GOOGL - Google

[chrispy]

I finally got around to reading the Google maps moat piece. Wow. Great write up and the compounding amount of data that Google has is simply jaw dropping. No one that I know of thought Google Street view would be anything more than simply a quirky thing to use with Google maps. Most likely Google did not just stumble upon this finding and how all of their data can be used... It is amazing how innovative and forward looking they are

[LongTermView]

Liberty, I really appreciate these links. The Google Maps Moat and the FatTailCapital EU report snippets are excellent.


[Travis Wiedower]

That Google Maps moat write-up really is amazing. I've only used Apple Maps a couple times because the UX sucks, but I never realized how far ahead of the competition Google Maps was. Hard to beat the lead they have in data.

[Liberty]

Liberty, I really appreciate these links. The Google Maps Moat and the FatTailCapital EU report snippets are excellent.


 

Glad you enjoyed it, thanks for the feedback.

[villainx]

That Google Maps moat write-up really is amazing. I've only used Apple Maps a couple times because the UX sucks, but I never realized how far ahead of the competition Google Maps was. Hard to beat the lead they have in data.

 

I wonder what it means for Apple, where and how Apple might improve, and how (isn't) Apple is investing/innovating in that area.  I use Apple Maps almost exclusively on the phone, but a lot of it is because it works and I don't want to learn the interface for Google Maps.

[Liberty]

That Google Maps moat write-up really is amazing. I've only used Apple Maps a couple times because the UX sucks, but I never realized how far ahead of the competition Google Maps was. Hard to beat the lead they have in data.

 

I wonder what it means for Apple, where and how Apple might improve, and how (isn't) Apple is investing/innovating in that area.  I use Apple Maps almost exclusively on the phone, but a lot of it is because it works and I don't want to learn the interface for Google Maps.

 

Apple Maps is getting better, but Google Maps is getting better as fast or faster.

 

But, the job to be done for Apple is getting done with Apple Maps, and Google would be crazy to make its maps unavailable to iOS (the most valuable segment of the mobile market). They now just have less bargaining power then they did before Apple maps existed.

 

Things could become different if Apple wants to make a self driving car after all, but for now, it's a core competency for Google and a nice defensive side thing that keeps them from being too vulnerable for Apple.

[Liberty]

This documentary about Deepmind's AlphaGo is now available on Netflix (at least in the US and Canada afaik):

 

http://www.imdb.com/title/tt6700846/

 

h/t Bluegrass Capital on twitter for pointing it out.

[saltybit]

https://jonathanmendezblog.com/2018/01/03/the-real-threat-to-googles-advertising-dominance-is-back-and-this-time-it-has-teeth/

 

The Threat to Google Advertising Dominance is Back – With Teeth

[Liberty]

https://www.cnbc.com/2018/01/05/google-investing-120-million-into-chushou-chinas-e-sports-market.html

[Liberty]

Maybe Google starting to understand that fragmentation isn't good for branding, and that when it comes to consumer services, brands are important:

 

https://arstechnica.com/gadgets/2018/01/google-rebrands-all-its-payment-solutions-as-google-pay/

[Liberty]

https://www.cnbc.com/2018/02/09/uber-waymo-lawsuit-settlement.html

 

"Uber will pay Waymo a 0.34 percent equity stake, the companies said on Friday,"

[VAL9000]

I watched this video series on self-driving cars and their potential impact to our way of life.  I thought it was really interesting.

 

I share it in this thread because GOOG appears to be way out in front when it comes to the self-driving car race.

 

https://a16z.com/2018/02/03/autonomy-ecosystem-frank-chen-summit/

 

My favourite part is the introduction where Frank Chen share McKinsey's view on cell phones in 1980: 900,000 people will use cell phones in the year 2000.  The actual number was 109,000,000.  Frank's point is that sometimes technology adoption occurs much, much faster than we expect.  His belief is that self-driving cars are a likely next candidate for this rapid, radical change. 

 

I agree with him.

 

[WayWardCloud]

Thanks for sharing! Such a good presentation.

It made me realize how much the TaaS service fleet is only the very beginning of a transformation coming up. The entire city mapping and routing of packages/people will be revolutionized which has strong ripple effect on pretty much every industry. Sounds like a good time to be Alphabet (Waymo + Google Maps + AI + cloud computing) / Amazon (parcel delivery logistics) / ARM-Softbank (Internet of Things chips).

