Alphabet, Google’s parent company, hit a $1 trillion stock market value for the first time on Thursday the 16th of January 2020. This makes it the fourth US company to ever reach this milestone. All 4 US members of the Trillion Dollar Club are big tech companies and the odds of the next inductee being Facebook are almost as good as they are for players enjoying a game of Blackjack online.
Apple became the first trillion-dollar enterprise in the United States and was followed by Microgaming and then Amazon. The brands that made Steve Jobs and Bill Gates into household names are still at that market capitalisation level, while Jeff Bezos’ Amazon is now just below the line at around $934 billion. So, where is there left for Alphabet to go from here? Wall Street experts say the most likely direction is even further up.
The Origins of Alphabet
In 2015 Google was split up into multiple subsidiaries, one of which was called Google, and the parent holding company was rebranded as Alphabet. The change didn’t have much of an impact on consumers’ daily lives. Most of the products associated with Sergey Brin and Larry Page’s juggernaut still fall under the Google umbrella including YouTube, AdSense, Google Maps, Android and Android-related services such as Google Play. Around 90% of all Alphabet employees currently work for Google.
What the new structure has affected is how diversified the organisation can be. While the front end products that you interact with now are mostly linked to Google, Alphabet holds several think tanks and innovative service providers that could easily become household names. Among them are Calico, or the California Life Company, a biomedical research unit searching for the secret to eternal youth, and venture capital firm GV.
As anyone who has traded on the stock market will tell you, diversification is key to company survival and the multi-company nature of Alphabet thus counts very strongly in its favour. However, it hasn’t always been smooth sailing for the USA’s latest $1 trillion endeavour. In the Spring of 2019 Alphabet’s slowing advertising numbers caused its worst close since April 2010, with stock dropping by 7.5%.
Later in 2019, during the third quarter, the conglomerate fell short of its earning per share expectations and showed sluggish profit. After-hours trading fell as much as 4% before recovering to 2%. In addition to these lapses in performance, Alphabet’s multiple cultural clashes – including US National Labour Relations Board investigations and federal antitrust probes – have caused concern.
Bullish on Sundar Pichai
Google co-founders Brin and Page made the surprise announcement that they were stepping down in the December of 2019 and handing over more of the reins to Sundar Pichai by making him the new Chief Executive Officer. The Indian-American business exec already had a proven track record as Chief Executive Officer of Google, and before that he was Chief of Products.
Now, instead of ultimately reporting to Page, Pichai is driving the entire conglomerate. That’s not to say Brin and Page are out of the picture, of course; they still control most company voting shares so will have a large influence on all major decisions.
Analysts are reported to be bullish on Alphabet’s new Chief Executive Officer Sundar Pichai. If this sounds like the same thing as being sweet on your latest crush, it’s because it basically is. Put simply, it means that insiders believe he will do well and will continue to raise Alphabet’s market cap in spite of the challenges the company continues to face.
Head in the Clouds
Analysts also point to Google’s continued success with its Cloud business, which doubled its earnings between the February of 2018 and the July of 2019, and its stabilised advertising revenue as reasons for their continued faith in Alphabet.
In other words, for now the parent company’s future seems to be secure because of the performance of its largest subsidiary. However, its research into disruptive technologies and its other diversification could yield major rewards in the near future.
Also worth noting at this point is the fact that Apple, Microsoft, Amazon and Alphabet are all dwarfed by Saudi oil giant Saudi Aramco, which finally went public in the December of 2019 and is currently worth around $187 trillion. Tech is clearly the new oil, but we also seem to be relying on the original version a lot.