Global Equities

Stock story: Alphabet

Its core asset is Google. There’s more to the company than that including self-driving cars and secretive ‘moonshot’ programs.

Alphabet was formed in 2015 to be the parent company of Google and some other companies belonging to the two Stanford University students, Larry Page and Sergey Brin, who in 1998 created Google when ranking websites for relevancy.

Alphabet is mostly about Google, which has ridden its success in search to become the world’s largest advertising company. Google, which now captures about 15% of global media advertising spending, provided about three-quarters of Alphabet’s sales of US$73.5 billion in fiscal 2016 and an even higher proportion of its earnings.

Alphabet has used the riches it earns from Google to invest in new, often radical, products and services in the hope it can build leading positions in potentially massive markets. These ventures include investments in disease-prevention research, urban innovation, home-automation devices, self-driving cars and secretive ‘moonshot’ programs (Google X).

Google, too, has the potential to lead in fields other than search. Google’s sophisticated machine-learning algorithms that are used to optimise Google’s relevancy rankings have the potential to radically augment artificial intelligence.

When it comes to search, Google handles about 3.5 billion queries a day, which gives the company 80% share of the global search market outside of China. To protect this dominance when mobiles became popular, Google in 2009 released the Android mobile operating system for free to smartphone makers. Android now has a global market share of over 80%, a proportion that entrenches Google’s position in search.

Adding to Google’s importance for Alphabet is that the search arm owns adjacent businesses that have large global markets. Google owns the video platform YouTube that has more than one billion users a month. Google monetises Android through the Google Play Store, a platform where app developers can access Android’s billion-plus users. Google Cloud Platform is the company’s public cloud, which is how businesses are managing their IT resources.

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