Should You Buy Alphabet Stock Now?

On the surface, a company that grew from a little over $10.5 million to $75 billion in a decade is a company you can’t really have a gripe with. But Alphabet Inc-C (NSDQ:GOOG) now faces a serious problem.

The company’s revenues are overly dependent on one major channel – advertising income – with more than 90% of its annual revenue being derived from that channel.

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This lack of diversification may not be apparent because Google offers so many product lines. Unfortunately, the monetization of the bulk of those products only happens through advertising. Android, Google Apps for Work, YouTube Red, Google Cloud Platform and a couple of others are the only real alternative sources of income, but those numbers aren’t significant enough to match ad revenues.

Competition from Facebook

On the advertising front, Google faces increasing competition from Facebook’s network of advertisers. Now that Instagram and Facebook essentially operate off the same Facebook ad interface, it compounds the problem for Google.

Earlier this year Facebook announced that it had officially crossed the 3 million advertisers mark on its platform. Just over a year before that, they crossed 2 million. That means they’re currently growing their advertiser base at around 50% year-over-year. Last year, Business Insider reported that Google’s advertiser base could be upwards of 4 million, so they’re not that far ahead of Facebook.

New Competition from Netflix, et. al.

Now that YouTube Red is online, Google has one more potential revenue stream to offset the threat to their ad business. However, Red is still unproven against monsters like Netflix, Amazon Prime Video and even HBO Now.

At Alphabet’s last earnings call, Google CEO Sundar Pichai said that the six original programs they launched with was only the beginning, with more expected to be made available through the year.