don’t Overplay weakness in Google stock

By not taking a firm stand on freedom of speech, Alphabet appears on the fence. In trying to please everyone, they pleased no one. But will any of these controversies or dilemmas negatively impact Google stock for the long haul? I seriously doubt it.

Regarding hate speech on YouTube, Google censorship will only serve to make hate-mongers more creative. For instance, yesterday’s racists are today’s “racialists.” By lacking an overt expression of hatred and intolerance, racists learned to “play the game” to avoid the Google algorithms. In the end, the entire political spectrum is served, and no one is the wiser.

As far as the pressures squeezing Alphabet’s advertising revenue, I acknowledge it, but that’s as far as I’ll go. The broader question is “What’s the alternative?” We can worry about Google stock and its one-trick pony show. But if there are no other ponies around, Google’s limitation really isn’t a limitation.

Looking at the technical charts for Google stock, I don’t see anything unusual. Yes, shares entered a consolidation phase, but we wouldn’t expect anything else. The internet giant has been so dominant for several years. A break is more than warranted.

Admittedly, Google stock isn’t the smoking-hot deal it once was. Nevertheless, it has a virtually unbreakable core business. In my view, the biggest risk isn’t over-dependence on advertisement dollars. Rather, it’s Alphabet executives spending too much resources pretending Google is something that it’s not.

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

Article printed from InvestorPlace Media,

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