- Google is the world’s most essential utility.
- Management has not ruined what the founders built.
- GOOG stock has become a safe investment for long-term capital gains.
I resisted buying Alphabet (NASDAQ: GOOG, GOOGL) stock for years because it’s the most conservative of the Cloud Czars. The company, managed by CEO Sundar Pichai and CFO Ruth Porat, mostly stays in its lane. Yet, GOOG stock is up around 40% in the past year and 245% in the past five years compared with a 14% one-year return and a 92% five-year return for the S&P 500.
Google dominates search. It continues to build new cloud data centers. It sells a lot of advertising. It sells cloud-based data services. In 2022, this is a business that’s easy to understand.
The result has been incredible growth and insane profits. Alphabet’s revenue grew 41% last year to $257.6 billion, more than twice that of General Motors (NYSE:GM). Its net income nearly doubled to $112.20 per share.
The 20:1 stock split, announced with earnings, was overdue. It will take place on July 1. Should investors consider buying GOOG stock ahead of the split? Let’s take a closer look.
| GOOG | Alphabet | $2,865.00 |
Unmet Expectations
Alphabet co-founders Sergey Brin and Larry Page no longer work for the company. They’re enjoying life as centibillionaires. However, today’s company is based entirely on what they did.
The “Google Guys” created an intense focus on search, which Wall Street grossly underestimated. They pushed engineering solutions to the problems of scale, resulting in today’s cloud technology. They bought Doubleclick, which became Google Ads. They bought video-sharing site YouTube, one of the most profitable acquisitions any company has ever made.
Porat and Pichai have stripped the company down. Their main contribution has been Google Cloud. It managed to lose $890 million last year while rivals Amazon (NASDAQ:AMZN) Web Services and Microsoft (NASDAQ:MSFT) Azure were wildly profitable.
One result of their management has been declining loyalty among formerly coddled workers and even the rise of a labor union. The original mantra of “don’t be evil” has evolved into “don’t make waves.”
A Wall Street analyst might reply, “Not that there’s anything wrong with that.” There’s nothing an owner wants to see more than management keeping talent in line.
Too Much Bull
After years of hesitating over these issues, I finally put some Google shares into my retirement account in January. They’re up 7%.
Unlike those analysts now pounding the table for the stock, I consider Google a conservative investment. I’m not expecting it to beat Apple (NASDAQ:AAPL) in phones or PCs. I’m not expecting its voice interface and streaming video hardware to beat Amazon. I’m not betting on Thomas Kurian of Google Cloud. Google’s “other bets” will continue to spin out, but they won’t make me rich.
The stock split, which will turn my 20 shares into 400 in a few months, merely lets Alphabet take its earned place in the Dow Jones Industrial Average.
Google search has become the most vital utility of the 21st century. Chinese people still use it. Russian people will find ways to use it. Its ubiquity ties the world’s information together.
Google’s dominance means governments around the world now have the tools, and incentives, to rein it in. The problem is that fighting Google only makes it less useful to those who fight it hardest. The fight over “privacy” even turned into a Google win. It moved ad market share away from Meta Platforms (NASDAQ:FB), and the smaller players, like Shopify (NYSE:SHOP), aligned with it.
The Bottom Line on GOOG Stock
GOOG stock topped $3,000 a share for the first time in November. However, with the company’s stellar earnings and the tech sell-off, Alphabet’s price-to-earnings ratio is down to around 25.
A scaled, growing company selling at 25 times earnings looks cheap here. Especially one with $140 billion in cash and securities on the books. Alphabet has nothing to fear from rising interest rates.
Just don’t buy the hype that mega-cap stocks like GOOG stock can do nothing but soar. This is a conservative play for conservative investors who want steady capital gains.
On the date of publication, Dana Blankenhorn held long positions in GOOGL, AMZN, MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.
