Market capitalization (caps) refers to the measurement of the value that a business has through the assessment of the share price as well as the number of shares outstanding. In general, market capitalization presents the market view of the company’s stock value and acts as a determinant factor in the value of their stock. The computation of the market capitalization figure is by taking the company’s stock price and consequently multiplying it by the overall number of shares outstanding. Through the classification of companies into diverse caps, it makes it possible for investors to assess the growth of the company against the risk potential. Traditionally, larger caps normally experience slower growth with lower risk, while the small caps have experienced higher growth potential compared with the higher risks. This paper is going to conduct a market capitalization of Google for the past three years and assess the issues that could have been responsible for the response the company had in the market.
Company Background
Google Inc has its focus on the improvement of the manner in which people connect with information. The company offers an assessment of services as well as tools that advertisers can use from the simple text ads to display along with mobile advertising and publishers irrespective of their size. The core focus of Google Inc is in the search, operating systems, advertising, enterprises, platforms as well as hardware products. The search component encompasses a huge assortment of websites and another online doctor that is made available through their search engine to all individuals with an internet connection Kingsbury, K. (2015). Google Inc is world’s second most valuable brand, second best American employers and is second in Forbes top 100 companies.
The moment that Google announced that they become a subsidiary of a new holding referred to as alphabet, their stock price jumped 6% in after-hours, adding approximately $19 billion to the company’s market capitalization (Sehgal, 2016). The underlying attribute is that Google’s stock it is not the only security that has been impacted by the Alphabet. Research conducted at Purdue’s Krannert School of Management indicates that change of name of security has an impact on its price. The best example is that of the emergence of the “.com” bubble whereby companies that added “.com” to their name had an average 74% increase in their stock price within ten days after the announcement (Sehgal, 2016). Following the bubble burst, it was additionally evident that the companies that removed the “.com” from their names had an average increase of 72% in their stock prices 11 days after the announcement (Sehgal, 2016).
One of the most evident issues is the fact that the rearranging of the alphabet can result in significant impact to the company’s price performance. It has further been found that investors are not entirely logical, rational actors and that they make their investment decisions based on the mental shortcuts. In this case, the emphasis is on the fact that the easier it is for one to remember a stock ticker or pronounce the company’s name, the greater the likelihood they are going to invest in that company (Sehgal, 2016). Through the change in their name, Google has decided to use psychology in luring investors to their company.
In October 2015, Google’s parent company, alphabet unveiled their earnings report, announcing their first stock buyback program. The investors entertained the news and additionally sent the company’s stock soaring 11.8% which pushed alphabet (GOOG) market capitalization to pass a half a trillion mark (Ari, 2016). The increase in their company’s stock price reinforces their position as the second most valuable company in the world behind Apple. In the same month, the company reported their second quarter revenue of $18.7 billion, which was a 13% increase compared to the same time in 2014, with the exciting news that the investors have planned a buyback of almost $5,099,019,513.59 of the company’s Class C capital stock (Ari, 2016). Through the repurchase, the company had an opportunity to reduce the number of their outstanding shares and additionally increase the overall ownership of their shareholders.
In 2015, the search giant restructured as a holding company called Alphabet and reached a market capitalization of $547 billion, which surpassed Apple who had acted as the long-standing king of the mountain (Kingsbury, 2015). The corporation’s search engine is still their money driver, and currently powering the numerous initiatives being launched under Alphabet (Kingsbury, 2015). The restructuring that the company implemented in 2015 presents additional transparency relating to the company’s operations and the performance of Google being broken out separately from things as idea incubator Google X and smart thermostat maker Nest. The strategy saw investors reward the additional transparency by injecting $100 billion into Alphabet’s market capitalization from the time the announcement of restructuring was made (Ari, 2016).
Alphabet market capitalization as of January 29, 2016
The main issues that are informing the current assessment are whether the valuation of Alphabet is going to rise or could be facing a downturn as was the case with Apple. The performance of Alphabet is going to be dependent on the two main factors that encompass the fact that it is imperative that the Google section of alphabet entailing google.com, Android, and YouTube has to maintain their dominance of search, as well as online video even with the emergence of younger competitors, focus on controlling the time that users spend on their mobile devices (Ari, 2016). Snapchat, Facebook among others are threatening not only the control that YouTube has on video but also the broader role that Google exerts as a gateway to internet information.
The time that Google was more valuable than Apple was February 2010 when the two companies were worth less than $200 billion. At that time, Apple has not released their first iPad and their newest iPhone was 3GS (Ari, 2016). The two companies flipped flopped several times between 2008 and early 2010, before Apple made the historic tear by jumping from $180 billion to $650 in September 2012, with the two companies being separated by more than $400 billion (Ari, 2016). Google’s latest share rise in has seen an increase by 44% while Apple shares sank by 16% towards the end of 2015.
The current resurgence by Google is accredited to the change of their name to the alphabet and convincing their investors that it is imperative that they transition from the web to mobile as a means of maintaining their dominance. According to the eMarketer, Google is projected to capture 32% of the mobile ad market in 2016 while they still are ahead of Facebook (Ari, 2016). Google generates a lot of profit from their digital ad business making it possible for them to invest in all the other possible growth areas as autonomous driving as well as extending life.
References
Ari, L. (2016). Google parent Alphabet passes Apple market cap at the open. Accessed on September 22, 2016
Kingsbury, K. (2015). Google’s $65 Billion Market-Cap Gain One for the Ages. Accessed on September 22, 2016
Sehgal, K. (2016). Google’s name change could be good for its stock. Accessed on September 22, 2016
Sherry Roberts is the author of this paper. A senior editor at Melda Research in nursing research papers if you need a similar paper you can place your order for article critique writing services.
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