Alphabet dominates the online search market with an 80%+ global share for Google, through which it generates strong revenue growth and cash flow. As Google’s business is knowledge intensive (leadership in search), it is expected that FCF will be ongoing. YouTube is contributing more to the firm’s top and bottom lines, and there are some company internal investments that will generate future cash flow streams.
Google’s ecosystem strengthens as its products are adopted by more users, making its online advertising services more attractive to advertisers and publishers and resulting in increased online ad revenue, which is expected to continue to grow at double-digit rates after the pandemic and during the next five years. The firm utilizes technological innovation to improve the user experience in nearly all its Google offerings, while making the sale and purchase of ads efficient for publishers and advertisers. Adoption and usage of mobile devices has been increasing. The online advertising market has taken notice and is following its target audience onto the mobile platform.
Among the firm’s investment areas, the market particularly applauds the efforts to gain a stronger foothold in the fast-growing public cloud market. Google has quickly leveraged the technological expertise it applied to creating and maintaining its private cloud platform to increase its market share in this space, driving additional revenue growth and creating more operating leverage, which is expected to continue. Most of Alphabet’s more futuristic projects are not yet generating revenue, but the upside is attractive if they succeed, as the firm is targeting newer markets. Alphabet’s autonomous car technology business, Waymo, is a good example: Based on various studies, it may tap into a market valued in the tens of billions of dollars within the next 10-15 years.
Opportunities:
- As online usage increases, so will digital ad spending, of which Google will remain one of the main beneficiaries.
- Android’s dominant global market share of smartphones leaves Google well positioned to continue generating topline growth as search traffic shifts from desktop to mobile.
- The significant cash generated from Google’s search business allows Alphabet to remain focused on innovation.
- The long-term growth opportunity remains truly intact.