Yahoo Finance Alphabet in 2016: Should You Buy GOOG Stock?
Some investment puns pack true substance. So when Todd Antonelli calls Google and its related ventures "alpha-bets," he sums up what many investment experts see as the key to the tech giant's future.
As everyone knows, Google long ago evolved into more than just a ubiquitous search engine. But in breaking down the various parts of Alphabet (GOOG) -- the name the company adopted in August -- you can get a clear sense of just how much of a juggernaut it's become and where it's going to place its new high-tech wagers in 2016.
"Alphabet gives it freedom to expand beyond its core business," says Antonelli, managing director of the Berkeley Research Group in Chicago, who predicts that Alphabet will adding to a list of products that includes the billion-strong Android smartphone system, Google's lightning-fast Internet fiber, Google Express delivery service and Google Glass smart eyewear.
But not even Google Chrome and a certain search engine can hunt down the answer to this question: Can all of Alphabet's activity translate to continuous, increased value for shareholders? Or: As Alphabet places its wild wagers, should investors follow suit with GOOG stock?
A rough start to 2016. GOOG stock struggled through the first week of 2016, down more than 5 percent, although it's still outperforming the Nasdaq exchange, which fell more than 7 percent in the market's early swoon.
And without a doubt, some of Alphabet's pet projects are just plain wacky by Wall Street standards. Stratospheric Wi-Fi balloons. Levi's smart jeans (do they tell you when your waistline needs to lay off the Twinkies?). Self-propelled cars aiming to become Uber without the driver. But as some observers explain it, the creation of Alphabet means that these projects -- some of them, anyway -- could quickly turn from pipe dreams to cash pipelines.
One organizing principles behind forming Alphabet "is to expose its 'moonshots' to greater internal scrutiny," says Barry Randall, chief investment officer of Crabtree Asset Management in St. Paul, Minnesota and manager of the Crabtree Technology portfolio on Covestor. "This imposes a kind of intramural pressure among them to meet or exceed agreed-upon goals, whatever they be."
Meanwhile, some of Alphabet's hot properties have already arrived. Who can deny the power of YouTube, for example? It has turned a host of otherwise obscure 20-something comedians and creatives into wealthy celebrities and entrepreneurs.
"According to the YouTube website, the number of people watching YouTube per day is up 40 percent year over year from March 2014. Eighty percent of the viewership is outside the U.S.," says Gary Tsarsis, clinical assistant professor of business administration at the University of Pittsburgh's Katz Graduate School of Business.
And talk about a ratings bonanza the likes of which network or cable TV has never seen: "YouTube currently has more 1 billion users," Tsarsis says. "The cord-cutting trend looks like it will continue and this will benefit Google."
Alphabet has a new structure. Yet Alphabet also has an inside story investors will want to study, and that involves how a new corporate structure makes room for other leaders to take charge of the former Google's various divisions.
"It creates headroom for talented executives such as Google CEO Sundar Pichai, Tony Fadell of Nest [a smart thermostat property] and YouTube's Susan Wojcicki," says Rita McGrath, a professor at Columbia Business School. "They might get restless if they perceive they've been steamrollered by the success of the cash-printing machine that is Google's advertising business."
Others point to one potential bump in the road for the Alphabet posse and its investor acolytes. "Google is still excessively distracted," says technology analyst Rob Enderle of the Enderle Group in Bend, Oregon. "They have never been able to find a technology they didn't want to invest in and continue to have the focus of a small child on lots of sugar."
That said, Alphabet is in the position of having money to burn while still staying hot. And that could set them up to buy big in the one area where they've actually stumbled badly: social media.
"Google's forays over the last decade have all failed," says Larry Kim, founder and chief technical officer of WordStream, an online advertising platform. "They are too big to not have any credible offering in this space and need to buy a social media company."
Well, how about the struggling Twitter (TWTR)? "Twitter could be great if they had Google's experience with algorithms and monetization," Kim says.
Google has been a Wall Street star. Maybe it could lend Twitter one of those cash-printing presses, too. Since its initial public offering in 2004, Alphabet's stock price has risen an astronomical 1,600-plus percent. But before you heave a high-tech sigh for missing the boat, keep in mind that many market observers see more boisterous years ahead.
"There is a lot more value still to be unlocked from Alphabet," says Daniel Beckerman, also a Covestor portfolio manager and president of Beckerman Institutional in Oakhurst, New Jersey. "I like to use the analogy of an early-stage Berkshire Hathaway (BRK.A, BRK.B). Investors now look back and say a single share of Berkshire Hathaway purchased decades ago is now worth close to $200,000. It blew away the performance of the Standard & Poor's 500 index, and I think that in 30 years time, Alphabet will also be an impressive story."
As for the near term, "We expect another year of tremendous growth and innovation from Alphabet," says Craig Palli, chief strategy officer of the mobile marketing technology company Fiksu. "They're a top investment due to their leadership in all major tech growth areas: mobile, digital, video, and up-and-coming technologies such as autonomous cars, virtual reality and the Internet of Things."
So in the end, should investors put their money into Alphabet? If Wall Street can truly be likened to a casino, then at least one wager is tipped in favor of those poised to take a calculated risk.
"I was at Morgan Stanley in 2004 when Google went public," Beckerman says. "Since then, it has continued to be a mistake to bet against them."
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