Of all the tech giants that have revolutionized life in the 21st century, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) may be the most pervasive. But for all the attention—and sometimes controversy—it attracts, there are still some aspects of the company that are underrated and may have caused GOOG stock to be undervalued.
Not every company is important enough to be called out by the Vice President of the United States. But on Oct. 4, Mike Pence asked the Silicon Valley titan to stop developing its “Dragonfly” app that would make it easier to track individuals’ internet searches.
Pence’s statement was one more development in the ongoing story of Google’s operations in China. The VP asserted that the app would “strengthen Communist Party censorship and compromise the privacy of Chinese customers.” Pence added that American tech firms should think twice about entering the Chinese market “if it means turning over their intellectual property or abetting Beijing’s oppression.”
Will this controversy pose any long-term threat to Google’s ambitious plans to expand its operations in Asia? Probably not.
Even if Google was to stop working on the Dragonfly app, the tech giant has already obtained many customers in China. Moreover, its customer base in the Asian country will grow as the nation’s rapidly expanding economy enables more and more Chinese citizens to access the internet.
Rising, Sustainable Revenue Positive for GOOG Stock
Since GOOG is doing very well in Asia, while it continues to grow in the United States and Europe, it’s easy to see why Alphabet’s recent results, including its second-quarter earnings, have been strong. Its upbeat results have enabled GOOG stock to rise nearly 10% since early April, outperforming the S&P 500 by a couple of percentage points.
Adjusting for currency fluctuations, Alphabet’s revenue was up a whopping 23% year-over-year. That increase was noticeably higher than analysts’ consensus estimate of 18% that some had thought was too optimistic.
Can GOOG continue to sustain that level of growth? The company’s revenue growth is as sustainable as anything can be in this unpredictable world. Google gets about 85% of its revenue from advertising. That is a steady revenue stream, given that the company’s name is quite literally synonymous with internet searches, which have become an essential part of daily life.
Other Catalysts for GOOG Stock
But Alphabet has positioned itself to obtain income from other sources. The Google Cloud Platform got off to a bumpy start, which may have turned off some investors. But now the service is adding new users at an impressive clip.
During Alphabet’s most recent earnings call, CEO Sundar Pichai talked about the progress of the company’s proprietary artificial intelligence systems, which are supposed to improve users’ access to information and help with more mundane issues, such as editing pictures in Google Photos.
With Google moving forward on several fronts, the price-earnings ratio of Alphabet stock remains around 50. That would be high for companies in some industries, but for a technology giant with rock-solid cash flow, the valuation of Alphabet stock seems low.
As of this writing, the author did not own stock in any of the companies named in this article.
