Alphabet (GOOG, GOOGL) has been one of the best-performing large-cap tech stocks of 2015. Google stock is near all-time highs right now, up nearly 50% this year and supporting a market capitalization of $540 billion. This makes GOOGL the second most valuable company in the world, behind only Apple (AAPL).
Looking ahead to 2016, is it possible that the Google stock price will go even higher, and GOOGL become even more valuable?
Is GOOGL Worth $600 Billion?
Fact is that if Google stock goes much higher, it will be even more valuable than Apple.
In the event that AAPL trades flat, if Google stock were to trade higher by just 15%, then GOOGL would likely become even more valuable than AAPL due to the latter’s aggressive stock buybacks.
That would be hard to imagine given the difference between the actual sizes of these two companies.
| Company | 12-month Revenue | 12-month free cash flow |
| GOOGL | $71.7 billion | $14.6 billion |
| AAPL | $233.7 billion | $69.8 billion |
Given the information above, it is clear to see that much of GOOGL’s valuation is based on speculation, something quite odd for a company of its size.
GOOGL vs. FB Takes Form in 2016
Looking ahead to 2016, the problem with Google stock is that so many of the catalysts that have driven its stock higher the last few years must deliver real revenue and profits for the company. Yes, GOOGL has a near $60 billion per year advertising empire, but its ad prices are also far higher than that of competitors like Facebook (FB) and Twitter (TWTR).
While GOOGL’s advertising business may be safe, the chances of it delivering double-digit growth long-term is very slim given the scale and affordability that FB can offer its advertising customers. Therefore, GOOGL must seek growth elsewhere.
Over the past few years GOOGL has gained this lift from YouTube and Google Play, which are expected to deliver revenue of $7 billion and $4 billion, respectively, this year. However, YouTube now faces new competition from Facebook videos and a slew of new mobile video platforms. And with Android already dominating almost 80% of the world’s smartphone market, it is hard to imagine it growing much larger.
With that said, there are clear bright spots for GOOGL, with one being mobile apps. According to a study by Nielsen, GOOGL owns five of the top seven mobile apps in the U.S., a presence that has helped catapult its mobile ad revenue during a time when desktop Internet use has declined.
This is a trend that is likely going nowhere, and remain a bright spot for several years to come.
GOGL Side Projects Must Deliver
However, what really concerns me for Google stock in 2016 are all of these side projects that many investors think can become multibillion-dollar businesses. Two examples are self-driving technology and high speed broadband Internet, known as Google Fiber.
For the record, I think self-driving technology could be Google’s next big thing. However, it will be 2020 before this technology hits the roads for consumers to purchase, use, lease, or whatever. The big question is whether the hype for this technology will die by then, something I think is very possible as investors get tired of waiting and speculating.
Fiber could be an even bigger problem. Last year Google stock owners thought that Fiber could revolutionize the broadband space, collecting tens of billions in the process. However, companies like AT&T (T) are expanding their competing services much faster, by using technology that lays over existing fiber coaxial instead of laying new fiber connections.
In other words, companies like AT&T and Comcast (CMCSA), with existing fiber infrastructure in place, can upgrade speeds at just a fraction the cost and at much faster rates. Hence, Fiber may not be the disruptive service that so many GOOGL investors hoped for.
What to Expect From Google Stock in 2016
At the end of the day, it is very hard to imagine that Google stock goes much higher, if higher at all in 2016. That’s not because Google isn’t a great company … it’s just not worth $600 billion, or the status of being the world’s most valuable company.
Instead, there are two likely scenarios for Google stock. First, it either sees a significant, double-digit pullback in 2016 as many of these anticipated catalysts fail to materialize. Or second, Google stock begins a multiyear span of range-bound trading.
During a five year span from 2007 to 2012, GOOGL was pretty much flat. Since then Google stock has broken out, more than doubled, and looks ready for another 2007-2012-like trading pattern.
In other words, if Google does not start paying a dividend or launch a massive buyback soon, the list of reasons to own Google stock is getting shorter by the day.
As of this writing, Brian Nichols owned shares of T and AAPL.
