CFDs are complex instruments. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. CFDs are complex instruments. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

How to buy and sell Alphabet (Google) shares

As the holding company for Google and other subsidiaries, Alphabet Inc. is one of the largest companies in the world. But what is its history, who are its key personnel and how can you take a position on its shares?

A brief history of Google

Google was founded by Larry Page and Sergey Brin in 1998. The pair came up with the idea when they were working on a solution to find a better search engine than what was available at the time. As a result, Google was developed as Brin and Page set to work creating a search algorithm that would outshine its contemporaries.

The most well-known and arguably most significant algorithm used by Google is called PageRank and, as well as still being in use, it provided the foundation for Google to become the search engine synonymous with the internet that it is today.

Google launched its initial public offering (IPO) on 19 August 2004 in which 19,605,502 shares were issued at a price of $85 per share. Morgan Stanley and Credit Suisse acted as underwriters for the process, and the IPO raised $1.67 billion – which caused Google’s market capitalisation to increase to over $23 billion.

This expansion enabled Google to start looking at acquiring other companies to boost its own growth. Perhaps the most well-known acquisition was YouTube, which Google bought in October 2006 for $1.65 billion in Google stock. Contemporarily, Morgan Stanley has put a $160 billion valuation on YouTube.

In October 2015, Google became the biggest subsidiary of the holding company Alphabet Inc, which was set up by Page and Brin to make the business operations of Google cleaner and more accountable. Other companies and products – aside from Google – which are incorporated under Alphabet are Google Maps, Android, YouTube and Google Chrome.

Google shares: the basics

As part of its IPO, Google was listed on the NASDAQ exchange under the ticker GOOG. Today its holding company, Alphabet, still trades under the GOOG ticker for class C shares, and the GOOGL ticker for class A. Alphabet’s share price is largely driven by its brand recognition. In fact, Google is currently ranked as the second most valuable brand in the world at $167.7 billion – Apple is first with a $205.5 billion brand value.1

Equally, the price of Alphabet shares is also driven by the continued growth of the technology sector. Many traders see the online world as a key opportunity to watch in the coming years, with possible innovations such as artificial intelligence (AI) predicted to take the world by storm.

An example of this fact would be that Google bought DeepMind – a UK-based AI company – back in 2014 for a reported $400 million. DeepMind is now part of the Alphabet umbrella, which is an acknowledgement that the technology sector will grow into these areas in the coming years, and the seeds of that growth are already being planted.

How to buy Alphabet shares

There are several ways that you can get exposure to Alphabet shares. If you wanted to own the shares outright, you would invest in them through a share dealing service. Alternatively, if you wanted to trade without ever owning any shares, you could trade on Alphabet’s price movements by taking a position with financial derivatives.

Invest in Alphabet shares

You can invest in Alphabet shares with IG’s share dealing service. By investing in Alphabet shares, you will own them outright, meaning that you will have to pay their full value up front. By owning shares, you can profit through dividend payments, or by selling them if the market price of the shares themselves increases.

To start investing in Alphabet shares with IG, follow these five simple steps:

  1. Open a share dealing account: it only takes a few minutes to open an IG account
  2. Log in: once you log in to your IG account, head to your ‘My IG’ dashboard
  3. Fund your account: deposit some funds before you start investing
  4. Find Alphabet shares: once you’ve opened, logged in and funded your account, you’ll be ready to buy Alphabet shares. Open the platform for your share dealing account, go to the ‘finder’ panel on the platform, and type in and select ‘Alphabet’
  5. Choose how to buy: on the deal ticket, you’ll see two tabs labelled ‘at quote’ and ‘on exchange’. At quote is IG’s best price from a range of market makers. On exchange means you are interacting directly with the order book of the relevant exchange

How to trade Alphabet shares

Trading on Alphabet shares via derivatives is slightly different to investing in them because you won’t own any shares outright. Instead, you are speculating on the direction in which you think Alphabet’s share price will move. You would go long if you expect the price to rise, or you would go short if you expect the price to fall. There are two ways to trade on Alphabet shares – through contracts for difference (CFDs) or spread bets.

If you decide to trade on Alphabet shares, you have the option to trade on leverage. This means you put down a small deposit – known as margin – and you receive full market exposure. But, you should bear in mind that leverage increases your market exposure because your profit or loss is based on the full size of your position, not the deposit. This means that while you can realise a greater profit, you can also incur a much heavier loss.

Learn more about leveraged trading

Trading on Alphabet with CFDs

A contract for difference (CFD) is a financial derivative with which you agree to exchange the difference in the price of an asset – in this case Alphabet stock – from when you opened your position to when you close it. To go long on Alphabet shares, you would buy the market; to go short on Alphabet, you would sell the market.

