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Pros and Cons of Buying Alphabet Inc (GOOG) Stock

By U.S. News & World Report

Alphabet Inc (ticker: GOOG, GOOGL), the company formerly known as Google, is the second-most valuable corporation on the planet. When companies grow to that enormous size, they can have trouble continuing to grow. Look no further than the biggest, Apple ( AAPL), which is expected to see revenue fall in 2016 for the first time since 2001.

Last quarter, Alphabet’s second-quarter revenue soared 21 percent from the previous year. In short, GOOG stock doesn’t have Apple’s problem.

That said, no company is perfect, and no investment is risk-free. Looking at Alphabet stock, what’s the potential upside, and where’s the potential downside?

Pros of GOOG stock. Google is now technically owned by its corporate parent Alphabet, which is a holding company. Google’s other so-called “moonshot” endeavors officially became their own companies, and are now broken out separately under Alphabet’s financials in the segment “Other Bets.”

Those other bets, though, aren’t paying off yet. Nearly all of Alphabet’s revenue comes from Google, and 90 percent of Google’s revenue is advertising-based. Despite all the glitz, glamour and innovation that we associate with Google — artificial intelligence, self-driving cars, virtual reality, fiber-optic cable networks, etc. — it all pales in comparison, financially speaking, to search.

Search advertising, since day one, has been the money machine launching GOOG stock skyward. The number of paid clicks (advertisers pay Google every time you click an ad on a search results page) has been soaring in recent years, jumping 29 percent in 2014 and 33 percent in 2015. The growth of YouTube (which also falls under Google’s umbrella), combined with steady global expansion and higher mobile traffic, are driving that growth.

[Read: Google Stock or Apple Stock? Why Investors Should Choose Both.]

Cost-per-click (CPC), however, has been falling for the same reasons: advertisers pay less for YouTube and mobile ads. Still, CPC fell just 15 percent last year and 7 percent the year before, so as long as paid clicks continue to advance far more quickly, GOOG will put up big growth numbers.

That said, the search giant is trying its darndest to diversify its revenue stream, and you can’t do that without smart people at the helm. “Alphabet understands that one of the best ways to keep strong momentum in business operations and execution is to have really talented people,” says Scott Kessler, equity analyst at CFRA Research.

Kessler cites three recent hires as evidence of the firm’s deep commitment to high-level talent: Lyor Cohen, Diane Greene and Ruth Porat.

Cohen, a legendary music industry executive who formerly led Def Jam Recordings and Warner Music Group, was just installed as global head of music for YouTube. Greene, founder of VMWare ( VMW), a virtualization software company, was recruited in 2015 to help lead Google’s cloud businesses.

But Alphabet CFO Ruth Porat, who was poached from the same position at Morgan Stanley ( MS), has been the most influential thus far. “Porat has instilled a disciplined approach to spending, which has always been a criticism against Alphabet — that they spend without a great focus on return on investment,” says Josh Olson, technology analyst at Edward Jones.

As far as Wall Street’s concerned, Porat’s been a great investment, worth every penny of her $70 million pay package that goes through 2019. Since coming aboard, GOOGL stock (there are two share classes) has shot from around $550 to over $800 in under 17 months. That translates to a market capitalization gain of nearly $74 billion.

In order to help grow the non-search side of its business, Google is launching an all-out assault on the hardware market. On Oct. 4, it launched a laundry list of new products.

[Read: Why You Should Buy More Foreign Stocks.]

The highlight of the event was Google’s new $649 smartphone, the Pixel, which heavily features Google Assistant, the company’s newest AI-powered personal assistant. It also boasts a sleek design, a 12-megapixel camera it claims is the best of any smartphone, unlimited photo and video storage on the cloud via Google Photo, and a prominently advertised headphone jack.

“It’s obviously squarely aimed at Apple and the iPhone,” Kessler says.

Google also introduced a virtual reality headset, a new Chromecast Ultra, a smart wi-fi router and a product called Google Home. In fact, GOOG has been feeling mighty pugilistic recently, because the Google Home is another blatant attempt to go head-to-head with a major competitor: Amazon.com ( AMZN). The $129 Google Home is an AI-powered home speaker and personal assistant — eerily similar to the $179 Amazon Echo.

Cons of GOOG stock. If Amazon is even a wee bit scared about Google’s AI home assistant stealing market share from its Echo and Echo Dot products, Alphabet should be absolutely phobic about Amazon, which is eating into Google’s bread-and-butter: search.

Thirty-eight percent of online product searches begin on Amazon, while 35 percent begin on a search engine, according to a 2016 PowerReviews survey. A 2013 Forrester survey found that 30 percent of online shoppers began on Amazon, while 13 percent started on Google.

Many of the most expensive keywords on Google are product keywords because they tend to be hot leads that frequently end in sales.

Amazon’s growing influence in product search was one reason Wall Street research firm Wedbush recently downgraded Alphabet stock to “underperform,” giving it a $700 price target. The rise of ad-blockers was also cited in the bearish note.

But Amazon and ad-blockers are both external factors outside Google’s control. What are some of GOOG’s internal weaknesses that investors should keep an eye out for?

“Where Google is still trying to find its footing is in the shift to mobile. We’ve seen them struggle to gain traction there especially relative to its closest mobile competitor, Facebook (FB),” Olson says.

Kessler thinks YouTube has been a disappointment, and that a familiar competitor is doing it better. “We’ve seen Facebook doing a lot particularly when it comes to video and Facebook Live,” Kessler says. Even Twitter ( TWTR), he notes, is becoming a destination for livestreaming.

On top of that, the “Other Bets” aren’t performing well. On 2015 revenue of $448 million, their operating losses were $3.6 billion.

And while GOOG is certainly willing to take risks, its foray back into hardware is somewhat oddly timed to some. “Its recent rollout of the Pixel phone, Home device and Daydream View virtual reality headset all come with a slight whiff of catch-up desperation,” says Barry Randall, technology portfolio manager on Covestor.

No one knows how those products will fare, and their previous venture into hardware ended when Google sold Motorola to Lenovo for a $9.6 billion loss.

[Read: Where Twitter is Quietly Destroying Facebook.]

But until its global dominance in search starts waning — Google currently controls about 70 percent of the global market — GOOGL stock, trading around $800 and for a forward price-earnings ratio of just 20, seems like just the stock risk-tolerant investors should be looking for.

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Pros and Cons of Buying Alphabet Inc (GOOG) Stock originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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