Essential Facts to Consider Before Investing in Alphabet's Shares
Google LLC (GOOGL (-1.37%), GOOG (-1.36%)) currently boasts an astronomical market cap of $2.2 trillion, placing it among the most valuable corporations globally. It holds a commanding position in the arena of internet and tech-related services. Over the past decade, shares have soared an astonishing 550%.
Interested investors might have this remarkable enterprise on their radars as a potential portfolio addition. Before diving in, here are three crucial facts about Google/Alphabet that you must take note of.
Google's extensive digital realm
Investors likely know about Google's prized possession, Google Search. With an 89% global market share, according to Statcounter, this division holds an impressive domain. During the latest quarter (Q3 2024, ending Sept. 30), its revenue stood at an impressive $49.4 billion, accounting for 56% of the company's overall revenue.
However, Google's dominance extends far beyond Google Search. There are various segments that contribute to its vast empire, including YouTube, Android, and Google Cloud. Inside the "other bets" segment, autonomous driving company Waymo plays a significant role.
Google is without a doubt a powerful digital behemoth. Five hundred million people or more utilize fifteen of its products and services, giving it an extensive reach.
It's essential to acknowledge that digital advertising forms the primary source of revenue for this company. The last quarter saw $65.9 billion in revenue generated from these advertising efforts, accounting for 75% of the total. Google leads the global market in digital advertising.
Financial strength
Investors will struggle to find many corporations as financially sound as Google. For the past five years, it has consistently posted an average operating margin of 27.1%. Its massive size allows it to easily cover all expenses, leading to solid bottom-line performance.
The firm is also swimming in cash. Over the last three months, it generated $17.6 billion in free cash flow, representing 20% of its total revenue. This surplus now funds share repurchases and dividend payouts.
Google's financial status is nothing short of immaculate. By Sept. 30, its cash reserves totaled $93.2 billion, including cash equivalents and marketable securities. This outstripped its long-term debt of $12.3 billion.
Investing in such firms significantly minimizes financial risk. The likelihood of Google encountering financial difficulties or the need to raise capital during unfavorable circumstances is minimal, providing shareholders with peace of mind.
Having such financial resources also enables Google to continue exploring growth opportunities. Lately, its focus has been on artificial intelligence (AI), directing resources to develop features that enhance user and advertiser experience.
Unwavering competitive edge
For investors to augment their chances of success, they should place greater emphasis on procuring businesses that possess an economic moat. This means they have robust, sustainable competitive advantages in their respective industries, protecting them from the looming threat of disruption.
Google fits this description. Its primary strength relies on network effects. Google Search, its crown jewel, becomes increasingly valuable to users, advertisers, and website publishers as it grows.
Viewed in this light, it becomes evident just how challenging it would be to launch and scale a competing service that could even narrowly approach Google Search's dominance. While there are other search engines available, none can rival Google's unassailable industry leading position.
The firm also thrives due to its renowned brand. It possesses an unmatched ability to collect colossal amounts of data that other companies can only envy. From Google's standpoint, this virtuous cycle continually improves its products and services, making them even more valuable to its multifaceted user base.
Investors interested in Google's financial performance might be attracted to its high operating margin of 27.1% over the past five years, indicating a strong financial foundation. Additionally, the company's robust cash reserves of $93.2 billion as of September 2024 provide a cushion against financial risks and fuel its exploration of growth opportunities, such as artificial intelligence.
