Why Should You Invest in Google?
Google is one of the most famous brands in the world, as well as one of the most valuable stocks on the market. The tech behemoth now owns the majority of people's search engines, video sharing sites, email inboxes, web browsers, and virtual assistants around the world. It is gaining ground on analytics and advertising platforms, virtual conferencing, mobile operating systems, spreadsheet and document processors, etc. In summary, currently, it's almost difficult to avoid using Google in some capacity.
In 1998, Google started as a rudimentary search engine in a garage, assisting users in finding relevant online results. Since then, the firm has grown into many interconnected goods and services spanning a wide range of sectors, all of which aim to make people's lives simpler. In 2020, the corporation will have surpassed the $1 trillion valuation milestone.
While the search engine is undoubtedly the company's bread and butter, it has also had great success with other products such as:
Since 2015, the parent firm has been referred to as Alphabet. This reorganization distinguished Google from "moonshot" side projects such as autonomous car technology. Even though Google is a pretty diverse tech product in general, most of its income comes from its digital advertising platform, Google Ads (previously AdWords), which allows businesses to pay for clicks to drive traffic to their websites. These are the advertisements that appear at the top of search results pages and on websites you visit, such as YouTube. This income should continue to rise as more firms adopt and embrace digital platforms, particularly in the aftermath of the epidemic.
Google's profits are frequently higher than expected. In the smart home appliance area, the business is now competing with Amazon, and it has also just created a cloud-based gaming platform. With the Pixel, they're also competing with Apple in the smartphone market. These may be losing fights, but income is just a minor part of the overall picture.
In 2004, Google's shares went public. It may have passed its peak of record-breaking growth, but that doesn't mean it can't still be a safe option for long-term development, as its user base should continue to expand and utilize the company's many platforms. Google has a staggering 92 percent worldwide market share, and its Android OS isn't far behind in terms of mobile handsets, for which Google is the default search engine. YouTube Music and YouTube Premium now have a combined total of over 30 million paying members.
As a result of many companies cutting down on digital advertising costs during the COVID-19 epidemic, travel searches (and consequent bookings) declined dramatically in 2020. This is excellent news; the stock price may be at a low point, making it a fantastic time to purchase. As marketers and searchers return, we may see a big bounce in early to mid-2021.
Fundamentals of the Google (Alphabet) Stock
Let's clear things up before we go any further. When we say "invest in Google," we mean "invest in Alphabet, Google's parent firm."
Alphabet is a holding company with a variety of subsidiaries, but Google's internet search and advertising services account for the great bulk of its income. Apart from that, Alphabet owns Waymo, a self-driving vehicle startup, Verily, a life-science research organization, DeepMind, and other businesses.
Furthermore, when we discuss investing in Alphabet, we might refer to GOOGL, GOOG, or both. Alphabet's stock is divided into two categories — theoretically three. The ticker symbols for the two most popular equities accessible to regular investors are GOOGL and GOOG, and both companies are listed on the Nasdaq stock market.
Here's a short rundown of what's going on:
GOOGL is a common stock with a class A rating, and shareholders have voting rights with this sort of stock.
GOOG is a class C stock, which means it doesn't have voting rights, which is the main distinction.
The class B form of Alphabet stock has more voting rights than the other two. Only Google executives, founders, and other insiders own these shares, and the ordinary retail investor does not have access to Class B shares.
Both companies' prices tend to follow similar patterns. However, GOOGL may be significantly more costly at any one moment due to its voting rights.
Let's get started with the basics.
Larry Page and Sergey Brin, two Stanford University graduate students, founded Google in 1998. Since then, it has risen to the top of the search engine rankings, commanding about 90% of the market.
While Google is best recognized for its search engine, its main source of income currently is online advertising, which accounts for upwards of 80% of its total revenue. Google has carved itself a significant interest in mobile advertisements and applications by assisting in developing the Android operating system.
Google's cloud computing operations, including everything from Gmail and Google Docs to dozens of additional artificial intelligence, machine learning, and data-storage capabilities, are a fast-growing moneymaker.
To invest in Alphabet, you don't need to be a computer scientist, but you should do your research beforehand by learning more about the company's major business operations.
Start by looking at the company's most recent earnings reports to better understand its finances. These materials may be found on the company's website in the investor relations section. The Securities and Exchange Commission (SEC) of the United States gathers documents about publicly-listed corporations, which anybody may see on the SEC's website.
