Most investors have heard of FAANG, an acronym that represents Meta Platforms (formerly Facebook), Amazon, Apple, Netflix, and Alphabet (formerly Google) (GOOG 9.44%) (GOOGL 9.73%). Some of the names may have changed a bit, but these companies are still among the most influential in the tech world, and they operate some of the most powerful and lucrative business models on Earth.
Staying on top is hard. Some of the FAANG stocks still get most of the headlines, like Apple, while some, like Netflix, have struggled recently. But if you had to pick just one of these blue-chip stocks to hold forever, Alphabet is the obvious choice. Here's why.
Alphabet is dominating through strong execution
All the FAANG stocks have grown to their massive sizes by dominating the markets they operate. However, Alphabet has shown an ability to dominate in multiple arenas. The company generates most of its revenue through ads, but it attracts eyeballs in many ways.
Several search engines beat Google to market back in 1998, but Google figured out how to do it right and today it conducts a staggering 92% of worldwide internet searches. It's the most-visited website in the world, with 44 billion visits from users in May 2022 alone.
The second most visited website is YouTube, which Alphabet also owns, bringing in another 27 billion visits last month. Meta's Facebook social media platform, which has nearly 3 billion users, comes in third, with just 10 billion visits in May 2022. The distance between Google, YouTube, and the rest shows how dominant Alphabet is on the internet.
But Alphabet is so much more than websites; its Android mobile device operating software powers an estimated 86% of the world's smartphones. Google Workspace, which includes software for word processing, spreadsheets, and email, has roughly 2.6 billion users. That said, it might not dominate everything it does; its cloud computing business Google Cloud has just 10% of the global market.
Still, Alphabet has shown an ability to dominate the markets it enters, or at the very least compete in them. This ability to execute is critical if you're going to hold a technology stock over the long term.
Alphabet is a printing press of profits
Strong execution typically leads to excellent business outcomes, and you can see how relatively stress-free Alphabet's growth has been since it went public. Revenue has grown an average of 21% per year over the past decade.
GOOGL Revenue (TTM) data by YCharts
The company's profitability is what takes Alphabet to another level. It generates $0.26 of free cash flow from every revenue dollar, which are cash profits that Alphabet has discretionary use for. It doesn't pay a dividend, but it's repurchased $52 billion of stock over the past four quarters, which helps earnings per share (EPS) grow faster, averaging 37% annual growth over the past three years.
Alphabet is also financially sound with almost no debt, just $12 billion compared to $134 billion in cash on its balance sheet. This makes it one of Wall Street's wealthiest businesses, which means it can fund share repurchases or the development and acquisitions of new growth opportunities.
Set up for growth moving forward
It's almost impossible to know what Alphabet's next big idea will be. Still, investors can feel pretty confident that its internet ad business, which generates most of its profits today, will continue to thrive moving forward.
It seems everyone uses the internet in America, but that's not the case worldwide. Statista estimates that just 62% of the world's population has internet access.
Because Alphabet has a tight grip on the worldwide search engine market, it will likely directly benefit from more people around the world getting online. More traffic to Google and YouTube will mean more ad revenue for Alphabet.
When you add it all up -- growing internet traffic, the company's massive free cash flows, and share repurchases -- you get a stock that's likely to grow for years into the future. Is success guaranteed? Of course not; however, Alphabet seems as close to a buy and hold forever type of stock as you'll find.
