As a believer in long-term investing, my preferred holding period for a share is years or even decades. But there are not many businesses I feel fairly confident will still be in rude health a decade from now. The world does not stand still and many businesses struggle to adapt. One company that has caught my eye at its current valuation, however, is Google and YouTube parent Alphabet (NASDAQ: GOOG).
If I had spare money to invest today, I would be happy to buy Alphabet stock with the intention of holding it for a decade. Here are three reasons why, along with a big risk that I see.
Huge user base
Think about the last time you used an Alphabet service like the aforementioned Google or Youtube. If you are like many people, it may have been just hours or even minutes ago. Now consider what you would do if that service became unavailable.
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There are no immediately obvious substitutes for some of Alphabet’s services. Even if there was an alternative, I reckon the effort and time involved in switching after many years using these services would be enough to put off many users. That sort of ‘stickiness’ means Alphabet has a massive base of loyal users. In the long term, that gives it pricing power.
Compelling proposition
But why is Google so widely used now? After all, it once had a smaller fewer users than rivals such as Lycos and Ask Jeeves, names that many internet users have long since forgotten.
That strong market proposition reflects Alphabet’s proven ability to meld a solid technical infrastructure with interfaces users find easy to understand. That has helped the company build big brands that further boost its appeal. I see that as the basis for further growth opportunities in market share. The better Alphabet’s offering has become, the more engaged a user base it has developed. That further enhances the stickiness of the firm’s services.
Strong business model
But providing free services to billions of users is not much of a business model on its own!
Google has performed well in monetising its services by figuring out who can benefit from them. For example, all those searches help it maintain a leading position selling advertising. The company moved from serving flight search data to helping users link to booking flights. That can help Google earn money from airlines without getting directly involved in the travel booking business.
One risk I see with Alphabet stock
I expect these three advantages to endure for a long time, which is why I would be happy to buy and hold Alphabet stock. After falling 35% in a year, the share price now looks attractive to me.
But that fall also points to some risks. One of them is declining advertising revenue. In the short term that could be due to advertisers cutting budgets in a recession. But longer term, Alphabet risks losing market share to newer rivals like TikTok. The latter is now an innovator in search, which was the foundation of Alphabet’s current success. If Alphabet does not fend off competitors successfully, sales and profits could fall.
Yet the company’s proven ability to compete strongly reassures me. If I had spare cash, I would load up on Alphabet stock for my portfolio.
