Is The Rising Cost An Issue For Google Parent Alphabet?

Modern society is characterised by rapid growth and development of information technology (IT) sector resulting in huge dependence of the people, in a broader sense, on the individual knowledge and expertise of an individual in the IT field.

Information technology covers processing, storage, acquisition, and dissemination of information. It involves computer application and communication technology in the information handling task. Information technology is boon for people since it has given access to information at fingertips. Most of the businesses in the contemporary era would not survive without the use of Information technology. The companies across different regions, around the globe heavily rely on information systems.

The Reason why the cost of technology is on the rise

Expensive Products

Newer technologies are more expensive, as the products are becoming advanced and accessible to the market. There is a huge amount of pressure that is being employed to the information technology sector by the public to come up with newer and advanced products. Drone, virtual reality systems, advancement in automation technology. All these products require intense research and development. There is a sizable investment that goes to the research and development department of the company, which lead to an increase in cost and made the product more expensive.

The Dependency of Legacy Technology

Legacy technology is the term used to describe outdated technology that still operated in many businesses. The cost of maintaining outdated technology is more expensive as compared to the new technology. IT professionals in the field today may not be aware about the old technology and finding the right people is going to become more difficult as the time goes on.

Expensive Anti Malware software’s

With the advancement in technology, the malware, and viruses have become more creative. Malware and Ransomware which can crash business systems and expose valuable data to the public. It is important for any business to keep the cyber security at the cutting edge, and the IT department must ensure that the business has a proper defensive system at a price that makes sense to the company.

Advanced Technology

Earlier, businesses used to invest only in computers, but nowadays there is more technology in the market. Technologies such as cloud computing, automation technology and even mobile technology are being included in the technology budget of the entities. Businesses should consider the fact that by investing in advanced technologies, they can save time, money and effort in other areas of the business.

Alphabet Inc. (NASDAQ: GOOG, GOOGL)

Alphabet Inc. was founded by Sergey Mikhaylovich Brin and Lawrence E. Page and is a holding company, engaged in the business of acquisition and operation of different companies. The company operates through Google and Other Bets segments, which includes Calico, Access, GV, Nest, Verily, Waymo, CapitalG and X. Alphabet Inc. was established in October 2015 and headquartered in Mountain View, CA.

Google dropped out from JEDI Contract

Microsoft has secured the controversial JEDI contract worth US$10 billion to build and maintain Artificial Intelligence powered, cloud-based weapons platform to the Pentagon.

A handful of people have had imagined Microsoft securing the contract as Amazon and Google are considered industry leaders in cloud infrastructure and therefore deemed to be the frontrunner to win the bid. Google dropped out from the deal citing the employee outrage and later admitted that it could not get the necessary certificates in time to accept the contract were it to secure it.

Increment in Expense cost

The company’s expense increased to US$31 billion compared to US$24.6 billion in the corresponding period a year ago. This has resulted in a dip of Alphabet shares by 3.3 per cent to US$ 1,103.50 followed by the release of the earnings figures of Q3 2019 period ending 30 September 2019. Another reason making the market cautious was 29% decline in “cost per click” which is one of the main sources of revenue for the company. Money spent on Google hardware like Nest smart home devices, Pixel smartphones and investment in datacentres is essential to Google’s increasing cloud computing business.

Revenue increased by 20 per cent to US$40.5 billion in Q3 2019

On 28 October 2019, the company announced financial results for the quarter ending 30 September 2019. The key highlights from the announcement are as follows;

  • The company’s revenue increased by 20 per cent to US$40.5 billion compared to the previous corresponding period (pcp).
  • Operating margin increased by 23 per cent, with operating income recorded at US$9.1 billion.
  • Net income of the company stood at US$7.0 billion.
  • The number of employees of the company increased to 114,096 from 94,372.
  • The effective tax rate increased to 18 per cent from 9 per cent.
  • Google advertising segment was the major contributor to the total revenue of US$33.9 billion.
  • Cash and cash equivalents of the company stood at US$16.7 billion.
  • The company reported earnings per share of US$ 10.12 compared to the earlier expected $12.42 per share.
  • The total TAC (Traffic acquisition costs) as percentage of Google advertising revenue was at 22 per cent showing a negligible dip of 1 per cent on pcp.
  • The paid clicks on Google properties decreased to 1 per cent from 18 per cent in the pcp.

The Chief Financial Officer of Alphabet and Google, Ruth Porat said;

CFO Of Alphabet and Google
GOOGL Stock’s performance

As of 4 November 2019, the GOOGL class A Common Stock last traded at $1289.61, up 1.36 per cent from its previous close, with a P/E ratio of 28.06x. The company has a market cap of US$889.95 billion.


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