Alphabet Inc

Alphabet Inc - SWOT Analysis

Alphabet Inc (Alphabet) is the holding company of Google, a global technology company that
offers search, advertising, operating systems and platforms, enterprise and hardware
products. Revenue Growth, liquidity position, focuses on R&D, and advertising business are
the company’s major strengths, whereas lawsuits remain a major area of concern. Global
cloud computing industry, global cybersecurity market, and contracts and agreements are
likely to provide growth opportunities to the company. However, intense competition, security
breaches, and foreign exchange risks could affect its business operations.

Alphabet Inc- Strengths

Strengths - Major Player in Advertising Business

The company’s performance in advertising business makes it the leading player in the
industry. Alphabets generates majority of its revenues from its Advertising business. The
company delivers advertisements on Google properties like Google.com, the Google Search
app, Gmail, Google Maps, Google Play, and YouTube. It also sells ad space on its search
engine for third-party website and apps. It offers advertising inventory to its customers
through platforms such as AdSense for Search and Content, AdMob and Google Ad
Manager. The company offers advertising to its customers on a cost-per-click basis (CPC), in
which the advertiser pays the company only when the user clicks on an ad on Google
properties, or YouTube engagement ads. It also offers advertising on a cost-per-impression
(CPM) basis, in which the advertiser pays based on number of times their ads are displayed
on Google properties. Increasing demand for smartphones with 3G and 4G network access
provides boost to the company’s advertising business. In FY2020, it generated US$146,924
million from its advertising business, which accounted for 80.4% of revenue. The company
also develops algorithms that deliver more effective mobile ads to its customers.

Strengths - R&D Activities

Alphabet’s strong R&D capabilities enable it to produce innovative products and services that
meet customers’ expectations. The company invests in advertising, cloud, machine learning
and search, and developing new products and services. It also invests in systems, data
centers, real estate and facilities, and information technology infrastructure to expand its
expertise in engineering and other functional areas. Alphabet operates R&D facilities across
North America, South America, Europe, and Asia. The company initially releases the early-
stage products and then use customer reviews and use data to decide how to invest further in
the products. The extensive research operation enables it to launch various innovative
products. The R&D activities of the company focus on improving the performance of products
and developing new technologies. The company invested US$27,573 million in FY2020 on its
R&D activities, which as a percentage of total revenue, stood at 15.1%.

Strengths - Revenue Growth

The company reported strong growth in revenue in FY2020, which helps it gain investors'
confidence and improve its ability to allocate adequate funds for future growth prospects. In
FY2020, Alphabet reported revenue of US$182,527 million as compared to US$161,857
million in FY2019, representing an annual growth of 12.8%. The growth in revenue was
attributed to growth in revenue from across all the business segments including Google
Services segment sales by 11% and Google Cloud segment sales by 46%. Increase in
Google Services segment sales was due to higher revenues from Google advertising. Growth
in the Google advertising business was due to an increase in revenue from Google Search &
other, YouTube ads, and Google Network Members' properties. Increase in Google Cloud
revenue was due to continued strength in its GCP and Google Workspace offerings. Google's
others segment increased due to increase revenue from Google Play, YouTube subscriptions,
and other non-advertising revenue.

Strengths - Liquidity Position

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Higher liquidity places Alphabet at an advantage, enabling it to capture potential opportunities

arising in the market. At the end of FY2020, the current ratio of the company was 3.0. This
was due to increase in its current assets from US$152,578 million in FY2019 to US$174,296
million in FY2020, which reflects an increase of 14.2% over revenue for the previous year,
resulting from increase in cash, cash equivalents, and marketable securities from
US$119,675 million in FY2019 to US$136,694 million in FY2020. The company's current ratio
was above that of its competitor Amazon.com Inc, which reported current ratio of 1 in the
same year.

Alphabet Inc - Weaknesses

Weaknesses - Lawsuits
The company is exposed to various lawsuits and litigations as part of its business and also
attributed to regulatory probes in various regions in which Google operates. In June 2020, the
company was sued for US$5 billion by Chasom Brown, Maria Nguyen and William Byatt in
federal court in San Jose, California, the US for illegally invading the privacy of millions of
users by ubiquitous tracking their internet use even when users are in incognito mode.
According to the complaint filed in the federal court, Google gathers data through Google Ad
Manager, Google Analytics, and other applications and website plug-ins, including
smartphone apps, regardless of whether users are in incognito mode. This complaint seeks at
least US$5,000 in damages per user since June 1, 2016, for violations of federal wiretapping
and California privacy laws. Such lawsuits may have damaging impact on the company’s
brand image and decrease consumer confidence.

Alphabet Inc- Opportunities

Opportunities - Strategic Initiatives

Alphabet stands to benefit from its recent strategic initiatives, which could help the company
to improve its business performance and revenue growth. In January 2021, the company
acquired Fitbit, a manufacturer of wireless-enabled and wearable fitness devices. This
acquisition will boost Google’s market presence in wireless and wearable devices. In
November 2020, the company partnered with Econet to expand the network connectivity in
Africa. In July 2020, the company entered a partnership with NewMotion to gain access to
over 2,500 public EV charging points in the UK. This partnership will provide charge points for
Alphabet drivers and customers both at home and in the workplace. In May 2020, the
company's subsidiary Loon entered into a partnership with AT&T to provide wireless internet
from high-flying balloons to places hit by disasters. This partnership would help Loon to get its
balloons up and running quicker when disasters knock out traditional internet infrastructure
and also preparing to launch a commercial internet service in Kenya and remote parts of the
Peruvian Amazon. In January 2020, Google partnered with Peruvian Minsurto launch a
blockchain pilot project. This could help the company to trace and fully register the extraction
processes of tin from Peruvian mines.

