How to trade Google shares

1. Google shares: what you need to know
2. How to trade Google shares
3. Analysing Google 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. Despite the establishment of Alphabet as a holding company, Google still trades under the GOOG ticker. Google’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 Google 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. This is a clear acknowledgement on Google’s behalf that the technology sector will grow into these areas in the coming years, and the seeds of that growth are already being planted.

Google’s share price history

How to trade Google shares

Trading on Google 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 Google’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 Google shares – through contracts for difference (CFDs).

If you decide to trade on Google 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 Google 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 Google stock – from when you opened your position to when you close it. To go long on Google shares, you would buy the market; to go short on Google, you would sell the market.

Google key personnel: who manages the company?

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

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.

Google fundamental analysis: how to analyse Google

Traders carry out fundamental analysis by studying a company’s financial records including its profit and loss statement, among other things. 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 Google’s share price.

Google’s price-to-earnings ratio

The value of Google 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 Google 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, Google’s P/E ratio was estimated to be in the 25-26 range.

Google’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 Google’s case, this would be NASDAQ. However, Google – or more specifically, 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.

Google’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 Google 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.