 

I believe GM/Cruze has a good chance of being the first big scale AV/EV ride hailing provider thanks to having under the same house strong AV development AND mass production EV capability but I see Alphabet picking up later on in the revolution in a more complete way integrating everything else together, essentially digitizing the entire urban space.

 

Here are my notes:

 

Tailwinds

GM/Cruze

Alphabet (Waymo + AI + Maps + Cloud Computing)

Amazon (Parcel Logistics)

Urban Design, mall repurpose, parking lots repurpose (Architect firms)

Interior car design ergonomics (Apple?)

In-Car entertainment (SIRI, Netflix, live sports, video games) and work (Microsoft, Google Docs)

AV/EV truck fleets

Software engineers

Drive through ready businesses (Starbucks, McDonalds)

Solar Power

Wind Power

Natural Gas powered electric plants (because night-time + value deflation effect)

Cobalt (needed in batteries and naturally limited, but will they come up with other battery technology?): biggest Cobalt countries Congo, Australia, Zambia, Cuba Canada)

Cobalt recycling companies?

Sensors

Internet of things (ARM chips, Intel, 5G networks)

Cloud Computing to sort out all this data live (AWS, Microsoft, Google)

Drones

Automation, robot design

Remote driving software for the tricky part in a long truck journey to be done by a human

Universal packages routing hub through different companies (Amazon?)

Bars

 

Not sure

Ride Hailing Apps: Uber and Lyft have no moat: it’s easy to replicate a ride-hailing software BUT what if they are bought at a premium by a big TaaS company when they launch to accelerate adoption and be the first big scale provider?

I think less likely because what will hinder mass adoption is manufacturing the cars and designing the warehouses more than public adoption. <45 Years old are ready for the concept and don't mind installing a new aapp (we already switch between two constantly when it comes to ride hailing). Google makes awesome apps easily and can integrate them by default in Android so why would they pay billions for something they can make in house that is their core competence?

GM could want to take Lyft out though.

Overall short Uber/Lyft long term.

 

Headwinds

Insurance companies (less accidents + after a certain scale is reached TaaS companies can self-insure)

State Taxes (California gas tax, license registration fees, where will they get the money? Big battle with major TaaS providers and possible new form of transport taxation)

ICE cars repair (O’Reilly)

Oil Companies (Ostrich attitude)

Railroads? (truck driving of merchandise cheaper) Berkshire is heavily into rail…

Taxi + Truck drivers + Mechanics, in general every low qualification job > massive unemployment?

Things like Jiffy Lubes, Gas stations, private parking lots (do they own their Real Estate? Can be valuable to repurpose mini recharging stations everywhere in the city for TaaS companies)

Car Loans financial companies

Used cars economy (Kelley Blue Book), “certified refurbished” places

Car rentals (Enterprise, Hertz)

Organ Donation receivers (most come from young people in car accidents > companies that work on engineering organs in vitro?)

Law firms specializing in car accidents (1/3 of court cases are car related!)

Bond Bailing

DMV (thank god)

AAA

Malls will have to transition > high capex cycle (long architect firms?)

Shit people buy at gas stations: chips, candy, sodas > impulse buys are a lot less likely online

Home garage doors manufacturers

[KCLarkin]

I've finally relented and started a position in Google. It's been cheap since the financial crisis but I've avoided it do the poor capital structure. Google hardly needs any capital to grow or operate but keeps $100B in cash and securities on the balance sheet. This is unforgivable.

 

But capital allocation has improved since Porat joined and tax reform should make it easier for Google to return that excess cash. Hopefully, they will at least stop growing the cash hoard.

[LightWhale]

Part of Google's value is obviously being a monopoly. To safeguard that moat and prevent comp, they must maintain financial flexibility to acquire future emerging threats of any size. Maybe that's what the cash hoarding is about? Then that cash appears to yield no direct profit, but indirectly it allows the register to keep on clicking (sorry for the pun). 

[KCLarkin]

Part of Google's value is obviously being a monopoly. To safeguard that moat and prevent comp, they must maintain financial flexibility to acquire future emerging threats of any size. Maybe that's what the cash hoarding is about? Then that cash appears to yield no direct profit, but indirectly it allows the register to keep on clicking (sorry for the pun).

 

Google could easily lever up over 3x EBITDA for a big acquisition. So they have at least another $100B in buying power. Their biggest acquisition to date was $12.5B for Motorola.

 

Based on the results of Motorola, I'm not looking forward to the first $100B acquisition Google makes.