You should think of the company's stock performance in the past and its finances. You can discover important stock measures like GOOGL's price-to-earnings ratio (P/E ratio), earnings-per-share (EPS), market capitalization, beta coefficient (a measure of a company's volatility), and more on sites like Nasdaq, Bloomberg, and CNBC. You may compare these indications to the stock market and other tech businesses to see whether the stock is a suitable match for your portfolio.
You might also consider the findings of leading Wall Street businesses. The same three websites also compile the most recent Google news and analysis and its stock metrics.
Analysts are currently optimistic about Google's prospects. Despite its size and age, the firm has sustained double-digit sales growth over the previous decade. A P/E ratio of higher than 25 suggests that investors anticipate the company to expand even more in the future. Of course, this figure should not be considered in isolation.
Other IT businesses' P/E ratios should be evaluated. In comparison to the other cult-like FAANG or FAAMG companies — Meta (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) or Microsoft (MSFT), and Alphabet (GOOG or GOOGL) — Google's stock has a P/E ratio that is greater than Meta but lower than the others. In general, tech businesses have higher P/E ratios than companies in other sectors, but an excessively high P/E ratio for its industry might signal the stock is expensive.
Given that GOOGL's P/E ratio is lower than many other FAANG companies, it's a sign that the company isn't inherently overpriced, despite its large price tag.
But it isn't all plain sailing. Google is facing difficulties, according to bearish investors, owing to politicians' heightened interest in pursuing antitrust laws. Google has a near-complete monopoly on the search engine business and controls a significant share of all internet advertising. Antitrust regulations might disrupt that relationship, causing severe losses for Google, largely reliant on those critical income streams.
The Most Recent Financial Figures From GOOGLE
The latest earnings report from Alphabet for the fourth quarter and fiscal year 2021 showed tremendous growth on top of a great year. Year over year, Alphabet's sales increased by 41%. Its quarterly sales of $75.3 billion and profits per share of $30.69 exceeded estimates.
Due to the rise of competitor TikTok, Alphabet's ad income on YouTube was the only area where it fell short of forecasts. Alphabet reported a 45 percent increase in revenue year over year on the cloud computing front, to $5.54 billion. Despite pandemic-related supply-chain challenges, Alphabet CEO Sundar Pichai claims that Google's Pixel smartphone set a new sales record.
All of this shows that Alphabet is not just surviving but flourishing in the face of the pandemic's hurdles.
Alphabet also announced a 20-to-1 stock split in conjunction with its results announcement. Stockholders will get 19 more shares for each share they own on July 15 if shareholders approve the proposals. While the move makes a single share of the firm considerably more inexpensive, it does not affect the company's fundamentals. That's great news for individual investors who are turned off by the prospect of shelling out thousands of dollars for a single stock.
During the coronavirus epidemic, Google stock underperformed Apple, Facebook, and Amazon, and this trend lasted until 2020.
The internet is the company's principal source of income. As a result, when companies lowered their advertising spending due to COVID-19 losses, it impacted the world's largest advertising platform – Google.
Google's revenue in the second quarter of 2020 was $38.3 billion, down 1.5 percent ($600 million) from the same time the previous year. It was Alphabet's first revenue drop year over year. Although the loss was not significant, many investors were concerned about the company's possible revenue decline.
The company's third-quarter expectations were higher attributable to the reduction of traffic acquisition expenditures, which resulted in a 14 percent rise in revenue over the same time last year. In the third quarter of 2020, Google's advertising income climbed from $33.8 billion in 2019 to $37.1 billion.
Google's overall profits, on the other hand, climbed by 24% year over year. Despite cutting down on capital investment, marketing, and employment during the Covid-19 crisis, the company's overall sales increased by 14% to $46.17 billion.
So, why should you put money into Google? While advertising will continue to be a significant source of income for Google, its dominance in the search industry will add to its long-term worth. Google's assets, including YouTube, Play Store, and core internet search, grew by 10% to $31.38 billion, above analysts' expectations. Meanwhile, YouTube ad revenue grew 32 percent to $5.04 billion, above expectations of $4.37 billion.
There's some good news from Google's cloud computing division, which the parent company Alphabet is splitting off as a standalone section beginning with the December quarter's results. The continuous share buyback program attempts to boost GOOGL stock profitability. The latter has multiple trump cards, including the Waymo autonomous vehicle firm, which impacts stock pricing.
