Alphabet

Alphabet Inc. is a colossal American multinational conglomerate created in 2015 through a corporate restructuring of Google. Think of it not as a new company, but as a new house built around the original Google. The masterminds behind this move, Google co-founders Larry Page and Sergey Brin, wanted to tidy up their ever-expanding empire. The goal was twofold: first, to make the core, money-making Google business more streamlined and accountable; second, to give their other ambitious, long-term projects—what they call “Other Bets”—the freedom to thrive (or fail) on their own. For investors, this structure provides a clearer, though not necessarily simpler, view into one of the world's most influential companies. It separates the wildly profitable present from the potentially world-changing, but currently cash-burning, future.

Understanding Alphabet means understanding its two distinct parts. It's like owning a business that has a highly profitable, stable factory on one side of the street and a speculative research lab on the other.

This is the engine room of Alphabet, generating virtually all of its revenue and profits. It's the powerhouse that pays for everything else. The Google segment is a collection of some of the most dominant digital properties in the world:

Google Search: The undisputed king of internet search.
YouTube: The world's largest video-sharing platform.
Android: The most popular mobile operating system globally.
Google Cloud: A growing competitor in the cloud computing space.
Hardware: Products like Pixel phones and Nest smart home devices.

The vast majority of this segment's income comes from its massive advertising business, primarily through Google Ads. For a value investor, the Google segment represents a business with an incredibly deep and wide economic moat—its brand, network effects, and technology create formidable barriers to competition.

If Google is the reliable factory, “Other Bets” is the collection of futuristic science projects and high-risk ventures. These are Alphabet’s wagers on the next big thing, businesses aiming for “moonshot” innovations that could reshape industries. They include:

Waymo: A leader in self-driving car technology.
Verily: A life sciences division focused on tackling health problems with data and technology.
Calico: A research and development company with the ambitious goal of combating aging.

These businesses are fascinating and hold immense potential, but they are also a significant drain on Alphabet's overall profits. They represent the high-risk, high-reward part of the investment thesis.

For investors, Alphabet's structure is both a blessing and a curse. It requires a specific analytical approach to properly value the company.

Because Alphabet is essentially two different companies under one roof, many savvy investors use a Sum-of-the-Parts (SOTP) valuation. This method involves:

Valuing the profitable, stable Google segment on its own, often using a multiple of its earnings or cash flow.
Valuing each of the “Other Bets” separately. This is trickier, as they don't have profits. They are often valued based on private market comparisons or future potential, which is highly speculative.
Adding these values together to arrive at an intrinsic value for the entire company.

The magic for a value investor can happen when the market gets spooked by the losses in Other Bets, causing it to undervalue the rock-solid Google business. In such scenarios, an investor might be able to buy the world's greatest advertising business at a fair price and essentially get the portfolio of “moonshots” for free. The key is to analyze the parent company's capital allocation—is it pouring money from its cash cow into smart, disciplined bets, or is it funding a bottomless pit of science fiction projects?

When you look to buy Alphabet stock, you'll notice two main tickers, which can be confusing.

GOOGL (Class A): These shares come with one vote per share, giving you a say in corporate matters like electing the board of directors.
GOOG (Class C): These shares have no voting rights. They were created to be used for acquisitions and employee compensation without diluting the voting power of the founders.

For most ordinary investors, the difference is negligible. A third class, Class B, is held by insiders and has 10 votes per share, ensuring that founders and early executives maintain control of the company.

Alphabet is a unique beast. It offers exposure to one of the most durable and profitable business models ever created (Google's advertising empire) alongside a venture capital-like portfolio of high-tech bets. The challenge—and the opportunity—is to separate the two. A value-oriented approach demands that you focus on the price you are paying for the core Google business's immense cash flows. If you can buy that at a reasonable price, the “Other Bets” simply become a free call option on the future.