A MegaTrend Monopoly Called Alphabet (GOOGL)

By: February 8, 2022

History of Google and Alphabet (GOOGL)

Google really has a Silicon Valley fairytale beginning. Two relatively unfocused Stanford University graduate students in the Department of Computer Science, Larry Page and Sergey Brin, were searching for dissertation topics and decided to investigate the “mathematical properties” of the World Wide Web – a somewhat unspecific focus. Their interests focused on determining the number of back links and the nature of these back links that went to a given website, and then assigning a relative importance to that website. This is similar to the way that the journal articles written by scientists are ranked by number and quality of citations.

Larry Page and Sergey Brin as graduate students at Stanford University. (Source: wired.com)

It’s pretty easy to see where this was going. Their research naturally gave way to a better internet search engine than anything that existed at the time. So, Google was spun out from their graduate research studies. The company launched in 1996. All graduate students should be so lucky to have their graduate studies turn into multi-billion-dollar opportunities!

Google has been the dominant way of searching the internet ever since and likely will remain so into the far future. In reality, Google has what Peter Thiel called in his book, Zero to One, a monopoly. With this monopoly, Google has put their resources to good and almost philanthropic uses benefiting the “everyman.”

They bought Keyhole Inc. in 2004, which eventually became Google Earth and offered it free of charge.  Google has also offered other crucially useful programs free of charge, such as word processors, spreadsheets, slide show presentation programs, email browsers, calendar programs, etc. In fact, Google offers what is essentially all of Microsoft’s Office Suite, but for free.

In 2012, Google CEO, Eric Schmidt, took Inspiration from Warren Buffet’s Berkshire Hathaway (NYSE:BRK.B) and decided to turn it into a holding company. The parent company became the newly invented Alphabet Inc. and Google became one of many companies held within it. Other companies of note held within the holding company are autonomous motoring developer, Waymo, and a venture capital firm simply known as GV.

Alphabet / Google headquarters in Mountain View, California. (Source: worldatlas.com)

Latest Acquisitions and Divestitures

The last time we reported on Alphabet and Google was at the start of 2017. Since this last report, the company has acquired many interesting businesses. Going back about 5 to 10 years, Taiwanese electronics firm, HTC, was one of the most popular manufacturers of smartphones. In fact, the early Google Nexus smartphones were manufactured for Google by HTC.

Well, in September 2017, Alphabet purchased large parts of HTC’s hardware business, as well as engineering talent and intellectual property. It reportedly paid over a billion dollars for these slices of HTC.

Alphabet owns a sizable portion of HTC’s hardware business. (Source: engaget.com)

About a year ago, Alphabet also purchased trendy exercise and fitness watch developer, Fitbit, for over $2 billion dollars.

Alphabet acquired fitness watch developer Fitbit in 2021. (Source: dcrainmaker.com)

Besides these businesses, between January 2017 and now, Alphabet has acquired over 40 new companies. Clearly their selections are strategic and aimed at supporting longer-term areas in which the company wishes to grow. Pretty much all the 40 companies are involved with cloud computing, virtual reality, smart hardware, data science, robotics, autonomy, and artificial intelligence.

Financial Performance

The amount of money that Alphabet generates is staggering. For the fiscal year ending in December 2021, it earned net profits of $76 billion on revenue of nearly $258 billon. That’s “crazy money.” There are only a handful of companies in the world that can generate that kind of cash. Wouldn’t you like to own a piece of company that can do this?

The performance is reflected in the company’s stock price, shown below.

This stock performance is certainly impressive. Since about the end of the banking crisis in 2008, the stock has monotonically increased in value. If you had invested in Alphabet at the start of 2014 and held onto the stock until now, you would have increased your investment by ten-fold. Note that the company’s stock split in April 2014 at roughly two for one. Now that’s a MegaTrend stock that’s very easy to find!

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