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Google’s powerful search engine dominates the market and shapes how information is created, found and distributed on the internet. But the company is also much more than a search engine.
As one of the five largest companies in the world by market capitalization, Google — or rather, its parent company Alphabet — is a popular and attractive investment for many. The Mountain View, California-based company launched a highly anticipated IPO in August 2004. That day, stocks opened at $85 and closed around $100. Since then, Google’s stock price has soared.
In 2022, GOOGL’s stock price tumbled around 40% as the stock market suffered its worst year since 2008. In 2023, the price is up around 15% year-to-date as late March, with Google shares currently trading around $103.
Alphabet enacted a 20-to-1 stock split in July of 2022, which doesn't change anything about the business' fundamentals, but brought Google’s stock price from $2,200 to $113 at the time, making it much more accessible to many investors.
But can Google keep up its historical growth? And does it deserve a spot in your portfolio? Here’s how to find out.
Google (Alphabet) stock fundamentals
Alphabet is a holding company composed of several subsidiaries yet draws the vast majority of its revenue from Google, specifically Google’s internet search and advertising services. Aside from that, Alphabet is the parent company of autonomous-driving firm Waymo, life-science research organization Verily, artificial intelligence company DeepMind and others.
Furthermore, when we talk about investing in Alphabet, that could mean investing in GOOGL, GOOG or both. Alphabet technically has three classes of stock, but GOOGL and GOOG are the ticker symbols of the two main stocks available to everyday investors. Both trade on the Nasdaq stock exchange.
Here’s a quick breakdown:
- GOOGL is a class A common stock. This type of stock comes with voting rights for shareholders.
- GOOG is a class C capital stock that doesn’t come with voting rights. That’s the core difference.
- The third version of Alphabet stock, the class B kind, has enhanced voting rights. These shares are only held by Google executives, founders and other insiders. Class B shares aren’t available to the average retail investor.
Prices of both stocks typically follow the same trends, but because of the voting rights, GOOGL may be slightly more expensive at any given time.
Now, let’s cover the fundamentals.
In 1998, Larry Page and Sergey Brin, two Stanford University graduate students, founded Google. Since then, it has become the dominant search engine, accounting for some 90% of the market share.
While Google is best known as a search engine, the key pillar of Google’s business now is actually online advertisement, from which it draws upwards of 80% of its revenue. By helping develop the Android operating system, Google has carved out a meaningful stake in mobile ads and apps as well.
A fast-growing moneymaker for Google is its cloud computing operations, which span the gamut from various cloud applications — like Gmail and Google Docs — to dozens of other artificial-intelligence, machine-learning and data-storage tools.
You don’t need to be a computer scientist to invest in Alphabet, but you should at least do your due diligence by learning more about its core business operations before putting your money on the line.
To get a better sense of the company’s financials, you can start by reviewing its latest earnings reports. These documents are available in the investor-relations section of the company’s website. The U.S. Securities and Exchange Commission (SEC) also compiles documents on publicly traded companies, and anyone can view the filings on the SEC's website.
Beyond the company’s finances, you should consider the company’s historical stock performance. On sites like Nasdaq, Bloomberg or CNBC, you can find key stock metrics, such as GOOGL’s price-to-earnings ratio (P/E ratio), earnings-per-share (EPS), market capitalization, beta coefficient (a measure of a stock’s volatility) and more. To determine whether the stock is a good fit for your portfolio, you can compare these indicators to the stock market and other tech companies.
You can also weigh the analysis from top Wall Street firms. Those same three websites also aggregate the latest news and analysis about Google right alongside its stock metrics.
Currently, analysts are feeling pretty bullish on Google. Despite the company’s size and age, it has managed to maintain an impressive double-digit revenue growth over the past decade. With a P/E ratio around 22, the figure indicates that investors expect to see more growth in the future, too. This number alone shouldn’t be viewed in a vacuum, of course.
The P/E ratios of other tech companies should be considered. In comparison to other cult-like FAANG or FAAMG stocks — an acronym for Meta (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) or Microsoft (MSFT) and, of course, Alphabet (GOOG or GOOGL) — Google’s stock has a P/E ratio that's lower than the rest. Generally speaking, tech companies tend to have higher P/E ratios than companies in other industries, but a P/E ratio that’s abnormally high for its industry could indicate the stock is overpriced.
Given that GOOGL’s P/E ratio is lower than other FAANG stocks’, it’s an indicator that, despite its hefty price tag, GOOGL isn’t necessarily overvalued. In fact, according to investment research firm Morningstar, GOOGL is undervalued at a 32% discount as of late March.
It’s not all smooth sailing, though. Bearish investors point to headwinds for Google due to lawmakers’ increased interest in pursuing antitrust regulation. Google has a near stranglehold on the search engine market and accounts for a sizable portion of all online ads. Antitrust regulation could change that dynamic and cause major setbacks for Google, which relies heavily on those key areas for revenue.
GOOG/GOOGL latest financial results
Alphabet’s latest earnings report for the fourth quarter of 2022 missed analysts' expectations. The company reported $76 billion of revenue overall during the quarter, which was a slight increase from the same time period in 2021. Alphabet's earnings per share for the quarter came in at $1.05.