Investors in Google shares are looking for a return in 2021, so the firm can maintain its dominance in YouTube advertising and the internet search sector.
What Role Does Google Stock Play in Your Portfolio?
The stock price of Alphabet might be a huge stumbling block right now. Sure, it might change shortly. However, for most retail investors, particularly novices, $2,500 or more a share is just out of reach. (Choosing a broker that permits you to acquire "fractional shares" is one solution.) (More on this later.) Another disadvantage is that Alphabet does not pay dividends and does not intend to do so in the future.
While these considerations may deter some investors, you may still want to participate in Alphabet's development - particularly after the stock split. Check your portfolio to discover whether you already have GOOGL exposure before investing in individual GOOGL equities. Because Alphabet is a key component of the S&P 500 and Nasdaq 100, you may have an unwitting interest in the company if you invest in index funds that follow these indexes.
Similarly, approximately 350 exchange-traded funds (ETFs) own GOOGL, including the Fidelity MSCI Communication Services Index ETF (ticker: FCOM) and the Vanguard Communication Services ETF (ticker: VOX).
Investing in Alphabet via one of these techniques is a smart way to get exposure to GOOGL while also benefiting from a more diversified portfolio (because index funds contain a broader mix of stocks).
Should you decide to invest in individual shares, you should be aware that, although Alphabet's stock has lately fared well, it is more volatile than the broader market, putting you at more risk. While Alphabet has recently outperformed the S&P 500, previous performance does not guarantee future outcomes. Putting all your eggs in one basket is never a sensible investing plan.
How to Open a Brokerage Account and Acquire Google Stock
Most investors hold stocks via brokerage accounts these days and retirement funds like 401(k)s or IRAs. These sorts of investment accounts, often known as online trading platforms, have changed the way people invest. For better or worse, they make it simple for regular individuals to purchase and sell stocks from their computers or cellphones, with little or no commission costs.
Beginners should first ensure their finances before registering with an internet broker. That involves setting aside money for an emergency, paying off high-interest debt (such as credit card debt), and taking advantage of employer-provided retirement benefits. After that, investors should begin to develop a balanced portfolio that isn't too reliant on one company.
After checking these boxes, you may elect to invest in Alphabet, either by acquiring individual shares or by investing in an index fund that owns Alphabet. A brokerage account may benefit in any instance.
Here's a brief lesson on how to purchase stocks via a broker if you haven't before.
First and foremost, you must choose the appropriate brokerage account. The best brokerage accounts offer no commission fees and enable you to acquire fractional shares, which is particularly important in the case of Alphabet, which costs more than $2,500. As the name implies, a fractional share is a portion of a stock that you may buy at any price rather than a whole share.
Let's pretend you only have $5 to put into GOOGL. You may acquire a fraction of a $5 share if your broker permits it.
Many brokers allow you to invest in ETFs, index funds, mutual funds, and even cryptocurrencies in addition to stocks. Money named Fidelity the best overall broker for 2022, partly because it charges no account fees and requires no minimum deposit to create an account. Some well-known brokers with specialized areas of specialty are Betterment, Ameritrade, E*Trade, and Charles Schwab.
After you've picked your brokerage account, you'll need to decide how much money you want to invest and deposit. Keep in mind that GOOGL or GOOG stock is now trading at roughly $2,500 per share. If you don't want to invest a lot of money, consider purchasing fractional shares.
Go to your brokerage account's search box and type in the ticker symbol to place an order. (Keep in mind that GOOGL has voting rights whereas GOOG does not, and there are alternative Alphabet ETFs or index funds to consider, such as Vanguard's VOX or Fidelity's FCOM.)
Choose the correct ticker, examine your purchase information, and place your order if everything appears fine. Because Alphabet is traded on the Nasdaq, you'll need to purchase or sell your shares on weekdays between 9:30 a.m. and 4 p.m. Eastern time. (Some brokers may enable you to trade outside of these times.) Your purchase may take some time to complete, but once it does, you'll be able to follow it in your account's portfolio area.
In Conclusion
Once you've become a legitimate shareholder, your task isn't done. You'll want to keep an eye on Alphabet's finances and stock performance in the future. While Google has grown rapidly since its IPO over 18 years ago, the corporation will inevitably confront hurdles in the future. So keep thinking about whether it belongs in your diverse portfolio.
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