The Bull Case For Alphabet: It’s been a good year so far for Google’s parent company, Alphabet – at least looking at the financial statements.
Despite a challenging economic environment, the Mountain View-based tech conglomerate has seen its financial results remain relatively stable of late.
The company enjoyed a record-breaking First Quarter earlier in 2022, posting its highest ever quarterly sales total of $75.3 billion.
On top of that, the firm also announced it had managed to grow its revenues by 13% in the most recent quarter too, reporting a top line of $69.7 billion during the period, with net income for the Second Quarter coming in at a solid $16.0 billion.
And while it’s pleasing that GOOGL’s delivering such great news on the earnings front, there’s still so much more for investors to get excited about when it comes to the business’s long-term prospects.
Here, we’ll outline 3 factors that make the bull case for buying GOOGL shares today.
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Google Cloud: The Most Important Catalyst?
While Alphabet’s cloud division is rapidly expanding its revenue footprint just now, the segment is also fast becoming one of Google’s strongest business moats as well.
Indeed, Google’s investment in its cloud services has helped position it as a leading player in what is a highly competitive market. The company flooded cash into its many data centers, improving its availability zones to make it one of the industry’s most robust and available cloud architectures right now.
Moreover, Google’s superior technological capability makes it an easy choice for consumers looking for cutting-edge performance. Its real-time analytics make use of powerful AI and machine learning capabilities, and its open-source cybersecurity software, slated for release later in 2022, promises a comprehensive solution for organizations without the resources or expertise to implement such a sophisticated program.
Being able to attract businesses in this way is a crucial advantage for Alphabet. The company is actually way behind Microsoft and Amazon when it comes to taking its share of the cloud market, accounting for only 8% of worldwide spending versus its rival’s respective 21% and 33%.
Although the segment isn’t profitable yet, this can easily be explained by the rate at which the operation is scaling, with the lack of bottom line income compensated by its huge revenue haul.
In fact, Google Cloud is growing faster than its main rivals Microsoft Intelligent Cloud and Amazon Web Services, and, if current trends persist, it’s likely it could become profitable sometime in 2023. Indeed, Google Cloud improved its revenues by 36% in the Second Quarter, growing from $4.63 billion in 2021 to $6.28 billion in 2022.
And when that shift happens, the effect will be transformative. Alphabet is, in reality, an advertising company at the moment – albeit a very big and successful one at that. More than 80% of last year’s revenue came from its ad-linked business services, despite that being a very precarious position to be in.
In fact, advertising revenues could decline in the future, with Amazon and TikTok posing as increasingly formidable competition in a space that Google once dominated with ease.
However, with another potential moneymaker in the pipeline, Alphabet is set to capitalize in a big way when its cloud division goes net positive.
Google’s Irresistible Ecosystem
There’s little cooperation when it comes to the big tech companies these days. In fact, the battle between the five most prominent FAANG enterprises has come to resemble something of a fight to the death recently.
Facebook is at war with Apple, while Amazon is battling nearly everyone for the right to broadcast certain sports events, at least in the United States anyway.
The reason for such animosity is due to the fact that the stakes in this conflagration could hardly be higher. The so-called “walled garden” nature of each company’s product offerings means that any customers gained today could be ones that stay with their chosen brands for the rest of their earthly lives.
Indeed, one of the key skirmishes in this respect happens to be between Google and Apple – or, more specifically, between their respective Android and iOS operating systems.
In fact, so incompatible are the two software programs that, when a user opts for one or other of the systems, they tend to stick with that system for all their future online needs.
And this is actually a win for Google.
You see, under Alphabet’s various umbrella organizations are found some of the globe’s most revered and widely used applications.
It goes without saying that, with a 92% share of the worldwide search engine market, Google is clearly top of the pack when it comes to web-related search queries.
Furthermore, the company excels at many other Internet and digital endeavors, including running the largest and most impactful video hosting website, as well as being the most popular email provider too.
What all this adds up to is the ability to keep customers tied into Google’s ever-enlarging ecosystem, pitting the company as the sole contender to Apple’s much-vaunted role as the application kingpin.
Hardware Is Alphabet’s Wildcard
This might come as a surprise to many people, but Google is second only to Amazon when it comes to sales of smart home device equipment. What’s more, it’s estimated that the company will move up to 10 million units of its Google Pixel phones this year as well.
Plus, it isn’t just the strength of its growth in this department that’s good news either. Google has a lucrative subscription business to go along with its Pixel sales too.
Indeed, its Pixel Pass option is designed to save customers money, which makes it an easy buy-in for the brand’s most loyal smartphone customers.
Furthermore, since the product allows access to a number of the firm’s paid services, it’s also sticky too. In fact, the plan offers subsidized rates on YouTube Premium and Google Play Pass, as well as free Google One cloud storage and a Preferred Care Coverage package.
In parallel to its subscription efforts, Alphabet also benefits from its Google Play business model, a feature that functions as a giant storefront already built into its Android smartphones.
Ultimately, the store is used as a marketplace for a variety of apps, highlighting TV shows, books, music and movies.
If that’s not convincing enough, Google also has a thriving “Other Bets” segment too – one that’s developing both nascent and more mature projects that could come good sometime in the future.
The division is home to a few fairly well-known outfits, including DeepMind, the British artificial intelligence company that created arguably the most powerful chess engine in the world, as well as Waymo, Google’s autonomous driving technology solution.
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