Opportunities - Global Cloud-Computing Market

Cloud-based operations enable enterprises to scale up their operations instantly, handle
fluctuations in demand, and access systems and services over a variety of devices at a lower
cost. According to in-house research, the global cloud computing industry is forecast to have
a value of $411.7 billion by 2024. Software-as-a-Service (SaaS) is the largest segment of the
global cloud computing industry, accounting for 58.4% of the industry's total value, followed
by Infrastructure-as-a-Service (IaaS) with 26.3% and Platform-as-a-Service (PaaS) with
15.3%. Alphabet provides enterprise-ready cloud services to its customers including Google
Cloud Platform and Google Workspace. It offers products to over 5,000 companies across
various industries including retail, healthcare, education, government, gaming, financial,

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telecommunication and media. Its Google cloud platform enables the developers to build and
deploy applications on its reliable infrastructure.

Opportunities - Global Cybersecurity Market

Growing vulnerability of IT and communication networks to hacking, increasing threats of
terrorist attacks, and the requirement of securing maritime and offshore installations are
expected to drive investment in cybersecurity market globally. Increase in use of cloud
storage systems is also expected to drive demand for cloud security solutions. According to
in-house research, the worldwide cybersecurity market is expected to grow at a CAGR of
3.6% to reach US$17.8 billion by 2028. North America is expected to account for 55% of the
total market, followed by Asia-Pacific (22%), Europe (11%), the Middle East (8%), and Latin
America and Africa (4%). The cybersecurity market comprises four segments: network
security, data security, identity and access security, and cloud security. The market is
expected to be dominated by the network security segment, which will account for 36% of the
market share, followed by the data security (27%), identity and access security segment
(21%) and cloud security (16%) during the forecast period.

Alphabet Inc - Threats

Threats - Security Breaches

The company’s products and services involve transmission and storage of proprietary
information, and defects, bugs, misuse, theft, vulnerabilities in its products and services, and
security breaches expose Alphabet to a risk of loss of this information, improper use and
disclosure of such litigation, information, and other potential liability. The company’s security
measures could be breached due to the actions of outside parties, employee error,
malfeasance, and as a result, an unauthorized party could obtain access to the company’s
data or users’ data. Also, its clients are subject to laws and regulations in the US and other
jurisdictions designed to protect the privacy of their personal information. The experienced
computer programmers and hackers could pierce its network security and misappropriate
confidential information, create system disruptions and cause shutdowns. Such issues could
enable the company to incur significant expenses in addressing problems created by network
security breaches. In addition, such issues may enable the company to lose any of the key
customers and incur significant expenses in association with customers’ system failures.
Breaches of security solutions may hurt the business interest of the company.

Threats - Intense Competition

The company’s business is rapidly evolving and intensely competitive and is subject to
changing technologies, shifting user needs, and frequent introductions of new products and
services. The company faces formidable competition in every aspect of its business,
particularly from companies that seek to connect people with information on the web and
provide them with relevant advertising. Google faces competition from general-purpose
search engines, such as Microsoft's Bing, Baidu, and MyWebSearch; vertical search engines
and e-commerce websites, such as Kayak (travel queries), LinkedIn (job queries), WebMD
(for health queries), and Amazon.com and eBay (e-commerce); and social networks, such as
Facebook and Twitter. The company also faces competition from other forms of advertising,
such as television, radio, newspapers, magazines, billboards, and yellow pages, for ad
dollars; mobile applications on iPhone and Android devices; and providers of online products
and services. The company's several online products and services, including Gmail,
YouTube, and Google Docs, compete directly with new and established companies, which
offer communications, information, and entertainment services integrated into their products
or media properties. Technology is disruptive and sustainable competitive advantages are not
assured. If Facebook is more cost effective for advertisers, they might eventually find a way to
reach the audience through these sources. Similarly, other companies have been gaining
ground in Google's forte of search advertising. Furthermore, its closest competitors, Yahoo!
and Microsoft have launched several initiatives to capture share in these markets. Microsoft is

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attempting to integrate its internet searching and desktop so that its search engine will be
embedded in all of its software, in the hope that there will no longer be a need for Google.
Additionally, applications like Siri for iPhone have introduced the users to reality without
Google search. In addition, the company faces fierce competition in the mobile markets.
Google's significant competitors in the mobile operating systems market include Microsoft and
Apple. Also, the growing consolidation in the industry will put pressure on the company's
growth. The intensifying competition has the potential to impact the market share and growth
prospects for Google.

Threats - Foreign Currency Risks

The company operates in many parts of the world and is exposed to fluctuations in foreign
exchange rates. The company reports financials in the US dollar and therefore its revenue is
exposed to the volatility of the US dollar against other functional currencies, as it conducts
business operations around the world. Significant part of its revenue is also denominated in
other currencies such as the Australian dollar, Canadian dollar, British pound, Euro, and
Japanese yen. The major elements exposed to exchange rate risks include the company’s
investments in overseas subsidiaries and affiliates and monetary assets and liabilities arising
from business transactions in foreign currencies. In FY2020, the company reported a gain of
US$1,139 million from foreign currency translation adjustments as compared to a loss of
US$119 million in FY2019. To minimize risks from currency fluctuations, the company could
involve in foreign exchange hedging by entering into foreign exchange forward contracts.
However, there could be no assurance that such hedging or measures would limit the impact
of movements in exchange rates on the company’s results of operations.

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