"What happened?" It's a question often posed to celebrity crushes that are now decades past their prime. And it seems like an appropriate inquiry for Alphabet Inc (NASDAQ: GOOG , NASDAQ: GOOGL ). GOOG stock is the anchor among the so-called "FANG" stocks, which include Facebook Inc (NASDAQ: FB ), Amazon.com, Inc . (NASDAQ: AMZN ), and the hot-running Netflix, Inc . (NASDAQ: NFLX ). Arguably, GOOG is the most culturally significant of the bunch, yet its recent performance has left a lot to be desired.
For 2016, GOOG stock returned a whopping 4% even. To put that underperformance into perspective, Alphabet Inc gave shareholders 48% returns on average during the 2000s decade when it was first introduced to the markets.
Inclusive of last year, its lifetime average is now a little bit above 30%. In fact, compared to the other FANGs, GOOG stock is the absolute worst. And while it's almost identical to Facebook's overall performance, both Amazon and Netflix put Alphabet Inc to shame.
That's the kind of post-mortem talk you hear on CNBC when reality finally catches up to a speculative company. Certainly, it's not the kind of metric you expect from a bigger-than-life-itself organization like GOOGL. I mean, this is a company that was the centerpiece of a Vince Vaughn and Owen Wilson movie - and they totally agreed to it!
But just like the movie's plot, outside appearances can be deceiving. Here are a few reasons why you should still give GOOG stock a chance.
GOOG Is More Than a Search Engine
First off, Alphabet Inc isn't just a search engine. Yes, I completely understand the argument that the vast, overwhelming majority of its multi-billion dollar business derives from advertisements. However, there are unmistakable signs of diversity.
As InvestorPlace contributor Will Ashworth points out , in the third quarter of fiscal year 2016, "GOOGL generated $2.4 billion in other revenues, 39% higher year-over-year and 12% sequentially. This represented 10.9% of the Google segment's overall revenue of $22.3 billion. For the first nine months of the year, Google's other revenues came to $6.7 billion, 31% higher than a year earlier." Essentially, Alphabet Inc can spin off a brand new business separate from advertisements, and it would do just fine.
Indeed, GOOG stock is backed by coverage of over 157 products , according to another InvestorPlace colleague, Aaron Levitt. While a good chunk of the offerings are web-based applications, such as Gmail, Maps and Chrome, "the firm has continued to plow some big-time dollars onto the physical device market." As we move forward, GOOG stock may be less recognized as an app investment, and more as a consumer electronics investment similar to Apple Inc . (NASDAQ: AAPL ) or Sony Corp (ADR) (NYSE: SNE ).
As both Ashworth and Levitt note, diversification towards physical devices and non-core businesses don't necessarily endear folks to GOOG stock. Many of these divisions are money losers. The Motorola venture was a particularly rotten deal.
However, I wholeheartedly agree with Ashworth's thesis: "As painful as it is for investors to see Alphabet pour good money after bad into its Other Bets, GOOGL stock depends on it. Because its legacy business likely won't be this profitable 10 years from now."
Alphabet Inc Has the Ultimate Trump Card
Perhaps most analysts bullish towards GOOG stock have laid out similar arguments - Alphabet Inc is more than just a one trick pony. Considering all the evidence, it would be foolish to attempt to counter it. But allow me to shamelessly grab the ultra-low hanging fruit. Just what the heck is wrong with being a one trick pony?
We're not talking about Polaroid here.
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By investing in GOOG stock, you are taking ownership in not only a massive company, but a cultural phenomenon.
Consider that among the most popular search engines on the internet, Google beats out second-best competitor Bing by a margin of 300%! Startlingly, the gap between first and fifth place is nearly 1,200%. Against the bottom run of the top ten, the gap is nearly 12,000%.
In other words, if you think that Google will ever be upended by anyone else, think again. No other investment besides GOOG stock has such dominance over their industries that people refer to it by the company name. We Google things on the web. And until the day I hear "I'll iPhone you," people can rest assured in their GOOG position.
Put in the simplest of terms, unless there are Russian ICBMs raining down on us, I would never short GOOG stock. The only caveat would be to point out instances of potential technical weakness. Even then, the volatility would likely be on a short-term basis. As I stated above, Alphabet Inc has too much of a powerful brand to ever fail.
As of this writing, Josh Enomoto was long SNE.
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