Quora Question: Is Google's Alphabet Getting Too Big?

Alphabet shares jumped after reporting strong quarterly earnings, making its combined share classes worth $568 billion, compared with Apple, which had a value of about $535 billion. Pascal Rossignol/Reuters

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Answer from Jitender Miglani, research director at R&P Research:

Is Alphabet too big? Let me share few numbers to help answer this question.

  1. Alphabet's 2015 total revenues were $75 billion. Of these, $74.5 billion (99.4 percent of the total) were from Google and the remaining $0.5 billion were non-Google revenues. In terms of profits, non-Google companies had a segment operating loss of -$3.5 billion.
  2. If we compare Alphabet to other technology companies in terms of revenues, there are few that are much bigger in size. Apple had $234 billion revenues in FY '15 (fiscal year ending September 2015). Microsoft had $93.5 billion revenues in FY '15 (fiscal year ending June 2015).

However, if we look at market valuations, Alphabet is not much far behind Apple and is ahead of Microsoft. So, yes. Alphabet is getting too big in terms of market valuation.

Market valuations change every second depending upon the stock price. On February 2, 2016, Alphabet market capitalization was more than that of Apple. But, Apple quickly regained the number one spot. On August 1, 2016, the top five most valuable companies in the world were technology companies. Alphabet was still holding the second spot.

Ninety percent of Alphabet revenues in 2015 came from advertising. So, we can say that Google is a technology company that happens to be in the media business, just like Amazon is a technology company that happens to be in the retail business. It makes sense to compare Google with other media companies, just like we would compare Amazon with traditional retail companies such as Walmart.

The top 10 media companies in the US in terms of 2015 revenues are: Comcast Corporation, The Walt Disney Company, 21st Century Fox, Time Warner, CBS Corporation, Viacom, News Corporation, Discovery Communications, Scripps Networks Interactive and Gannett Co. If we compare Alphabet to other media companies in terms of total revenues, then Alphabet is not only bigger than all of them, but also its revenues are growing much faster than all of them.

Most of the media companies generate revenues from several different sources. If we just focus on advertising revenues and compare Alphabet to other media companies in terms of advertising revenues, then Alphabet is "too big". No other company comes closer or has a chance of coming closer. Just see this fact: Google generated $67.3 billion of revenues from advertising in 2015. On the other hand, the combined advertising revenues of U.S. top-10 media companies were $54.7 billion. So, Google generated more advertising revenues in 2015 than the combined advertising revenues of top 10 media companies. and they seem to be growing strong, even at such a large base.

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