Introduction

This is the third in a series of articles where I will cover popular and/or high profile stocks. The primary objective of this series will be to put a spotlight on the importance of forecasting future growth prior to making an investment decision. I elaborated on the importance of forecasting future growth in part 1 of this series found here. The central idea is to determine whether or not a reasonable forecast of future growth warrants consideration for investment relative to how the market is currently valuing a given stock.

Furthermore, I believe it’s imperative for long-term success that investors apply their best efforts towards determining the intrinsic value of any stock they are interested in. This is especially true for long-term oriented investors. If you overpay for even a great business, you are very likely to be disappointed with your long-term results.

Alphabet (GOOGL): Long business description courtesy S&P Capital IQ

Although most every reader is familiar with Google (Alphabet) the following long business description summarizes the scope of the company:

“Alphabet Inc., through its subsidiaries, provides online advertising services.

Segments

The company operates through Google and Other Bets segments.

Google

This segment includes the company’s primary Internet products, such as Search, Ads, Commerce, Maps, YouTube, Google Cloud, Android, Chrome, and Google Play, as well as its hardware initiatives. The company’s technical infrastructure and efforts, such as virtual reality are also included in Google. Google primarily focuses on advertising, the sales of digital content, apps and cloud offerings, and sales of hardware products.

Other Bets

This segment includes businesses, such as Access, Calico, CapitalG, GV, Nest, Verily, Waymo, and X. Other Bets also engages in the sales of Internet and TV services through Google Fiber, sales of Nest products and services, and licensing and R and D services through Verily.

The company primarily delivers both performance advertising and brand advertising.

Performance Advertising

Performance advertising creates and delivers relevant ads that users would click, leading to direct engagement with advertisers. Majority of its performance advertisers pay the company when a user engages in their ads. Performance advertising lets its advertisers connect with users while driving measurable results.

For performance advertisers, AdWords, the company’s primary auction-based advertising program, helps create simple text-based ads that appear on Google properties and the properties of Google Network Members. In addition, Google Network Members use its AdSense program to display relevant ads on their properties, generating revenues when site visitors view or click on the ads. The company engages in investing in its advertising programs and make significant upgrades.

Brand advertising

Brand advertising helps improve users’ awareness of and affinity with advertisers’ products and services, through videos, text, images, and other interactive ads that run across various devices. The company helps brand advertisers deliver digital videos and other types of ads to specific audiences for their brand-building marketing campaigns.