Transparency and full disclosure — these are expectations for today’s mega-cap companies in the Information Age, but they haven’t necessarily been the strong suit for Google parent company Alphabet (NASDAQ:GOOGL). Now that Alphabet is a monster with a trillion-dollar market cap, Google stock investors have every right and reason to ask not only for value but for full transparency from the company.
In light of this, concerns abound and surround the company as well as the stock, which is expensive and may have been unduly priced in Alphabet’s assumed future growth. Granted, Alphabet did make some long-awaited disclosures recently, but this might be too little, too late as enhanced share prices require, to me at least, enhanced justification.
Alphabet Breaks Out the Numbers (or at Least, Some of Them)
As a YouTuber myself, I’ve shared shareholders’ frustrations as Alphabet seemed to drag its feet in reporting YouTube revenues. Month after month, Google stock holders were in the dark as to how much money those incessant ads were generating.
At long last, Alphabet for the very first time revealed Google’s YouTube ad revenues as part of its fourth-quarter 2019 earnings report. Some analysts and shareholders, along with industry participants (myself included), would prefer that Google release YouTube ad revenues separately … and more frequently; I’m not counting on Google or Alphabet to make that change anytime soon, though.
So let’s get down to brass tacks, shall we? During the entirety of 2019, YouTube advertising generated $15.15 billion, and $4.72 billion of that revenue came in Q4 of 2019. That’s a pretty good improvement over 2018, in which YouTube full-year revenue amounted to $11.16 billion, with that year’s Q4 showing $3.61 billion in YouTube ad sales.
I want to know how much (percentage-wise) of the platform’s advertising revenue went to video creators like me. Analysts and shareholders would likely want to know this bit of information as well, as it can help people to gauge how profitable YouTube really is. Regrettably, neither Google nor Alphabet is forthcoming with this information.
As for Alphabet’s cloud business, which is a comparatively new source of revenue for the company, analysts and investors also finally received some critical stats. In particular, $8.92 billion of sales came from the company’s cloud business during fiscal-year 2019, and $2.61 billion of that came during the fourth quarter. In fiscal-year 2018, cloud-business revenue was $5.84 billion, with Q4’s number at $1.71 billion. That’s some significant growth in that segment.
Under Close Scrutiny … and Rightfully So
This is all a good start, but by themselves, these limited disclosures might not be sufficient to allay concerns surrounding Alphabet’s secretive tendencies. If anything, Alphabet ought to be doing anything and everything in its power to highlight fair and forthright practices as it faces increased scrutiny and wariness.
Today, Alphabet remains closely monitored by both federal and state regulators as there is talk of alleged anti-competitive behavior. To that end, 50 U.S. attorneys general hailing from various states and territories — with only those from Alabama and California not signing on — in September announced an antitrust investigation into Google’s advertising business.
Also related to the trust issue is Google’s commitment to user privacy; this company isn’t the only culprit, of course, but the last thing Alphabet needs now is to justify the criticism lobbed against Google for mishandling consumers’ rights to privacy. Above all else, Alphabet needs to answer the lingering question of what Big Tech can do to produce a champion of privacy that consumers can trust.
In an e-mail to InvestorPlace, Vasant Dhar, professor of Information Systems, NYU Stern, suggests that changes may come but not likely willingly from a Big Tech behemoth like Alphabet:
“The unbridled profit maximizing ‘objective functions’ that are applied at scale will continue to abuse data to the extent they can get away with it. The communications act of 1996 protects them. This should change. California’s consumer protection law is a step in the right direction in that it puts businesses on notice for violations, namely, if the data are used for purposes other than those stated by the data collector. But enforcement will not be easy.”
It would be unfortunate to see an industry leader like Alphabet comply with privacy, trust, and transparency standards only after being forced to do so. One can hope that Alphabet will take steps to anticipate legal requirements — or better yet, curtail anti-competitive practices because it’s simply the right thing to do — but I’m certainly not holding my breath.
The Takeaway on Google Stock
Long-term investors can celebrate Alphabet’s surpassing of the $1 trillion market cap milestone and revel in their gains in Google stock; as a lowly market writer, who I am to begrudge them that? This doesn’t mean, however, that I wish to recommend a long position as there are too many unanswered questions which, ironically enough, a simple Google search just can’t answer.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.