3. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 156
Alphabet Inc. (NASDAQ:GOOG) provides various products and platforms in the United States, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America. The company owns YouTube, one of the biggest video sharing platforms in the world. It also owns Google, the biggest search engine in the worlds. The firm was one of the first tech giants to monetize connections to leading websites across the globe. In the third quarter of 2022, despite macro fears, the firm posted a 6% year-over-year rise in revenue. The firm is also testing new Cloud and video features to keep ahead of the competition in these sectors.
On November 30, Generale analyst Christophe Cherblanc maintained a Buy rating on Alphabet Inc. (NASDAQ:GOOG) stock and lowered the price target to $132 from $147, noting that the issue is less about short-term cyclical pressures for the company than delivering the scale benefits expected from a company with revenues of $280 billion in a progressively maturing online ecosystem.
At the end of the third quarter of 2022, 156 hedge funds in the database of Insider Monkey held stakes worth $19.3 billion in Alphabet Inc. (NASDAQ:GOOG), compared to 153 in the preceding quarter worth $22.3 billion.
In its Q3 2022 investor letter, Mayar Capital, an asset management firm, highlighted a few stocks and Alphabet Inc. (NASDAQ:GOOG) was one of them. Here is what the fund said:
“In early January this year – which admittedly feels like eons ago – US President Joe Biden was pushing Americans to take up the government’s offer of free COVID tests to help tackle the surging omicron variant. How did Biden respond when citizens asked about the availability of these tests?
“Google it!”
This advice, undoubtedly well-meant, was roundly scoffed at by the press, however. It seemed too obvious to be very helpful.
Anyway, the anecdote serves to introduce you to one of our largest holdings, Alphabet; the parent company of Google. Note that first, Alphabet’s original and core product – its search engine – has entered our common vocabulary as a verb. ‘Googling’ something has the same meaning as ‘researching’ or ‘finding an answer to something. Second, the reason Biden’s advice was met with such opprobrium was that Googling something has become almost second nature to us now.
These two observations reveal a lot about Google’s strength in the search engine market, in which it has a share of over 90 percent. Because internet search is almost the prototypical network, Google has benefitted from – and we think is also protected by – the huge competitive advantage its scale brings – both to those asking the questions and those providing the answers. The Google search platform becomes increasingly useful to anyone seeking the information as a greater volume of stuff becomes available. This starts a virtuous cycle that results in a colossal market share for Google itself. In the language of business strategists, Google benefits from vast network effects.
Because Google’s search results are viewed by billions of eyeballs every day, its search page ‘real estate is understandably very valuable to those with goods and services to sell. Advertising revenues from this ‘real estate as well as that from its other properties such as Mail, Maps, and so on, totalled almost USD 150b in 2021; amounting to almost 58% of the company’s revenues. Ad sales on YouTube, also owned by Alphabet, brought in another USD 28b. With the secular shift of the advertising spend to digital channels – over which Alphabet has a tight grip – we estimate the company has a share of around 40% of the digital advertising market and is probably the most valuable advertising property in the world…read more
