Digital search giant Alphabet Inc (NASDAQ:GOOG)(NASDAQ:GOOGL) saw its stock get hammered on March 19 in sympathy with a sharper drop in Facebook, Inc. (NASDAQ:FB) stock. On the day, Google stock dropped roughly 3%, while FB stock fell 7%.
The catalyst was the unveiling of a massive 50 million user data breach at Facebook. The data breach is complex, dates back to 2015, and has a political slant. Details aside, the broad concern is that regulators will bring down the hammer on digital advertising platforms and greatly restrict their ability to use data for micro-targeting advertisements.
That is a legitimate concern. Google, as the largest digital advertising platform in the world, is right at the heart of this issue. The company has a ton of search data on a bunch of users through its Google search platform. They also have a ton of video viewing data through YouTube, and a ton of web traffic data from Google Chrome.
All together, Google has a ton of data. And the company uses all this data to deliver exceptionally targeted digital advertising products. Consequently, if regulators limit Google’s ability to use that data, its targeting capabilities erode and the effectiveness of its ads will likely decrease.
That is why Google stock is selling off.
But Google stock will rebound and head significantly higher in the long term because of the company’s giant user base across multiple platforms. That giant user base gives Google multiple cross-selling opportunities. As Google explores and builds out those cross-selling opportunities, the company will effectively diversify its revenue streams away from such a huge reliance on digital advertising.
The biggest of those cross-selling opportunities? Turning Google into an e-commerce marketplace. Google is already doing this. Investors should pay attention. This could be the next big thing that drives Google stock significantly higher.
Google Stock’s Next Big Opportunity
Google just teamed up with a host of retailers to launch Shopping Actions, a feature that allows consumers to buy products directly through Google search and Google assistant.
This is a big move. It turns Google into an e-commerce marketplace.
This is something Google has missed the mark on for some time. The digital commerce market is booming. E-commerce sales in the U.S. grew 17% last quarter. More online shopping means more online searches. But most Google searches end in a purchase on Amazon.com, Inc. (NASDAQ:AMZN). Indeed, a majority of online shopping searches now start on Amazon.
Shopping Actions will turn this ship around for Google stock.
Apparently, as commerce moves to the digital channel, consumers are increasingly confused as to where to buy things online. According to Google, the number of mobile searches asking where to buy products has risen by 85% over the past two years. That largely explains why Amazon has become the default online shopping search engine. There is no “where do I buy this” involved in an Amazon search. You just search and buy.
Google Stock Benefits From No-Conflict Shopping
Shopping Actions will turn Google into a place where consumers can just “search and buy” and Google takes a cut on each transaction. So it will work just like Amazon. Except it could be better than Amazon.
First, Shopping Actions will be content neutral. Amazon is a direct competitor with the likes of Target Corporation (NYSE:TGT), Walmart Inc (NYSE:WMT), and Costco Wholesale Corporation (NASDAQ:COST). Therefore, Amazon has an incentive to push their own product over product from Target, Walmart and Costco. Google has no such conflict of interest. Google just wants to grow their e-commerce marketplace. Target, Walmart, and Costco just want to grow their digital commerce reach. The incentives are aligned perfectly for harmonious growth.
Second, Shopping Actions has a low barrier to entry. Amazon caters to a higher-income demographic, with most of its users coming from the $100,000 and up income demographic. Google doesn’t really cater to any specific income demographic. Everyone uses Google because it’s free. As such, Google could be an ideal digital commerce distribution platform for retailers of all shapes and sizes.
Bottom Line on Google Stock
All in all, it’s easy to see why Shopping Actions could be huge.
For a long time, Google stock was a pure play on digital advertising. Now, the company is using its size to gain exposure to other hyper-growth digital markets. The biggest of those hyper-growth digital markets is digital commerce. Shopping Actions turns Google search into a digital commerce marketplace, and thrusts Google into the digital commerce conversation.
That is a big deal. Digital commerce is a big market with lots of growth potential ahead. Adding that large of a catalyst into the mix will inevitably drive Google stock higher in the long run.
This is especially true considering GOOGL stock trades at just 26.5-times forward earnings. That multiple seems to encompass upside from digital advertising. But it doesn’t seem to incorporate much of anything from Google’s ancillary businesses, a few of which — like Shopping Actions — could be quite large.
As of this writing, Luke Lango was long GOOG, FB, AMZN, TGT, and COST.