Café de la Bourse has put Google’s holding company, Alphabet, under the microscope. We looked at the mission and ambitions of Google’s parent company, the details of its activities, as well as its financial and stock market performance. We also looked at the technical configuration of the Alphabet share price to best prepare for a possible investment. Find our analysis and our opinion on the Alphabet share.
Alphabet: mission and ambition of the holding company that owns Google
Alphabet is an American multinational technology conglomerate holding company headquartered in Mountain View, California. It was created following a restructuring of Google on October 2, 2015 and became the parent company of Google. Alphabet is the world’s third-largest technology company by revenue and one of the most valuable companies on international stock markets. It is one of the Big Five American information technology companies alongside Amazon, Apple, Meta and Microsoft known as GAFAM.
The creation of Alphabet was motivated by the desire to make Google’s core business “cleaner and more responsible” (in the words of its founders Larry Page and Sergey Brin), while granting greater autonomy to companies in the group that perform activities other than Internet services. The company is called Alphabet in reference to the collection of letters that represent language, one of humanity’s most important innovations.
Alphabet owns several companies:
- Calico (health),
- CapitalG (Private Equity),
- DeepMind (Artificial Intelligence),
- GV (Venture capital),
- Intrinsic (robotics software),
- Isomorphic Labs (medical research),
- Verily (health),
- Waymo (autonomous driving),
- Wing (delivery by drone),
- X Development (various technologies)
- and of course the most famous of them: Google!
Google’s mission is to organize the world’s information and make it universally accessible and useful. Each time a search is performed, thousands, if not millions, of web pages or other content are likely to be matched. It is Google’s role to present the most useful information in response to each query made. Google’s search index is the largest library of content in the world. It is made up of web pages, images, books, videos and more.
What is Alphabet’s current strategy?
Alphabet relies on several main axes to steer its strategy: on the one hand, the diversification of its activities and the introduction of new products and services on a regular basis, and on the other hand, business acquisitions.
Starting from the search engine business in 1998, the company’s product portfolio was significantly expanded. Today, Alphabet offers the widest ranges of technology products and services across its many portfolio companies.
Alphabet’s business strategy involves rapid growth through acquisitions. From its inception through 2022, Alphabet has acquired over 240 companies. The internet giant’s ability to effectively embed its corporate culture into new companies it acquires is one of Alphabet’s strongest competitive advantages.
Finally, Alphabet maximizes its profits by creating a closed ecosystem. Google has created a collection of interconnected services and applications. Customers typically enter this ecosystem by using the Chrome browser, watching YouTube videos, or using Gmail. In no time, they are invited to use additional services such as Drive, Play, Calendar and others. The wider the range of products used by a customer, the more Google earns through advertising in different formats.
Additionally, machine learning and artificial intelligence (AI) have been central to the company’s efforts for several years and directly impact Alphabet’s business strategy. The introduction of Google Assistant and its integration into a new family of hardware devices like Pixel and Google Home in 2016 is a big step for the company towards improving machine learning and AI.
Google: Alphabet’s strengths and weaknesses
Overview of Alphabet’s business
Alphabet is a collection of various companies specializing primarily in Internet services and software.
Today, Alphabet is an Internet giant that dominates the markets for mobile operating systems (Android), browsers (Chrome), search (Google Search) and online advertising (Google Ads). Each of Google’s major products, such as Android, Chrome, Gmail, Google Maps, Google Play, Search, and YouTube, has over 1 billion monthly active users.
The Company’s business is divided into three main segments: Google Services (Android, Chrome, Hardware, Google Maps, Google Play, Search, YouTube), Google Cloud (Google Cloud Platforms and Google Workspace) and Other Bets. Google Services generates 92.4% of revenue while Google Cloud generates 7.2%
Google essentially generates revenue by providing performance advertising (click or other action) and brand advertising (merely displaying ads). The company’s most important product is its search engine, or more accurately, the combination of a search engine and search advertising.
Google Cloud Platform (GCP), offered by Google, is a suite of cloud computing services that runs on the same infrastructure used internally by Google. GCP provides a series of services such as servers, data storage systems and turnkey data analysis and machine learning services.
Other Bets or “Moonshots” is a portfolio of promising new companies that are set to change the face of the industry in which they operate or dominate newly emerging industries. These businesses include healthcare, capital investment, internet services, and other businesses. Currently, machine learning and AI development are at the heart of Alphabet’s efforts.
Alphabet’s net revenue breaks down geographically as follows: United States (45.8%), Americas (5.6%), Europe/Middle East/Africa (30.7%) and Asia/Pacific (17.9%).
Fundamental analysis of Alphabet
Alphabet’s Q2 2022 earnings
Alphabet’s revenue and earnings grew in the second quarter of 2022, but remained below analysts’ expectations. Alphabet shares have lost more than a quarter of their value since the start of 2022.
Following the second quarter 2022 earnings release, Sundar Pichai, CEO of Alphabet and Google, said: In the second quarter, our performance was driven by search and cloud. The investments we’ve made over the years in AI and IT help make our services particularly valuable to consumers and highly effective for businesses of all sizes. We will continue to invest responsibly in AI “.
Revenue of $69.69 billion
Alphabet’s second-quarter revenue was $69.69 billion, slightly below analysts’ expectations of $69.9 billion. Revenue growth in the June quarter was 13%, compared to 62% a year earlier. Advertising revenue was $7.34 billion in the second quarter, while the market was hoping for $7.52 billion.
Google Cloud’s revenue, which grew 35.6% year-over-year (the slowest growth in several years), fell short of analysts’ forecasts for the quarter.
Alphabet’s profit remains stable
Alphabet reported a marginal 0.4% increase in profit from $19.36 billion in the second quarter a year earlier to $19.45 billion in the second quarter of the year next. Alphabet’s earnings per share (EPS) reached $1.21, compared to the market estimate of $1.28.
Google’s parent company did not provide financial forecasts for the rest of the year.
Alphabet Technical Analysis
Graphical analysis of the Alphabet share price
Source: Tradingview, indicative data
Alphabet Stock Technical Analysis
Over the past 12 months, Alphabet shares have fallen 27.7%. After several years of stock market euphoria, Google’s holding company is affected by the inflationary macroeconomic context and the rise in interest rates, which particularly affects technology companies.
Since the start of the year, Alphabet stock has been in a declining channel (in gray on the chart). In the short term, the trend is rather negative with an Alphabet share price below its 30-day moving average (in yellow on the graph). The MACD is negative and above its signal line. On the other hand, the stochastic RSI is in the overbought zone, suggesting a potential technical correction in the coming days.
Our opinion on the Alphabet share
Given Alphabet’s slowing revenue growth, some investors have been hasty to take profits to secure the gains accrued from Alphabet’s rising stock price over the past few years. However, it is prudent to look at areas where Alphabet may experience levels of stagnation, or even decline, and those that are performing well and with plenty of room to maneuver.
The cloud is one of them and has a good dynamic of steady growth. This year, the sector has been affected by inflation and falling demand, but these economic difficulties will not last forever and this activity should generate significant growth for Alphabet. Now might be an interesting time to initiate a long-term position in Alphabet stock while keeping a close eye on upcoming releases from Google’s parent company.
Turbo Exchange Alphabet
To trade Alphabet shares, contact your stock broker. For example, you can choose to use a Turbo call or Turbo put type derivative product to take advantage of the upward and downward fluctuations of the Alphabet share.
Image source: Freepik
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