Alphabet has been running this ad recently: There’s Only One YouTube.
Talk about bad timing.
It seems Alphabet’s marketing department might not be in contact with legal, or even higher management. Consider that Google CEO Sundar Pichai recently testified in a lawsuit, attempting to prevent Alphabet’s breakup! Their argument centers on the idea that YouTube, Google Search, Google Docs, Waymo self-driving cars, and all other entities under the Alphabet umbrella have significant competition. See, Break up Google and Declare Communism.
Now, Google’s revenue streams can be broken down into several key areas: its core search business, advertising on YouTube, network property revenues, Google Cloud services, and a collection of other businesses. The following chart details how much each of these segments contributed to Google’s overall revenue in the year 2024.
What’s the potential impact of a breakup? Could the sum of its parts be worth significantly less than the current company, maybe even half? This explains why Google’s management is rightly worried. What would happen to all the shared intelligence and analytics expenses that boost ad sales and marketing, along with management costs? These could easily double, leaving you with half the value. The reason? Reduced size and market power. Remember when Google’s stock plummeted 10% in a day after an Apple executive hinted that Google Search was losing share? Well, a smaller, broken-up Google would definitely be in a weaker position to meet Apple’s potential price demands. Now, we take risk minimization to heart in our High Quality portfolio, which has outperformed the S&P 500 and achieved returns greater than 91% since inception.
It gets even worse. A smaller revenue base means less ability to invest in crucial new technologies and cover their fixed costs. Not a very welcome thought at a time when peers OpenAI, Meta, and Microsoft are doubling down on AI development. This is an unprecedented moment, and Alphabet’s stock could plummet by 50% or even more. See Buy or Sell Google Stock.
No matter what they do, that “There’s only one YouTube” ad will come back to haunt them. Timing is everything.
That said, regulatory risk is just a small part of the risk assessment framework we apply while constructing Trefis High Quality (HQ) Portfolio, which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
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