Alphabet Is a Proven Winner Under Sundar Pichai

Alphabet faces challenges from the coronavirus and antitrust investigations, but is well positioned with Sundar Pichai in charge

Even big tech companies haven’t been immune from the effects of the novel coronavirus pandemic. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) shares were at record high levels in February. Panic over the coronavirus knocked nearly a third of that off by the time the stock market rout was at its worse in mid-March. GOOG stock has been recovering nicely since then, helped by first quarter earnings that were better than expected. Under the steady leadership of Sundar Pichai, Alphabet and Google are on track to emerge from the coronavirus stronger than ever.

GOOG Stock Is a Proven Winner With Sundar Pichai at the Helm
Source: Benny Marty / Shutterstock.com

There were concerns that Alphabet and Google would be hit hard by the coronavirus. On April 28, Alphabet reported its first quarter earnings. The company did note a 10% dip in ad sales in March, but overall Alphabet delivered a 13% year-over-year revenue increase.

Adjusted earnings per share of $9.87 were lower than had been projected, but given the circumstances, investors seemed pleased with the results. After the Q1 earnings report, GOOG stock shot up in extended trading and it has been on a largely upward trajectory since then.

Leadership Exodus

There has been a big shift at Alphabet since the end of 2019. It started on Dec. 3 when Google co-founders Larry Page and Sergey Brin stepped down from their leadership roles with Alphabet. Page was CEO of the Google parent company, while Brin was president. The co-founders announced the reason for the move in a blog post:

“With Alphabet now well-established, and Google and the Other Bets operating effectively as independent companies, it’s the natural time to simplify our management structure. We’ve never been ones to hold on to management roles when we think there’s a better way to run the company. And Alphabet and Google no longer need two CEOs and a President.”

Google CEO (and 15-year company veteran) Sundar Pichai assumed the CEO role at Alphabet as well. GOOG stock popped on the news.

On May 9, it was revealed that former Google CEO Eric Schmidt — who had been acting in an advisory capacity for Alphabet — left the company in February. While Page and Brin retain their board seats, Sundar Pichai no longer has any former Google CEOs to contend with on an operational basis.

A More “Ordinary” Company?

The net result of the recent departures is twofold. 

First, some of the tarnish of the company’s past (ranging from mishandling of sexual harassment to anti-competitive practices) might fade with the long-time leaders making an exit. Second, the largely respected Sundar Pichai has consolidated control of both Alphabet and its associated companies, including Google. This marks a new era for Google and Alphabet.

There could also be a third result of the changes, a shift away from so-called “moonshots” toward a more traditional approach.

Stern Business School management professor Melissa A. Schilling points out:

“As a professional manager, Mr Pichai will inevitably strike a more cautious stance than Google’s founders … We’re likely to see more risk aversion, and a move to make the company more ordinary.”

Perhaps the biggest test of Pichai’s management skills will come when Google has to face the music on antitrust investigations currently under way by the attorney generals of multiple states, as well as the Justice Department.

Bottom Line on GOOG Stock

Alphabet’s primary source of revenue has always been ad revenue, and it remains ad revenue. And ad revenue shows no sign of fading away in the future. It has even proven to be unexpectedly resilient to the effects of the coronavirus pandemic. That alone bodes well for the future of Alphabet and Google. It also bolsters the bullish case for GOOG stock.

The prospect of a more cautious approach to the “other bets,” which lost $1.12 billion in the last quarter, will be well-received by many investors. Ongoing antitrust investigations may yet cost the company additional penalties, but as Microsoft (NASAQ:MSFT) has proven, big tech companies can survive and thrive these chapters.

Before it was derailed during the coronavirus-triggered March market selloff, GOOG stock had posted growth of 185% over the past five years. It’s back on track once again, up 32% since its March low. With Sundar Pichai in full control, this is a stock that’s well-positioned for continued growth into the future.

Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015. As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/05/alphabet-goog-stock-proven-winner-under-sundar-pichai/.

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