Alphabet and Risk Factors

At the beginning of this week, Alphabet passed Apple as the most market valuable company, see chart. All media  and newspapers wrote about it.


So, what risks have Alphabet to invest in? I went to the S-1 statement that Google published in 2014 for the Google´s IPO. In that statement the company wrote about “Risks Related to Our Business and Industry”, all risk factors in 2004:

We face significant competition from Microsoft and Yahoo.

We face competition from other Internet companies, including web search providers, Internet advertising companies and destination web sites that may also bundle their services with Internet access.

We face competition from traditional media companies, and we may not be included in the advertising budgets of large advertisers, which could harm our operating results.

We expect our growth rates to decline and anticipate downward pressure on our operating margin in the future.

Our operating results may fluctuate.

If we do not continue to innovate and provide products and services that are useful to users, we may not remain competitive, and our revenues and operating results could suffer.

We generate our revenue almost entirely from advertising, and the reduction in spending by or loss of advertisers could seriously harm our business.

We rely on our Google Network members for a significant portion of our net revenues, and otherwise benefit from our association with them, and the loss of these members could adversely affect our business.

Our business and operations are experiencing rapid growth. If we fail to manage our growth, our business and operating results could be harmed.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.

We are migrating critical financial functions to a third-party provider. If this transition is not successful, our business and operations could be disrupted and our operating results would be harmed.

Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, our business and operating results would be harmed.

Proprietary document formats may limit the effectiveness of our search technology by excluding the content of documents in such formats.

New technologies could block our ads, which would harm our business.

Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, our business may be harmed.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.

We are, and may in the future be, subject to intellectual property rights claims, which are costly to defend, could require us to pay damages and could limit our ability to use certain technologies in the future.

Expansion into international markets is important to our long-term success, and our inexperience in the operation of our business outside the U.S. increases the risk that our international expansion efforts will not be successful.

We compete internationally with local information providers and with U.S. competitors who are currently more successful than we are in various markets.

Our business may be adversely affected by malicious third-party applications that interfere with the Google experience.

If we fail to detect click-through fraud, we could lose the confidence of our advertisers, thereby causing our business to suffer.

We are susceptible to index spammers who could harm the integrity of our web search results.

Our ability to offer our products and services may be affected by a variety of U.S. and foreign laws.

If we were to lose the services of Eric, Larry, Sergey or our senior management team, we may not be able to execute our business strategy.

The initial option grants to many of our senior management and key employees are fully vested. Therefore, these employees may not have sufficient financial incentive to stay with us.

If we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.

Our CEO and our two founders run the business and affairs of the company collectively, which may harm their ability to manage effectively.

We have a short operating history and a relatively new business model in an emerging and rapidly evolving market. This makes it difficult to evaluate our future prospects and may increase the risk of your investment.

We may have difficulty scaling and adapting our existing architecture to accommodate increased traffic and technology advances or changing business requirements.

Problems with bandwidth providers, data centers or other third parties could harm us.

System failures could harm our business.

More individuals are using non-PC devices to access the Internet, and versions of our web search technology developed for these devices may not be widely adopted by users of these devices.

If we account for employee stock options using the fair value method, it could significantly reduce our net income.

We have recognized cost of revenue, and may continue to recognize cost of revenue, in connection with minimum fee guarantee commitments with our Google Network members.

We face risks associated with currency exchange rates fluctuations.

It has been and may continue to be expensive to obtain and maintain insurance.

Acquisitions could result in operating difficulties, dilution and other harmful consequences.

We occasionally become subject to commercial disputes that could harm our business.

We have to keep up with rapid technological change to remain competitive.

Our business depends on the growth and maintenance of the Internet infrastructure.

Shares issued, and option grants made, under our stock plans exceeded limitations in the federal and state securities laws.

As you can see, more or less, all of these statements are still risks factor to Alphabet. After more than 10 years risks did not change a lot.


Always learner.

The purpose of this blog for me is to translate my thoughs about investing and business. Nowadays we live in a world with too noisy information. Another reason for this blog is to build up my own principles.

I will use my Twitter account to publish short thoughs about companies/market and this blog I will develop my own investment ideas.

I love to read but I need I place to write down my ideas about investing, finance, accounting, valuation and companies. The process will be difficult until I develop a good and reasonable mental model to invest.

The value of Principles. As in life, every investor need to have Principles. For example, in the book “Valuation”, written by three Mckinsey employees, they have a few principles about invest in any project or “Foundations of Value” as they called it.

“Companies create value by investing capital to generate future cash flows at rates of return that exceed their cost of capital.”

“A corollary of this principle is the conservation of value: any action that doesn’t increase cash flows doesn’t create value.”

In the next posts I will talk more about this great book called “Valuation”.