GOOGL - Are We At Peak Google? A Change In Management Is Overdue

2024-06-04 05:49:57 ET

Summary

• Google's management has failed to diversify beyond Search, with Amazon surpassing Google in Cloud and Advertising. Amazon's Ad business is now 50% larger than YouTube's.
• Google Search is the company's moat, but its quality is deteriorating, according to me and many people. SEO-optimized, AI-written articles are disrupting the user experience.
• GOOG is playing catch-up in AI, with the rollout of "AI Overview" resulting in a PR nightmare. In my view, this shows that management is not in control.
• I rate the stock a HOLD because of its profitability and because Google did manage to roll out successful products, such as Android or Chrome, but not to monetize them properly.
• A management change could be the catalyst that allows Google to finally diversify its business model and reduce the risk posed by AI.

Thesis: Google is a profitable cash cow, but management is running out of ideas, putting the company at risk of losing its moat

Alphabet, Inc. (GOOG) ( GOOGL ) (GOOG:CA) is a very profitable company, with a remarkable capability to allocate capital to reward shareholders. Shares outstanding have declined by almost 10% in the last 7 years, and Normalized Diluted EPS has almost tripled during that same period.

The problem is that under Sundar Pichai's 9 years tenure, Google has failed to diversify its business from advertising on Google Search. Amazon.com, Inc ( AMZN ) is eating Google's lunch in advertising, with Amazon Ads now almost 50% larger than YouTube, and in cloud services, with AWS generating more profit than Google's entire Cloud revenue in Q1....

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