$GOOG Double Edged Sword?
Something that has been on my mind for quite a while has been Alphabet.

One of the biggest red flags for me has been the lack of investors critical of the company. And to the extent that there are those that are critical most are the traditional value investors who think the company is overvalued.

So I have spent the past few days really digging into some of the reasons why Google might not be the best to buy right now.

But first I want to clarify my position on the company. I really like it. I just think there are some problems that are generally looked over.

To begin I don't think it's any secret how $GOOG makes most of their money. ~83% of the company's TOTAL revenue comes from ads...Here's the 2021 breakdown.

Alphabet Total 2021 Revenue - $257b

Google Search Revenue - ~$149b (58% of total revenue)
Youtube ADs - ~$29b (11%)
Google Network - ~$32b (14%)

Needless to say, the company makes a lot of money from ADs. The other 17% of the revenue is every other product offering - Pixel, Google Play, Nest, and Fitbit.

I believe this is a potential problem.

The reason is that marketing budgets are almost always the first to get cut as they are seen as a non-essential company expense. The above article from Forbes details the extensive marketing cuts companies underwent because of the pandemic.

The hardest-hit companies we're, unsurprisingly, billboard companies.

This leads me to believe that if we are heading towards a broader recession companies will be forced to cut a large part of their marketing budget.

And even if it's only a few this could severely drive down the overall price companies pay to get their results to the top of Google Search results.

This is of course speculation on my part and I very well could, and probably am, wildly wrong. I do think that it's important to think more critically about companies.

One very real threat is of course Government intervention. While the US government has been threatening this for years it seems the EU is finally starting to put its foot down in terms of regulation.

While the "DMA Bill" is still fairly light on actual restrictions it could very well be the first domino to fall in terms of regulation as a whole.

Alphabet is still a wildly impressive company and I do thoroughly believe it will continue to be a global leader in multiple future technologies.

If you enjoyed this breakdown I put all of my thoughts on Google both good and bad into my most recent Youtube video - https://youtu.be/A9PBUAeaVcM
Eric Messenger's avatar
So I am value to the core and just recently initiated a position finally because I can get Google “dirt cheap” from a valuation perspective. And from an ad stance, Google ads have a special kind of strength their competitors don’t have. Other marketing is blind, Google marketing knows exactly what we want because we are searching for it. Chris Franco @ CMQ Investing works in the ad industry and has great breakdowns of their advertising moat. Partially what sold me. I
Dollars and Sense's avatar
@wall_street_deebo thank you for the insight I will have to check it out!
Jakob Linder's avatar
Definitely will be checking out your YouTube video! Great stuff!
Strat Becker's avatar
It doesn’t show it well but over 25% of YouTube’s revenue is from non-ads, their YouTube+, music, tv, channel memberships, etc. I’m biased because of my view on the creator economy but YouTube standalone is the best business in the world period imo. Your point about cyclical exposure to ad revenue is a point that is not discussed enough though! Love your thoughts and style
Dollars and Sense's avatar
@strat to be honest I would love if Google spun Youtube off. I would like to invest in that business
Strat Becker's avatar
@dollarsandsense I think the problem is that YouTube’s success is in part because of the data google has from what people search, despite the success of the native YouTube algorithm. Despite my desire to specifically own YouTube I think it’s a better business as a part of google
Alex Biestek's avatar
This kind of blew my mind:


It would be absolutely incredible if these make it to the market.
Dollars and Sense's avatar
@acb123 google glass is back!!!!! in all seriousness this is kinda crazy.
Alex Biestek's avatar
@dollarsandsense After I read the first sentence of the article, I audibly went, "WOW."

Technology is amazing.
Stanley's avatar
Checked out your video and subscribed :-)
Dollars and Sense's avatar
@fatcatinvesting thank you, i really appreciate it!
Stock Metal Investment's avatar
Great post, it is a threat, but I believe that we are still relatively early in the whole transition from offline to online ads. Half of budgets are still going offline. Budgets may be cut, but I don't think Google is the first thing to cut. Google also is diversifiying and we can see trends like the increasing revenues from Subscriptions and hopefully a profitable GCP in the next years. Overall Google is a top 3 position for me
Alan's avatar
One threat is that the relevance of web search declines over the long term. I do think there are signs of this. Combined with reports of Google being a company where it is becoming slower to get things done, it could make it difficult for them to pivot if there were a threat to their main business. On the other hand, they may continue to do just fine.

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