Reward from investors to get better transparency
Google (GOOG) and Amazon (AMZN) have a combined market capitalization of over $650 billion. The market capitalizations of both companies are higher according to the technology sector’s standards. In return, investors expect a better understanding of how their core businesses are performing, and in turn drive the new businesses.
With respect to Google, investors’ transparency expectations have increased with the recent creation of Google’s parent company, Alphabet. Investors now expect Google to report greater visibility of how its core advertising business is performing alongside other new companies that include self-driving cars, the drone arm, Nest, Google Ventures, and Calico.
The new businesses operate under Google. Google Ventures is Google’s venture and capital division, and Calico is Google’s research and development entity.
Google’s core business: searches and ads
Although Google (GOOG) is diversifying its business with offerings such as self-driving cars and shopping features on YouTube, its core businesses remain searches and advertising. Online advertising contributed 89%–90% of Google’s total revenues for the past five quarters. According to a survey conducted by Adobe, Google’s search advertising business has flatlined quarter-over-quarter.
Sequential growth in Google’s search revenue dropped in 1Q15 due to 4Q14’s tough holiday season. The holiday season, or the quarter ending in December, is the most lucrative quarter for businesses. In 2Q14, Google’s quarter-over-quarter growth for search revenue was 4.5%. It was -2.0% in 2Q15.
Google’s search advertising business flatlined by the shift in marketers’ spending on mobile and other digital advertising platforms. Advertising rates on mobile devices are much lower, partly due to the smaller screen sizes of mobile devices.
Google still dominates the search engine market
In terms of consumer choice for a search engine on desktop computers, Google’s position remains unaffected. According to comScore, AOL (AOL) accounts for 1.2% of searches on desktop computers. Microsoft (MSFT) handles around 20% of searches, and Yahoo! accounts for 12.7%. Google dominates with a market share of 64.1%.
For diversified exposure to Google, you can invest in the Technology Select Sector SPDR ETF (XLK). XLK invests 3.8% of its holdings in Google.