Google (Alphabet Inc.)

Google is the globally dominant internet search engine, but for investors, it's the crown jewel of its parent company, Alphabet Inc.. While most people use “Google” to refer to the entire corporation, Alphabet is a massive holding company that separates the profitable, mature Google businesses from its more speculative, long-term projects. Founded by Larry Page and Sergey Brin, the company has grown from a simple search tool into a digital behemoth with a portfolio spanning online advertising, cloud computing, mobile operating systems, hardware, and ambitious “moonshot” ventures. Its primary stock ticker symbols are GOOGL (Class A shares) and GOOG (Class C shares). For a value investor, Alphabet represents a fascinating case study: a company with one of the strongest economic moats in modern history, generating immense profits, while also investing in high-risk, potentially world-changing technologies. Understanding the different parts of this empire is the first step to assessing its value.

When you decide to invest in Alphabet, you'll immediately face a choice between two tickers. The difference is all about control.

• GOOGL (Class A): These shares come with one vote per share. If you want a (very, very tiny) say in corporate matters like electing the board of directors, this is the share for you.
• GOOG (Class C): These shares have no voting rights. They were created to allow the company to issue new shares for acquisitions or employee compensation without diluting the voting power of the founders.

A third class, Class B, is not publicly traded. These are held by founders and insiders and carry super-voting rights (10 votes per share), ensuring they maintain control over the company's direction. For most individual investors, the choice between GOOGL and GOOG is minor. Their prices tend to move in near-perfect lockstep, so the decision often comes down to whether the principle of having a vote is worth any small price premium that GOOGL might command.

To analyze Alphabet, you must break it down into its core components. The company handily does this for us in its financial reports.

This is the heart of the empire and what pays all the bills. It's a collection of incredibly profitable businesses, primarily funded by advertising.

• Google Search: The legendary search engine. This is the main engine of profit, generating revenue by showing ads alongside search results.
• YouTube: The world's largest video platform, making money from ads shown before and during videos, as well as premium subscriptions.
• Google Network: This segment places ads on third-party websites and apps that are part of Google's network.
• Google Other: A growing category that includes revenue from the Google Play Store, hardware sales (like Pixel phones and Nest devices), and YouTube's non-advertising revenues (like Premium and Music).

This is Alphabet's fast-growing enterprise division, competing head-to-head with Amazon Web Services (AWS) and Microsoft Azure. It provides businesses with infrastructure, data analytics, and other tools to run their operations “in the cloud.” While it has historically lost money as Google invests heavily to gain market share, it is a key pillar of the company's future growth strategy and is on a path to profitability.

This is the most exciting and riskiest part of Alphabet. It's a portfolio of independent companies pursuing futuristic technologies. Think of it as an in-house venture capital fund. Examples include:

• Waymo: A leader in self-driving car technology.
• Verily: A life sciences company focused on using technology to understand and prevent disease.

These businesses currently lose billions of dollars a year. However, the hope is that one of them could become the next Google, creating enormous value in the future.

How should a value-oriented investor think about a tech giant like Alphabet? It comes down to its competitive advantages and valuation.

Warren Buffett famously talks about investing in businesses with durable competitive advantages, or “moats.” Alphabet has several powerful ones:

• Network Effects: The more people use Google Search, the more data it collects, which improves its search results, which in turn attracts more users. The same Network Effect applies to its Android operating system and mapping data.
• Brand: The word “Google” is a globally recognized verb for searching the internet. This is a level of Brand recognition that is almost impossible to replicate.
• Intangible Assets: Its proprietary search algorithms and the colossal amount of data it has collected over decades are priceless assets that are nearly impossible for a competitor to challenge directly.

However, no moat is forever. Alphabet faces significant threats from government antitrust regulation worldwide and technological disruption, particularly from competitors like Microsoft who are aggressively integrating generative AI (like OpenAI's technology) into their own search products.

Alphabet boasts one of the strongest balance sheets on the planet, often holding tens of billions of dollars in cash and cash equivalents with relatively little debt. The Google Services segment is a money-printing machine, generating enormous and consistent free cash flow. A common method for valuing this complex company is a sum-of-the-parts (SOTP) valuation. An investor might:

1. Calculate a value for the highly profitable Google Services and Google Cloud businesses.
2. Subtract the company's net cash from that value.
3. The resulting valuation for the core businesses is often so high that it implies you are getting the “Other Bets” (like Waymo and Verily) for free, or even being paid to take them.

This perspective—buying a wonderful, profitable core business at a reasonable price with a portfolio of high-potential moonshots thrown in for free—is what makes Alphabet a perennial favorite for many value investors, even at its massive size. The company also consistently returns capital to investors through large share buyback programs, which reduces the number of shares outstanding and increases the value of the remaining ones.