Generally speaking, the broader markets have an upward bias. And because of this trend, it implies that a few blue chips exist that are virtually automatic investments. One of these elite names is technology behemoth Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Thanks to overwhelming dominance in several lucrative markets, the longer-term prospect for Google stock is undeniably bullish.
However, that’s not to say that GOOG stock is perfect. We learned that when the underlying company released its third-quarter earnings report late last month. Although Alphabet delivered a slight beat on consensus revenue expectations, it missed conspicuously on per-share profitability. Analysts expected earnings per share of $12.42, but Alphabet could only muster $10.12.
After the disclosure, GOOGL stock slipped as much as 4% in the extended session. The following day, shares printed more red ink as investors digested the news. Lately, the company has failed to consistently produce positive profitability results. For instance, it noticeably missed EPS targets in Q2 2018 and Q1 2019.
Still, it wasn’t long before Google stock brushed off these concerns. At time of writing, shares are just sitting below their all-time highs. But can investors trust GOOG stock at these elevated levels?
Admittedly, my gut reaction is to avoid buying into any equity immediately following a strong surge in momentum. Still, if I were to make an exception, it would be for GOOGL stock. Although EPS was disappointing, management delivered in key areas, such as advertising revenue of nearly $34 billion in Q3 2019, besting the year-ago quarter’s tally of $29 billion.
But the biggest reason for bullishness toward Google stock isn’t about subsegment beats. Rather, Alphabet is cohesively advancing its universal digitalization agenda.
Google Stock to Win Out on the “Life Ecosystem” Narrative
In many ways, GOOG stock is the beneficiary of ideal timing. Founded in the late 1990s, Alphabet, then known as Google, entered the internet search space at a time of transition.
For instance, the sad situation known as Sears Holdings (OTCMKTS:SHLDQ) initially had a chance to usurp Amazon (NASDAQ:AMZN) in e-commerce. Unfortunately, the retailer was too complacent in upgrading to the burgeoning realities of the internet. A combination of arrogance and missteps ultimately did them in.
Fortunately for stakeholders of GOOGL stock, Alphabet didn’t have that problem. From the get-go, management has recognized the transformative nature of the internet and digitalization. More impressively, they’re not resting on their laurels like Sears once did. Instead, Alphabet is forging ahead to dominate not just an end-user’s device ecosystem, but their entire existence.
During the Q3 conference call, Alphabet CEO Sundar Pichai declared that, “We’ve evolved from a company that helps people find answers to a company that helps you get things done.”
I’d say that’s an understatement. One of the reasons why Google stock recovered quickly from the Q3 profitability disappointment is Alphabet’s acquisition of Fitbit (NYSE:FIT). A struggling health fitness tracker, Fitbit ceded substantial territory to Apple (NASDAQ:AAPL). But under Google’s almighty umbrella, everything changes.
First, Fitbit trackers routinely rank at the top in terms of performance and functionality. With Alphabet already having a robust device portfolio along with its ambitions to move into the healthcare market, acquiring Fitbit was a no-brainer.
Second, Fitbit trackers are comparatively cheap. This aligns nicely with Google stock as it pertains to device proliferation. While Apple may be the most desirable brand, their products are prohibitively expensive. With Alphabet’s more affordable products, it’s much easier to create a life ecosystem, or what Google calls ambient computing.
GOOG Stock Primed for Domination
Naturally, Alphabet’s push to be an ever-present digital force in a person’s life has fierce critics. Most notably, the company has encountered legal troubles involving antitrust allegations. And big tech’s unprecedented influence resulted in heated discussions at democratic debates.
Still, I don’t think the detractions – legal or otherwise – will impact Google stock in the long run. If you look at paid clicks, ad revenues and traffic acquisition costs, it’s clear that people desire its ecosystem. Even in search engines, Alphabet not only leads the pack, it has increased the margin of victory from a decade ago.
In other words, in order for Alphabet to give consumers the convenience of having a centralized, all-encompassing digital ecosystem, it must engage in borderline anticompetitive behaviors. Thus, I don’t think any politician’s call to break up GOOG stock will have any effect. We are simply too addicted to digitalization for us to lodge a legitimate protest.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.