Google

What goes up, doesn’t always come down. Take tech stocks. Up and up. The latest surge fuelled by business models well-catered for a global stay-at-home directive from wide-eyed government mandarins. And, yet the sector too is taking heat from the meaty breath of the left-wing political elite, mindful of the shifting eddies in the national zeitgeist. The big are too big, they do bad things with our data, they turn a blind eye to online hate and they don’t pay enough tax. Now, take Google. With the stock trading around all-time highs, there might be a temptation to feed the bid, and book some profits. The dominant search business is slowly being nipped at by specialised apps, YouTube disappoints on revenues, and management are partial to the odd moon-shot investment; in addition to the ongoing static of regulatory interference. Time to sell. Or not? Yes, the stock trades at a record high, but you are paying pretty much a market multiple. Search is possibly the best business in the world: near-zero marginal cost, economies of scale and ‘go-to’ status now the Encyclopaedia Britannica is stuffed in the attic. Yes, advertising is cyclical, but this business continues to grow mid-teens. YouTube meanwhile has a massive, engaged and under-monetised user base. The potential is huge. When it comes to ‘other bets’, there has been recent evidence of tighter fiscal discipline. As for regulation, the rhetoric is sharp and there have been fines, but very little has been done to change the status quo. Worst case is some sort of a break-up, but unpicking Google’s ad tech stack without causing harm to publishers, advertises and consumers is not straightforward. So a market multiple for the dominant search business with potential profitable add-ons in Maps, Images and Play Store. The monetisation of YouTube’s two billion users, initiatives in healthcare, payments and autonomous driving, and upside in the cloud. Selling is an option, but some holdings are, perhaps, best left alone.