Alphabet shares have fallen about 14% from last year’s highs despite the strong financial reports. Google is the main segment by a wide margin, and generates most of the sales and profits of the company thanks to its leadership position in the online advertising market. On the other hand, the other bets segment is a wide-ranging combination of businesses with a high potential for disruptive innovation. Among others, the company participates in health care, home connectivity, high speed internet, and driverless cars.
The company’s financial reports for the third quarter of 2018 were clearly healthy. In the case of high quality companies, such as Google, the business benefits from different sources of competitive advantages at the same time, and these different sources of competitive advantages reinforce each other. First of all we have the brand value. The Google brand is so popular that many consumers use it as a verb, “googling” information as a synonym for online search. Only a few products and services in the history of business have achieved such a power of brand identification within their industry.
Many of Google’s platforms benefit from the network effect, which means that the service generates greater value for users while the user base is larger. For example, on YouTube the content creators and the consumers of these contents attract each other. In map services and similar services, having a large number of users allows Google to use the information generated by these users to improve the quality of services.
Alphabet shares are currently testing the area of $1000 per share. This level has functioned as price support on several occasions between December 2017 and November 2018, and therefore represents an area of great importance from the technical point of view. In the event of a sustained break to the downside, Alphabet’s shares could once again test the area of $900 per unit, a level that worked as support on multiple occasions during the third quarter of 2017. In short, Alphabet is a solid and quality alternative in the technology sector. However, the current adjustment in quotes could well be interpreted as a buying opportunity for long-term investors in Alphabet.