California-based Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is among the most famous companies in the U.S. However, it’s not unusual for people who trade GOOG stock to call the company Google because the search engine is a major revenue driver for Alphabet.
However, not everyone is convinced Google represents the future of internet search engines. As we’ll see, at least one critic is bracing for Google to be supplanted by another well-known entity on the web.
It’s interesting to consider whether Google — and therefore Alphabet — can remain dominant in the search-engine arena. At the same time, some value investors might wonder whether GOOG stock is really worth thousands of dollars per share.
These are valid questions, so we’ll explore Alphabet’s value proposition in the face of Google’s apparent competition. Right now, though, we’ll start off by considering whether GOOG stock is really as pricey as it might seem.
A Closer Look at GOOG Stock
During the peak panic phase of the Covid-19 crisis in March of 2020, GOOG stock bottomed out at around $1,000. That might sound like a very high share price, but it actually turned out to be a major bargain.
The stock ended up tripling from there, though it didn’t happen overnight. It took until November of 2021 to finally reach $3,000 — but who could complain about a 200% profit?
Heading into late February 2022, GOOG stock backed away from $3,000 and headed toward $2,500. So, is this an expensive price for the stock, or is it actually fairly cheap?
To help answer that question, consider that Alphabet’s trailing 12-month price-to-earnings ratio is just 23.6x. For a world-famous technology name in the 2020s, that’s quite reasonable.
Is Google Dying?
A recently posted blog, courtesy of search-engine blogger DKB, has an ominous title: “Google Search Is Dying.”
Are you tempted to dump your GOOG stock shares right now? Don’t be hasty, as we need to find out why DKB is so pessimistic about Google’s search engine.
Immediately under the section titled, “How do we know Google is dying?” the author declares, “If you’ve tried to search for a recipe or product review recently, I don’t need to tell you that Google search results have gone to [expletive].”
I’ll let you figure out how DKB ended that sentence. In any case, it appears the author may be guilty of hyperbole. I, for one, use Google dozens of times on a daily basis. I’ve tried other search engines, but the results just didn’t suit my research needs as effectively as Google has. Surely, I’m not the only one who feels this way.
Understanding the Business Model
DKB continued, “You would have already noticed that the first few non-ad results are SEO optimized sites filled with affiliate links and ads.”
Yes, of course — that’s how Google makes money. People are accustomed to those ads, and even Boomers understand those aren’t the main search results.
It’s a business model that’s working extremely well for Alphabet. Consider, if you need data to back this point up, that Alphabet generated $43.3 billion in revenue from its search category during 2021’s fourth quarter.
That’s a major improvement over the already-impressive $31.9 billion generated in that revenue category during the year-earlier quarter.
DKB’s post seems to imply Reddit is more relevant than Google nowadays. What I’d like to see is evidence — in the form or revenue-generation numbers — to back up that claim.
Until that evidence is presented, Google is still the undisputed heavyweight champion of U.S. search engines.
The Bottom Line on GOOG Stock
No, Google isn’t dying. It’s alive and well, and it’s a terrific moneymaker. As far as GOOG stock is concerned, don’t let the quadruple-digit share price fool you. It’s actually a cheap stock when we take into account Alphabet’s ability to generate revenue.
Therefore, technology investors should consider adding a share or two of Alphabet. If that’s too pricey, some brokers might offer fractional shares — so feel free to research that on Google, not Reddit.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
