How is Alphabet Inc. Performing against its Rivals?

Alphabet Inc. opened the year at $758.88 per share, hit a low of $672.32 in early February, and then rebounded. The stock rallied until 18 April 2016 when it touched a price of $766.61 per share, and then plummeted to fresh lows of $691.02 per share by 28 April. A period of consolidation has taken place since then, and the stock has now stabilized in the $700 – $705 range. In terms of its performance against its chief rivals, Alphabet Inc stands head and shoulders above most of its competition. The following data indicates the sheer size, robustness and viability as Alphabet Inc. in the industry:

• Alphabet Inc. (GOOG, GOOGL) has a market cap of $484.12 billion with 64,115 employees and an earnings per share of 24.58
• Yahoo Inc (YHOO) has a market cap of $34.93 billion with 9400 employees and an earnings per share of -4.76
• Facebook (FB) has a market capitalization of $332.41 billion with 13,598 employees and an earnings per share of 1.64

While these metrics do not explain the inner mechanics of Alphabet Inc. accurately, they give an accurate representation of the sheer size and clout that Alphabet Inc is capable of exerting over the industry. If we look at the industry overall, it has an average market capitalization of $307.35 million with approximately 1.02K employees.

Analysts rate Alphabet Inc. highly with a mean recommendation of 1.8 which is a bullish rating, where 1.0 is a strong buy and 5.0 is a strong sell. Analysts also foresee the high price target of the stock reaching upwards of $1,080 per share with a low of just $800 per share – $95 higher than the current price. This indicates that the stock is undervalued. The last upgrade/downgrade we have for Alphabet Inc. from April 11, 2016 was a buy rating from a hold rating. In ascertaining why Alphabet is rated favorably or poorly, it is important to compare it to its key rivals in the industry.

If we wind back the clock 10 years, Yahoo Inc. was the chief competitor of Google. Now, things are different. Both companies were in a race for dominance, with the burgeoning Internet economy placing extreme demands on things like maps, search and email. Yahoo was heavily reliant on NetApp which allowed the company to satiate market demand. Google was not about to sit back and surrender, and it developed its own infrastructure – the Google File System. This was capable of resolving all sorts of issues including resiliency and scalability and it was capable of fast tracking multiple web-scale applications that ultimately allowed for cloud storage to evolve.

Google’s flexibility was its saving grace, and Yahoo could not keep up with the cost involved in the pace of development that Google was capable of. Google managed to create a broad-based platform that extended across every conceivable facet of the Internet. And while doing this, it focused on flexibility and simplicity in all its applications. Yahoo by contrast, relied on a complex infrastructure system and this is possibly the reason why it has been relegated to ownership by another company.

There are the naysayers out there who believe that at $705 per share, Google a.k.a. Alphabet is way too expensive. The fact of the matter is that at its current price, the stock is inherently more attractive than many other competing stocks in the industry. In terms of its search engine capacity alone, Alphabet Inc. – Google – is in a league of its own. For one thing, YouTube is owned by the company that owns Google – Alphabet Inc. And even if we move to other aspects of its offerings such as email and Google Documents, those are considered better alternatives to what Microsoft offers its users. Just last week, the company’s P/E ratio was x 29, but that is markedly lower than others in industry.

As at 18 May 2016, Google had a P/E ratio of x18 for 2017 expected earnings. And things are going to get better regardless, because so many users are signing up with Google Search all the time. The network effect generally results in enhanced results for Google and dominance of the search market. Alphabet Inc has managed to do what few other stocks have done when price spikes take place – it holds firmly at certain support levels. Almost a year ago (2015 July) the stock surged with a gain of over $100 in a week, and while the stock fell after that, it created a higher support level and that level has held. Based on technical considerations, the future projection of the stock is positive and it is trading as a value stock.