Google's Future. Alphabet

Dear Reader,

Alphabet, the company behind the ubiquitous search engine google, has lately trailed significantly both in market capitalization and stock price appreciation the other giant technology companies Apple, Amazon and Microsoft.

Why? The main reason is that the main growth engine for Alphabet's revenue and profits, namely the internet advertising market, is 3-4 years away from saturation. With other words, the growth rate of the internet advertising market is slowing down, so Alphabet is not expected to grow its revenue and profits as fast as in the past and this is reflected in its stock price, which appreciated less than that of Apple, Amazon and Microsoft year to date.

The next growth frontier seems to be the cloud services market or infrastructure as a service market. Alphabet, Google, is the third largest competitor in the cloud services market behind Amazon and Microsoft. But Alphabet's cloud infrastructure as a service market share is only 4.0% compared with 47.8% and 15.5% for Amazon and Microsoft respectively in 2018.

Alphabet has to diversify its revenue away from its google search advertising which makes approximately 61% of its most recent reported 2020 quarter revenue. Yes, YouTube ads revenue are growing fast since video watching is a mega trend.

So basically Alphabet has staked its future on cloud services and videos. The market for video advertisements, television ads including, is much bigger but the market for cloud services is growing at a rapid clip. Alphabet needs to increase its market share in cloud services fast, if it wants to add value to shareholders and ultimately reach much higher market capitalization.

That said, I believe that Alphabet, Apple, Amazon, Microsoft and Facebook are currently overvalued by more than 30 %. The overvaluation at Alphabet is comparatively smaller, due to the not so high Alphabet's, Google, stock price appreciation as of late.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich