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Shubham Jaipuria
Shubham Jaipuria
Articles (45) 

What's Ahead for Google?

Alphabet subsidiary bets big on hardware; positive outlook outweighs concerns

October 10, 2018 | About:

Alphabet Inc.'s (NASDAQ:GOOGL) Google is pitching itself as the low-priced yet high-quality vendor of consumer electronics, battling the likes of Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN). 

During its launch event on Tuesday, Google unveiled new Pixel smartphones, a tablet and a smart home hub equipped with a video screen. Coming to price points, while the new Pixel 3 and Pixel 3XL smartphones start at $799 and $899, the new iPhone XR starts at $749, the iPhone XS starts at $999 and the XS Max is priced at $1,099. The smart speaker is priced at $149, compared with Amazon’s Echo Show 2 at $230.

Google also launched the Pixel Slate tablet, which doubles as a laptop and has a detachable keyboard. It competes with the iPad Pro and Microsoft’s (NASDAQ:MSFT) Surface Pro; Google said the Pixel Slate will start at $599, the keyboard at $199 and the stylus at $99.

While the hardware space is already crowded with popular players, that doesn’t stop Google from spending big on its product portfolio. While the handset market’s growth has stagnated from where it was around five years ago, Google is hoping to leverage its Android OS to turn Pixel into a hit device amongst the masses.

"Manufacturing and hardware are things that you build up over time, so we’re very proud of where we are after three years compared to people who have been doing it for 10 years or longer," Mario Queiroz, Google’s vice president of Pixel hardware, said.

Among other developments, Google discussed the software glitch that exposed the personal data of hundreds of thousands of users. As a result of this, the company announced it is shutting down Google+ and said it didn’t disclose this earlier fearing regulatory backlash. "Given these challenges and the very low usage of the consumer version of Google+, we decided to sunset the consumer version of Google+," Ben Smith, Google vice president of engineering, wrote.

Moreover, this news comes just days before Google CEO Sundar Pichai’s testimony before Congress. The company has recently come under fire for building a censored search engine for a possible entry into China. This is ironic because it withdrew from China about eight years ago in protest of stringent rules restricting the free flow of information.

While this is surely concerning, this isn’t reason enough to doubt Google’s stock. With the continuously growing digital advertising sector and massive traction in the cloud business, Google is sure to be a stock that remains in investors’ portfolios. Moreover, the company’s self-driving car business, Waymo, is another segment that’s expected to generate great demand in the near future, owing to recent developments in the space.

From a valuation perspective, Google is currently trading at a forward price-earnings ratio of 24.15 as compared to the industry median of 25.77. Moreover, it has an operating margin of 24.48% as compared to the industry median of 4.51%, while the three-year revenue growth rate stands at 17.9%, compared with the industry median of 10.3%.

All told, while Google does have a few negative factors, like any other company, its catalysts surely outweigh the negatives. With the industry dynamics supporting the investment case, Google deserves a second look.

Disclosure: I do not own any of the stocks mentioned.

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