Alphabet (GOOGL) has built an entire market around being the parent company of the leader in search capabilities.
Its latest move focuses on its app store, and left the market somewhat mixed in reactions. I’m a bit bearish on Alphabet, which actually puts me in the contrarian camp this time around. (See Alphabet stock charts on TipRanks)
The latest news out of the company probably should have hit share prices harder than it did. The company announced that it was voluntarily cutting the amount of commission it took on third-party software sales in its cloud marketplace.
Last week, the company required a whopping 20% commission on sales made therein. That will drop to just 3% once the fee structure changes actually bite.
Wall Street’s Take
Wall Street consensus analysis calls Alphabet a Strong Buy, based on 28 Buys and one Hold assigned in the past three months.
The average Alphabet price target is $3,198.86, representing 18.8% upside potential
Admittedly, Alphabet is a good investment. It’s so spectacularly diversified that it’s hard not to see why so many analysts call it a Buy. It has the search engine business. Its hand in advertising is so deep that writers everywhere conform their writing to Google’s preferences, as best they know them.
It has a streaming video presence, it effectively owns vlogging with its YouTube presence, and the list only goes on from there.
However, Alphabet also runs substantial risks from government targeting.
YouTube recently publicly noted that free speech is one of the company’s core values. This comes despite pulling several videos in Russia belonging to political opponents of the current ruling government.
YouTube personalities who have run afoul of flagging and takedown notices elsewhere would also find themselves hard pressed to agree with Alphabet’s stance on free speech.
Calls for Alphabet — or more specifically, Google — to be treated like a public utility have been going on since the Trump administration. They’re still going on in places like Ohio. It just came off fighting an antitrust fine from the European Union that will hit the company for $5.1 billion.
The recent move to cut the percentage of sales taken on the cloud marketplace is certainly a smart one. It will likely endear companies towards selling software with Alphabet. Yet with so much going on, is this move sufficient to secure Alphabet going forward?
Alphabet is a highly diversified operation that should weather all but the worst storms well. That said, it’s also an extremely expensive stock — seven shares will buy a recent used car in many places — that’s been on an upward slope for months. Governments have also targeted Alphabet for a range of reasons. It has a poor perception with many of its users as well.
There’s certainly a lot to like about Alphabet, but there are also plenty of red flags suggesting that this juggernaut is not one to ride to your financial freedom.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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