Alphabet reported an advertising revenue of $59 billion for the quarter — a 3.6% decrease from the same time the year earlier. On the cloud computing front, Google Cloud brought in $7.3 billion of revenue, an increase of 32% from the same quarter a year prior (though still less than analysts had been expecting).
After benefiting from a boom in digital advertising in 2021, the company is now dealing with a slowdown amid economic uncertainty. In January, Google’s CEO Sundar Pichai announced the company would be eliminating approximately 12,000 roles as the tech industry overall has been hit with a massive wave of layoffs.
Alphabet is also dealing with new competition in the form of ChatGPT and other advancements in artificial intelligence from rivals, like Microsoft's AI-powered Bing. In the most recent earnings report, Pichai said, "Our long-term investments in deep computer science make us extremely well-positioned as AI reaches an inflection point, and I’m excited by the AI-driven leaps we’re about to unveil in Search and beyond." The company introduced its own AI chatbot Bard earlier this year.
How GOOGL/GOOG stock fits into your portfolio
The stock split made Alphabet’s stock much more accessible — and if you still don’t want to buy a full share, you can opt for “fractional shares.” More on that below. But one downside is that Alphabet doesn’t pay dividends, which are regular payments to shareholders that many other major companies do pay.
Still, Alphabet’s steady growth may have you wanting to buy shares. Before you invest in individual GOOGL stocks, check your portfolio to see if you already have exposure. Alphabet is a major component of the S&P 500 and Nasdaq 100, so if you invest in any index funds that track these indices, you may have a stake in Alphabet without knowing it.
Likewise, GOOGL is a holding in nearly 350 exchange-traded funds (ETFs), including the Fidelity MSCI Communication Services Index ETF (ticker: FCOM) and the Vanguard Communication Services ETF (ticker: VOX).
Investing in Alphabet through one of these methods is a savvy move to gain exposure to GOOGL while enjoying the benefits of a more diversified portfolio (because index funds contain a broader mix of stocks).
Should you want to invest in individual shares anyway, you should know that doing so may put you at increased risk because Alphabet’s stock, while it has performed well recently, is more volatile than the overall market. Sure, Alphabet has outperformed the S&P 500 lately, but past performance is no guarantee of future results. And it’s never a good investment strategy to put all your eggs in one basket.
How to buy Google stock in a brokerage account
Aside from retirement accounts like 401(k)s or IRAs, most investors these days own stocks through brokerage accounts. These types of investment accounts, also referred to as online trading platforms, have revolutionized investing. For better or worse, they allow everyday people to easily buy and sell stocks right from their computers or even smartphones, often with little or no commission fees.
Before getting set up with an online broker, beginners should ensure their personal finances are in order first. That means building an emergency fund, paying down high-interest debt (like credit card debt) and taking advantage of any retirement benefits from their employers. Once that’s taken care of, investors should start building a diversified portfolio that isn’t too dependent on any one stock.
After these boxes are ticked, you might decide to invest in Alphabet, either by purchasing individual shares or by investing in an index fund that holds Alphabet. In either case, a brokerage account can help.
If you don’t yet know how to buy stocks through a broker, here’s a quick primer.
First, you’ll want to choose the right brokerage account. The best brokerage accounts are ones that have zero commission fees and allow you to buy fractional shares. As its name suggests, a fractional share is a piece of a stock — that you can purchase at any price — instead of buying an entire share.
Say you only have $5 to invest in GOOGL. If your broker allows it, you can buy a portion of a share worth $5.
In addition to stocks, many brokers let you invest in ETFs, index funds, mutual funds and sometimes even cryptocurrencies. Money chose Fidelity as the best overall broker of 2022, in part, because it has no account fees or minimum deposit required to open an account. Betterment, Ameritrade, E*Trade and Charles Schwab are also notable brokers with their own niches.
After you’ve decided on your brokerage account, you’ll want to choose how much money you want to invest and deposit. Keep in mind that shares of GOOGL or GOOG are trading around $100 a piece. If you’d like to invest less than that, consider purchasing fractional shares instead.
To place your order, you’ll need to enter the ticker symbol into the search box of your brokerage account. (Remember, GOOGL has voting rights; GOOG does not have voting rights; and there are other ETFs or index funds that expose your portfolio to Alphabet, such as Vanguard’s VOX or Fidelity’s FCOM.)
Select the right ticker, review your order details, and if all looks good, place your order. Since Alphabet trades on the Nasdaq, you’ll need to buy or sell your shares between 9:30 a.m. and 4 p.m. Eastern time on weekdays. (Some brokers allow trading outside these hours.) It may take a little time to process your order, but once it goes through, you’ll be able to track it on the portfolio section of your account.
Bottom line: The work’s not done once you become a bona fide shareholder. You’ll want to keep tabs on Alphabet’s finances and stock performance going forward. While Google has maintained impressive growth since its IPO nearly 18 years ago, it’s inevitable that the company will face challenges in the future. So keep evaluating whether it deserves a place in your diversified portfolio.