[CorpRaider]

As I reply on my pixel phone, running on google FI, using a google wifi router, connected to google fiber, and "google" the financial metrics, while streaming cnbc on youtube TV in the background....I wonder how it is that I don't own any.  Perhaps I should ask google assistant once she is done singing a lullaby to my kid?

 

Also, youtube wasn't such a sucky acquisition, but they did reportedly offer to bail/buy out Tesla once already.

[rolling]

I've finally relented and started a position in Google. It's been cheap since the financial crisis but I've avoided it do the poor capital structure. Google hardly needs any capital to grow or operate but keeps $100B in cash and securities on the balance sheet. This is unforgivable.

 

But capital allocation has improved since Porat joined and tax reform should make it easier for Google to return that excess cash. Hopefully, they will at least stop growing the cash hoard.

I too finally entered google a few days ago. It was more of an opportunistic buy than really a pondered analysis and I am still trying to reach some kind of valuation that justifies my purchase.

 

Since at first sight GOOG does not seem grossly overvalued, the fact that I'm exposed to technology actually makes me sleep better since the rest of my portfolio has almost zero exposure to technology and this might protect my portfolio from disruption. I am treating this position as some kind of insurance that isn't too expensive.

[chrispy]

I as well started a position on a more qualitative basis:

 

Profitable:

Search, pixel, youtbe, youtubeTV, nest, wifi, fiber, home speaker, gmail, gDocs, chrome, chromebooks

 

Moonshots:

Waymo

 

Qualities:

Cash, no one wants to compete with them, desirable place for top talent to work, looking to the future and not to the past.

 

A stable company, cash generating machine, holdings lots of cash with a P/E less than the S&P500...

[ebdem]

I already have my position and would buy more, if there is a dip. Alphabet is a great company and there are many options in it, that chrispy already mentioned. For more, read the wexboy post.

 

It is also quite interesting to see the development during the next years. There are so many moving parts and options, that it is hard to imagine the paths for the next years. There are some streets (search, YouTube), that are clearer, but some scenarios are still unwritten. Imagine Alphabet goes into Pharma?

 

There might be some monopoly troubles ahead, but the risk of a permanent loss of capital is quite low.

[rolling]

Have been (slowly) doing my homework here and now stumbled into Apple ios and apple store (yes, except for BRK US megacaps have been out of my radar for long). So they say money spent in the appstore makes its users less prone to switching out of Apple. It seems logical and is most likely true.

 

But then, isn't it possible that the same happens with android devices? Their customer base might use less paid apps but, if the market share is much higher for android than for ios, then the stickiness to android might be similar or higher. Found this article:

https://www.theverge.com/2017/2/16/14634656/android-ios-market-share-blackberry-2016

 

"Of the 432 million smartphones sold in the last quarter, 352 million ran Android (81.7 percent) and 77 million ran iOS (17.9 percent). "

True, this last quarter mentioned here is 4Q2016, but most likely things are still similar.

 

 

Edit: to argue with myself I found this article

https://android.jlelse.eu/apple-vs-android-a-comparative-study-2017-c5799a0a1683

Where we find a very interesting map telling us that the ios is dominant in richer countries including us canada japan uk france australia and nordic european countries. That might be what makes Apple franchise more valuable. Which is supported by other graphs, where they state active gaming ios users spend twice the amount of android users. And now quoting:

"Apple Users access more content categories and do more online shopping than Android users. This means that they have higher mCommerce engagement than Android users.

iPhone users tend to make more In-App purchases compared to Android. Ad-displays is the main source of revenue generation in Android Apps.

As per App Annie reports, revenue generation is 60% more on iTunes store of Apple, as compared to Google Play of Android."

 

Edit2: nevertheless, even if ios generates twice the revenue per user (excluding advertising, which doesn't create stickiness) the more than 4.5 market share might have a bigger franchise value, especially since android users are likely poorer than ios users and small money might make a bigger difference for them.

[Liberty]

About both GOOG and FB:

 

https://stratechery.com/2018/the-aggregator-paradox/

[chesko182]

https://www.nytimes.com/2018/02/20/magazine/the-case-against-google.html

[Liberty]

Clever: https://adsense.googleblog.com/2018/02/introducing-adsense-auto-ads.html

[Liberty]

Apple confirms it uses Google's cloud for iCloud

 

https://www.cnbc.com/2018/02/26/apple-confirms-it-uses-google-cloud-for-icloud.html