Alphabet: Investing Strategies for 2019

Alphabet is the conglomerate that owns Google. It was created in 2015 in order to rationalize all the companies that belonged to Google. The company is present across the world.

The firm’s largest source of revenue is from ads, which account for 86% of the total. The second source of revenue, “Other revenues”, consists of:

  • Google Play Store
  • Google Cloud
  • Hardware
  • Other products and services.

Alphabet’s history

Alphabet’s history is deeply connected to that of the main company it controls, Google. The latter is an American tech company mainly known for its search engine: “google.com”. It was founded in 1998 by Larry Page and Sergey Brin while they studied at Stanford University. Despite having lost control of most of the shares over the years, they still control the firm via supervoting stocks.

Google was listed in 2004 on the Nasdaq exchange and it has been a great investment for those who participated in it.

Over the years, the company developed several services (Gmail, Google Maps, Chrome, etc.), created many products (Google Pixel, Google Home, etc.) and bought many companies (YouTube, Motorola, etc.).

Alphabet’s financials

Alphabet’s revenue trend over the years looks great. It has almost always posted a double-digit growth rate and it doesn’t seem intent on slowing down, despite its massive size.

The firm’s EBIT keeps soaring, but net income hasn’t increased since 2016.

As of 2017, Google was the king of Internet ads. With its first-mover advantage, the company has managed to create and control a humongous market. However, Facebook has now become an important competitor even though it’s younger than Google. Finally, Amazon could become a big competitor in the future. Although it is not represented in the chart below, Bezos’ company, with its high growth rates in ad revenues, represents a looming threat to Google.

Alphabet’s stock performance

In 2018, as shown in the stock chart below, Alphabet’s shares have so far been moving sideways. After a continuous upward movement, the Mountain View–based firm seems to have reached a temporary peak, in line with the overall market.

If we compare Alphabet’s stock with that of Facebook (its most important competitor in the Internet ad industry), we can see that both stocks dropped during summer 2018, contributing to the overall drop in the Nasdaq index.

Alphabet: investing strategy for 2019

Alphabet is still a growth stock. In fact, its revenues are still rising at double-digit rates and the firm has never paid out a dividend. That’s because the management prefer to invest in the company’s growth. As of 10/30/2018, the company’s P/E ratio is 25.92, which is a bit higher than that of Facebook (19.63).

The company stock’s wide movements make it good for day and swing trading.

Trivia

Both Google’s founders studied in Montessori school. They both credit their success to this experience, as Larry Page has stated: “We both went to Montessori school and I think it was part of that training of not following rules or orders, being self-motivated, questioning what’s going on in the world, doing things a bit differently.” (2)

What do you think about Alphabet’s future? Let me know in the comment section below.

Facebook: Investing Strategies for 2019.

Snap: Investing Strategies for 2019.

Check out my book: A Beginners’ Guide to Stock Investing.

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References

1. https://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_Alphabet. [Online]

2. https://www.youtube.com/watch?v=0C_DQxpX-Kw. [Online]

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