Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) has assembled a standout set of assets, including YouTube, Gmail, Maps, Chrome, Android, Google Drive and Play. Each of these products has more than 1 billion users, and they helped boost the market cap of Alphabet stock to over $750 billion. The company also has invested heavily in R&D, in areas such as autonomous cars and AI (Artificial Intelligence).

The Disappointing Returns of GOOG Stock

Yet despite all this, Alphabet stock has really been a disappointment in recent years. In 2018, its return has essentially been 0%. And during the past five years, the average gain of Alphabet stock was 9.38%. During the same time period, Amazon.com (NASDAQ:AMZN) has posted a return of 33.49% and Microsoft (NASDAQ:MSFT) has jumped 25.53%.

It’s true that Alphabet has been able to rapidly growth its top line. In the past five years, its revenue growth has averaged about 19.21%. Given Alphabet’s large size, that is impressive.

So why has Alphabet stock produced lackluster returns in recent years? Is this trend likely to continue or could GOOG stock get back on track? It’s not easy to answer these questions. But I think one of the reasons for the mediocre performance of Alphabet stock is that advertising still represents about 85% of the company’s overall revenues. And a substantial amount of its ad revenue still comes from its traditional search business.

In other words, Alphabet stock may be emulating the performances of MSFT, Intel (NASDAQ:INTC) and Cisco (NASDAQ:CSCO) during the early 2000s, when those companies hit maturity and had more difficulty expanding into new categories. As a result, all of those stocks delivered subpar returns for an extended period.

Tough Competition Is Looming for GOOG

But things may even be worse than that for GOOG because its advertising business could potentially be disrupted.

One reason for the vulnerability of GOOG stock is that the company failed to develop a social networking platform. Granted, Facebook (NASDAQ:FB) does have its issues. But the company still has a massive user base, making Facebook ads a must-have for marketers.

Amazon is another threat to GOOG. Keep in mind that advertising is rapidly becoming a significant source of growth for the e-commerce giant. Based on estimates from eMarketer, it appears that AMZN could generate $4.61 billion of ad revenues this year.

Even though that’s only 4.2% of the global digital ad market, it would still make AMZN the No. 3 player in the sector. GOOG currently has 37.1% of the market and Facebook has a 20.6% share.

More importantly, AMZN has a pretty good track record of leveraging its platform to enter new markets. Just look at its cloud business, which is the market share leader and continues to grow at a rapid clip.

Amazon’s ad business could reach similar levels. According to Piper Jaffray’s Mike Olson, the segment’s revenues could hit $16 billion by 2020.

That does seem like a reasonable estimate. Marketers want to quickly see results from their ads. What better way to accomplish that goal than by advertising on an e-commerce platform whose users are mostly focused on making purchases?

But AMZN has other major benefits for advertisers. The company has various channels like the Kindle, Twitch, voice assistants etc, which provide a broad array of options for advertisers. But perhaps Amazon’s most important advantage is its huge amounts of data, which enables marketers to more effectively target groups and personalize their ads.

The Bottom Line on GOOG Stock

Following the markets’ recent selloff, the valuation of Alphabet stock is reasonable. Note that the forward price-earnings ratio of GOOG stock is about 23.

But a stock can stay cheap for a while. And GOOG is facing some pressures from FB and AMZN which can limit the revenue growth of GOOG in coming years. In other words, those headwinds may make it difficult for Alphabet stock to return to generating market-beating returns.

Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.