As usual, it’s a guessing game in the business world.
The “long game” consists of a graying business world, a generation of millennials that might never grow up, the World Wide Web — which can be bad for corporate reputations — and a political system that’s moving faster than every firm’s ability to adapt. Throw in a Trump presidency, which gives so many things like Chinese steel into mass circulation, and the long game really does look a bit muddy.
In football, the years to follow a winning team are in general said to be the easiest. But the NFL doesn’t run the long game in our business world — tech companies do, since it’s just as easy to understand how successful that team would be as others.
Consider Alphabet Inc., the company formerly known as Google.
To understand why Alphabet is one of the most stable tech companies, or anyway one of the few that is, consider a few different facts.
Alphabet owns some of the best-known, most valuable tech companies around. The firms are Google and YouTube, Google Capital, Google Ventures, Nest, Google Health, Sidewalk Labs, Calico, Fiber, Google Fiber, Arpanet, X, Calico, and the Planetary Ventures venture capital fund. Also among Alphabet’s holdings are life sciences start-ups, the tech outfits “SoftLayer,” the professional social-networking site LinkedIn, and the mapping and 3-D-imagery venture Waymo. And the company is the largest owner of wind turbines in the United States. Its holdings make it one of the most valuable, if not the most valuable tech company.
All but one of Alphabet’s businesses generated more revenue in 2017 than in 2012, except for its lucrative Google search business and Google’s “Other Bets” arm, which includes companies such as Nest and Calico. Other Bets’ revenue is up 13 percent from 2013, but that business is already for sale.
The profitability of Google and Alphabet is showing signs of diminishing even as the businesses scale. Alphabet grew its revenue at a 20 percent annualized rate from 2010 to 2013, then 4 percent annually from 2014 to 2017. Alphabet’s profit growth fell by a similar percentage.
But that’s part of Alphabet’s extraordinary success, which goes far beyond being a financial story. At $669 billion in market value, Alphabet is worth about 45 percent more than its closest rival, Microsoft. Its growth has outstripped the rest of the tech industry by a wide margin.
More broadly, Alphabet’s long-term history is especially impressive given that it began in early 1998 — long before Facebook and Twitter were born, and long before the U.S. government’s investigations into Silicon Valley’s business practices. Alphabet’s founders Larry Page and Sergey Brin were well into their 20s, and they founded the company with a series of ideas and technologies they didn’t find elsewhere.
Those well-worn rivals for power are Twitter Inc. and Amazon. Those firms, which celebrate their 20th birthdays in 2019, are more like everyday institutions in the business world.
A 20-year record of innovation, global success and hundreds of billions of dollars in market value for its shareholders is a nice gift. It’s nice for corporate executives, too, and they happen to include two great thinking Google bosses in Sundar Pichai and Ruth Porat.
But as great as Alphabet is, it isn’t a stock bet on a higher stock market or a better economy. It’s a speculative play on how the big tech companies will perform in different areas — and on Alphabet’s ability to hold up to the expectations of ever-more ambitious cultures.
As investors in General Electric Co.’s stock learned last year, a company’s longer-term prospects aren’t everything. In late December, GE gave a pessimistic quarterly outlook in the midst of a trend of many companies being willing to take huge cost cuts for the sake of appealing to investors. GE’s stock plummeted.
Alphabet isn’t worth as much as GE, or Microsoft, or Facebook, but it is worth tens of billions more than many of its tech rivals. It’s not getting enough credit in the stock market for these years of innovation and success — and that’s a shame. The test will be whether the Amazon-Musk-Freeman Company Collective can keep building lasting businesses or succumbing to short-term whims. In business, as in everything else, Google has a lot of ground to make up.