Life comes at you fast. Today Alphabet Inc (NASDAQ:GOOGL) is the second-largest company in the world by market cap, a valuation of $720 billion, expected to bring in $102 billion in revenue and over $32 per share of net income for the year when it reports on Jan. 25. But is GOOGL stock bulletproof?
It is continuing to grow at nearly 15% per year, on the top and bottom lines, and has almost no debt, despite spending over $10 billion each year on new data centers. Today, Google bestrides the world and there’s $100 billion burning holes in Chief Financial Officer Ruth Porat’s bank vault.
It is becoming a consumer electronics company, is the leader in car autonomy and, along with Facebook Inc. (NASDAQ:FB), represents 25% of all advertising spending. What is wrong with this picture?
Big Enemies Threaten GOOGL Stock Price
As any company grows its adversaries become bigger and more ruthless. Alphabet’s today include Amazon.com, Inc. (NASDAQ:AMZN) and the U.S. government. Google and Amazon have transferred their online rivalry into devices, with the former refusing to let YouTube be shown on Amazon’s Fire Stick so long as its Chromecast isn’t allowed in Amazon’s online store.
Google is being called a monopolist by both the far-right and the far-left and the new head of the Federal Communications Commission (FCC), Ajit Pai, is a former lawyer for Verizon Communications Inc. (NASDAQ:VZ).
The carriers’ position is they’re not the monopolies, despite controlling the last mile to consumers, but that Google is the monopolist, and must therefore be controlled. Google’s position is that, despite its size, it’s still just 20 years old, and it remains vulnerable to new business models.
This is not the argument you want to make on Wall Street.
How Vulnerable?
I have accused Google management of running on autopilot in the face of these challenges, but I’m a lonely voice here at InvestorPlace.
The recent GOOGL stock performance, flat for the last month, is seen as a buying opportunity by Nicholas Chahine and Luke Lango, a classic chance to “buy the dip.” They cite its car, its cloud and accelerating cash flow (nearly $30 billion in just the first three quarters of this year) as reasons. These are good reasons.
The war with Amazon is more brutal, as Brad Moon writes, but Bret Kenwell sees a GOOGL stock break-out to over $1,060 per share, from $1,020 per share on Dec, 5, and Luce Emerson sees Alphabet’s “other bets,” like its self-driving car, starting to pay off. This makes sense as well.
The Bottom Line for GOOGL Stock
Why, then, would anyone doubt CEO Larry Page and his team? Call it my “Spidey sense,” if you like, or observe how the company continues to make enemies like Oracle Corporation (NASDAQ:ORCL) and Apple Inc. (NASDAQ:AAPL) just in the normal course of business.
Alphabet was closely associated with the Obama Administration, and Washington today hates anyone or anything so associated. The company also has enemies in China, which continues to block it, and Russia, whose sites the company is de-ranking so their alleged “fake news” is less visible.
Google is now the second-largest lobbyist in Washington but its money is meaning less-and-less, despite dozens of firms on the payroll. My point remains. Management seems to be drifting into a sea of threats, without a coherent political strategy.
Management seems to believe its technology will always win. If it’s wrong, even a little bit, or if the current market rally wobbles then GOOGL stock, with its price to earnings ratio now near 35 (up from 25 just a few years ago), will take a severe hit.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
