Congratulations to anyone who’s been a long-term investor of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). GOOG and GOOGL shares reached new all-time highs [last] week despite a market-wide headwind of late. GOOG stock’s up 23% for the last twelve months, and is still forging its way deeper into uncharted waters.
[ad#Google Adsense 336×280-IA]The credit for the latest round of bullishness was largely given to the company’s new so-called Pixel smartphone.
And, it’s admittedly an impressive device that was fortuitously unveiled right around the same time rival Samsung Electronic KRW5000 (OTCMKTS:SSNLF) announced it was taking its Galaxy Note 7 off the market due to a dangerous design flaw.
To understand why GOOG stock seems to repeatedly prompt this “new 52-week” high story though, one has to take a step back and look at the company through a more philosophical lens.
There are three big reasons Alphabet Inc is one of only a few truly must-have stocks.
In no particular order:
GOOGL Is Still a Primary Web-Gatekeeper
With just a quick glance at some of the data, it would be easy to conclude Google — and by extension, Alphabet Inc — is perpetually en-route to weaker results. The amount of revenue it collects every time someone clicks on one of its ads has been steadily sinking since 2012, largely reflecting the rise of smartphones, where text and banner ads aren’t as fruitful.
The flipside of that trend is that what GOOGL may have lost in pricing power it has more than made up for in sheer volume. During the second quarter of this year, while its cost-per-click was down another 7%, the number of total clicks it induces was up 29% on a year-over-year basis. The downtrend in cost-per-click values simply reflects the commoditization of an internet-ad market that’s still rapidly growing.
And GOOG is winning a share of that market as it migrates away from computers and toward handheld devices. As of the second quarter of this year, Alphabet Inc’s Android operating system was on a record-breaking 87.6% of smartphones shipped that quarter.
That OS is essentially free to users since it’s more valuable to GOOGL as a platform to sell other products, like ads and apps.
Alphabet Inc’s Innovations Improve
Calling a spade a spade, while the Nexus line of smartphones that first debuted in 2010 (positioned as a Google product, but actually made by HTC) was a respectable player in a tough arena, none of its iterations were truly a match for the far more popular iPhone series, from Apple Inc. (NASDAQ:AAPL). As yours truly has mentioned more than once over the years though, it’s only a matter of time before competitors meaningfully copy a proven technology.
Enter the Pixel smartphone, from GOOG.
The reviews are in, and the smartphone experts love it — even the ones who usually love to love the iPhone and love to hate Google. It may well have the very best camera ever put on board a smartphone, and the built-in Google Assistant takes dead aim at Apple’s Siri. It’s being (legitimately) posed as a potential iPhone killer.
Here’s the thing … it’s not just the smartphone that Alphabet Inc tweaked and tweaked until it came up with something awesome: That’s how it sees and treats many of its products and services.
GOOG Is Not Afraid to Enter New Arenas
Back in 2012, when GOOGL first started to lay its own fiberoptic cables to deliver super-high-speed internet services to select cities, some felt the company was wasting time and money. Broadband was already ubiquitous. It was never about operating a profitable ISP though. The investment was more of a message to existing internet service providers to step up their game and offer a service that ultimately benefits Alphabet Inc (and boost the value of GOOG stock) in other ways.
However, it’s not just fiberoptic service — just as it’s not a smartphone for the sake of selling smartphones.
GOOGL is working on several seemingly unrelated and unfruitful projects, including drones, self-driving cars and even medical technology, perhaps without even knowing fully where those efforts are headed. It simply knows the future won’t look like the present, and there’s value in preparing for multiple contingencies.
Case in point? While the Google Chromecast television-watching tool was always interesting, it was never especially well-received relative to Apple TV or the Roku. Now, we know that was all leading to a Google-branded “skinny” cable television package. Just [last] week, Alphabet Inc announced it had inked a deal to make CBS Corporation (NYSE:CBS) one of the content providers for its new web-based TV service.
Bottom Line for GOOG Stock
Is GOOG stock bulletproof? No, in the same sense GOOGL now poses a real threat to Apple and traditional cable television companies, other outfits can and will pose a challenge to it in the future. Alphabet Inc isn’t a company that ever becomes complacent or comfortable though, and it embraces change rather than resists it, even when it’s not clear where those changes are headed.
It’s a rarely seen philosophy that has been regularly prodding GOOG stock to new 52-week highs since 2012, and really, well before that.
— James Brumley
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Source: Investor Place