Trading on Alphabet with spread bets

Spread betting on Alphabet stock lets you bet an amount of money per point of movement in the share price. This movement can be up or down, meaning you can go long or short and your profit or loss is determined by the degree to which your prediction is correct. The more the market moves in your predicted direction, the more you make; but the more it moves against you, the greater your loss.

How to sell Alphabet shares

After you have invested in Alphabet shares, the time may come when you wish to sell. This could either be to realise a profit or to avoid too heavy a loss. To sell your shares via the IG share dealing service, follow these four steps:

  1. Select ‘Alphabet’ in your open positions
  2. Click on ‘sell’
  3. Choose the amount of shares you’d like to sell
  4. Confirm the deal

Alphabet key personnel: who manages the company?

Since Google is the main subsidiary of Alphabet, the below table includes directors and chief executive officers (CEOs) of both Alphabet and Google.

John Hennessy Independent chairman of the board at Alphabet
Lawrence (Larry) Page CEO and director at Alphabet, co-founder of Google
Sergey Brin President and director at Alphabet, co-founder of Google
Sundar Pichai CEO of Google, director at Alphabet
Ruth Porat CFO of Google, director at Alphabet
David Drummond Senior vice president, chief legal officer and secretary at Alphabet
Diane Greene Director at Alphabet
Robin Washington Director at Alphabet
L. John Doerr Independent director at Alphabet
Roger Ferguson Independent director at Alphabet
Ann Mather Independent director at Alphabet
Alan Mulally Independent director at Alphabet
Paul Otellini Independent director at Alphabet
Kavitark Shriram Independent director at Alphabet

What is Google’s business model?

The vast majority of Google’s revenue is generated by advertising via its search engine. As well as this, Google’s AdSense places adverts on websites that are listed on its search algorithm. Companies pay Google for these ads, and they can move further up the Google search rankings by doing so – thus increasing the number of visitors to their sites.

In order to facilitate these large advertising revenues, Google needs a lot of users. As a result, Google’s main aim is to connect the world’s information, while making it universally accessible and useful.

In this regard, Google’s business model relies on ensuring that its users feel that the search engine is the best one out there, and it achieves this by constantly scanning and improving its algorithms to fight off competition from other search engines such as Microsoft’s Bing.

Alphabet fundamental analysis: how to analyse Google

Before you choose to buy or sell Alphabet shares, it is important to carry out fundamental analysis to assess whether they are currently overvalued or undervalued. Once you have carried out your assessment, you can decide which position you would like to open.

One thing to bear in mind when analysing Alphabet is that as a holding company, its share price is affected by how well the companies incorporated under it are performing – including Google.

Traders carry out fundamental analysis by studying a company’s financial records including its profit and loss statement. However, fundamental analysis also relies on external factors which could affect the value of a market, such as whether users are switching to alternative search engines over Google. Equally, any changes in senior leadership at Google or Alphabet could affect Alphabet’s share price.

Alphabet’s price-to-earnings ratio

The value of Alphabet stock can be assessed by looking at its price-to-earnings (P/E) ratio. Essentially, a P/E ratio explains how much you would have to spend on Alphabet shares to make $1 profit. If a company has a high P/E ratio when compared to its direct competitors, then investors may begin to speculate that its stock is overvalued.

To calculate the P/E ratio, you would need to divide the market value per share by the earnings per share. The earnings per share is calculated by dividing the total company profit by the number of shares it has issued. At the start of June 2019, Alphabet’s P/E ratio was estimated to be in the 25-26 range.

Alphabet’s relative dividend yield

Dividend yield compares the company’s annual dividends to its share price. The relative dividend yield is the dividend yield of a company’s stock compared to that of the entire index. In Alphabet’s case, this would be NASDAQ. However, Alphabet – does not currently issue dividends to its investors, despite much criticism.

In a general sense, to calculate relative dividend yield, you would first calculate the company’s dividend yield by dividing its annual dividend by the current share price. Next, divide the dividend yield by the average dividend yield for the NASDAQ. If the result of this equation is relatively low, it could suggest that the company’s shares are currently overvalued when compared to the shares of its competitors.

Alphabet’s return on equity

Return on equity (ROE) measures a company’s return on shareholder capital. ROE is expressed as a percentage – 16.39% for Alphabet at the start of June 2019 – and it can be calculated by dividing a company’s net income by the total amount of stakeholder equity.

A low ROE could indicate that a company’s stock is overvalued because it would mean that the company is not generating sufficient income relative to the amount of shareholder investment. While the figure of 16.39% may seem low, it should be remembered that some companies have a negative ROE.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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