Google Stock Forecast: Stronger Focus On Hardware Devices Will Help Alphabet Rely Less On Advertising

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First.

Google Stock Forecast


  • Alphabet’s cancellation of its modular phone Project Ara product is understandable. This will allow it to focus more on its high-end Pixel Android phones.
  • Rebranding the Nexus phones to Pixel is just in line with Google’s decision to release its Pixel C Android laptop last year. Alphabet is also set to release a 7-inch Pixel tablet later this year.
  • Like Apple, Alphabet is now thinking like a hardware company that’s out to build a universal brand for its hardware products.
  • The rise of ad-blocking on desktop and mobile browsers requires Alphabet to grow beyond its core advertising business.
  • GOOGL still enjoys positive algorithmic market trend signals. It is therefore worth going long on Alphabet right now.

I strongly approve of Alphabet’s (GOOGL) decision to suspend its Project Ara modular smartphone venture. This cancellation will help the company focus more on its upcoming Pixel smartphones. The modular phone concept is great. However, it’s unlikely to gain commercial success within the next two years. The world is too accustomed to regular smartphones that only comes with removable batteries.

The cancellation of Project Ara will help Google allocate resources on developing/marketing its Pixel Android phones. The Pixel and the Pixel XL Android 7.0 handsets are the rumored successors to last year’s LG-made Nexus 5X and Huawei-made Nexus 6P.

Leaks are confirming that Alphabet is killing its own Nexus brand in favor of the new Pixel marque. The HTC-made Google Marlin phone (Pixel XL) has already showed up in GeekBench. It no longer sports the old Nexus tag.

Google Stock Forecast


Even though there is no official confirmation from Google yet, I already approve of this re-branding. In spite of the top-notch features and reasonable pricing of the Nexus phones, they never achieved critical commercial success like those Android handsets made by Xiaomi or Samsung (SSNLF).

Becoming A Consumer Device Vendor Is Desirable For Alphabet

Google needs to improve its device business to make up for any decline in its desktop search advertising/display ads caused by ad-block users. Establishing Pixel as its new flagship universal brand is one step toward this goal. Pixel was also the brand used by Alphabet last year for its first-ever 10-2-inch Android OS laptop, the Pixel C.  Alphabet is also set to release a Huawei-made 7-inch Pixel tablet this year. It’s therefore only reasonable for Alphabet to also come up with Pixel Android phones.

In my view, Alphabet’s shift to universal Pixel branding for its hardware products is akin to Samsung using the Galaxy S marque for high-end phones. The brand change is likely a prelude to Alphabet ramping up its consumer device business segment. The growing number of people using ad-block software on desktop and mobile computers is compelling reason for Alphabet to expand its revenue streams.

Yes, Google can bribe ad-block software developers to whitelist its AdWords and search ads. However, there are third-party developers of ad-blocking software like U-Block Origin that block all ads including those from AdWords. My point is that Google cannot bribe every developer of ad-blocking software.

The Nexus phones and tablets were previously perceived as mere reference design products from which Android vendors like Samsung, Xiaomi, and Lenovo (LNVGY), could build on. It is time that Alphabet stops making mere reference phones. It has obligation to its shareholders to try and become a mini-Samsung.

I also hope that killing Project Ara would result into savings. The money saved could be used instead to purchase TV ad spots for Pixel laptops and smartphones.

Google Got Distracted With Moonshot Projects

Alphabet is often derided as a company that only knows how to make money from advertising. Google has yet to make substantial gains from its non-advertising products. Alphabet was accused of wasting billions of dollars on moon-shot projects (like Project Ara, Project Loon, and Calico). Analysts (and investors) want Alphabet to focus more on realistic products which could immediately generate (not drain) money for the company.

The management therefore has an urgent need prove that they could steer Alphabet to act more like Samsung or Apple (AAPL). It is true that Alphabet makes gazillion of dollars on advertising to Android device owners. However, Apple and Samsung are also consistently raking in billions of dollars annually from their pricey phones and tablet products.

Alphabet, as the ultimate ruler of the Android OS/mobile platform, appears to underachieving when it comes to the hardware part. Instead of spending billions of dollars on moon-shot projects, Alphabet should pour massive resources on promoting its Pixel phone/tablet/laptop product line.

Samsung’s success on Android phones is due to its willingness to spend $14 billion/year on advertising its hardware products. Alphabet, as the biggest digital advertising firm, should understand the merit of spending billions of dollars on promoting Pixel cameras and phones. Instead of spending $3.2 billion on buying thermostat-maker Nest, Google would have likely benefited more if it spent that money promoting its old Nexus phones.

The smartphone market is certainly bigger than Internet-of-Things products like the Nest thermostat. Shareholders would love to see Alphabet become more involved in the $400 billion/year global smartphone industry.


(Source: Statista)


I am still endorsing a Buy for GOOGL. This advertising-dependent company is likely going to use the Pixel brand as its answer to Microsoft’s Surface line of products. I am long MSFT and GOOG but I expect Android laptops like the Pixel C to eventually carve out a niche in the education and enterprise markets.

Android OS 7.0 Nougat brings better multi-window tasking on Android devices. Thanks to Microsoft’s generous decision to bring Office 365 to the Android platform, any Android device with a keyboard and mouse is already a productivity tool for students and employees.

I also look forward to Pixel and Pixel XL phones being used as mini-computers that could be attached to laptop shell products like the $99 SuperBook. Superbook’s concept is similar to Microsoft’s Continuum feature. Superbook also allows smartphones to be connected to it to deliver a PC-like experience. I would love to see Google also come up with its Pixel version of the Superbook shell laptop product.

googl3(Source: Andromium, Inc.)

Alphabet’s stock also touts positive market trend signals from the algorithmic forecasts of I Know First. Going long on GOOG or GOOGL now would likely lead to a profitable return within the next 12 months.


Past I Know First Forecast Successes with GOOGL

I Know First has been bullish on GOOGL in recent articles, such as May 30th, 2016. The article had spoken about an improving macro environment and other improving fundamental factors which would act as a catalyst for GOOGL. Since then, GOOGL had a return of almost 8%.

This Forecast was sent out to  I Know First subscribers on May 27th, 2016. To subscribe now click here

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