The Most Innovative Large Cap in America
When presenting Green Alpha Advisors' investment philosophy and strategies, we are often asked to explain the complicated topic by giving an investment example that makes it more tangible. Further, we are often asked why we have mega-cap Google in our portfolio holdings list. This post is in response to both questions.
First, a little context: In terms of reaching a point of long-term global economic sustainability, there is only one macro-economically viable way to get there that can simultaneously allow us to maintain and improve our standards of living: massive improvements in economic productivity. We generally, in all industries, will need to get far more economic outputs out of far fewer inputs, be those monetary, material, or human-capital based.
In this sense, Google, which has put the world's information at the fingertips of anyone with an internet connection, has greatly accelerated the productivity and economic output of knowledge workers, students, and anyone who needs information to make decisions (which, by the way, is nearly everyone). This is at the very heart of Next Economy principles. This degree of radical information (and therefore economic) efficiency gain gives rise to the hope that one day we may, as a society, become so economically efficient that we can enjoy great standards of living and at the same time give our underlying ecosystems a chance to recover and, ultimately, even thrive again.
Think about it: Thanks to Google, the average person on the web with a smartphone now has far better access to information than even the world's richest and most educated individuals did just 20 years ago. That Google accomplishes this in a more carbon- and energy-efficient way than its competitors is an additional positive factor, mainly in that the desire to do so drives further innovation.
Google has made a policy goal of innovation alone, and it even has rules for how to realize it (the oft-cited "Eight Pillars of Innovation"). This means that Google is not looking to do any laurel-resting. It wants to own the smartest algorithms and best results in its core business, but also to do much more.
The catalog of the company's disclosed projects is impressive in both scope and scale. Google is developing driverless, electric cars. It's not just installing its equipment and map software in existing cars -- it's developing and planning to manufacture them internally.
Google is not content to build several large renewable energy systems to power its own operations; it has made dozens of large investments into major renewable energy projects and companies, including a couple that are potentially groundbreaking (speculative, but groundbreaking) such as high-altitude, jet-stream capturing, kite-based wind turbines.
Google is enabling future efficiencies by moving to advance robotics (and to take advantage of advanced robotics).
Google has recently purchased not only the most advanced thermostat and home-monitoring systems company in the world, but also another global leader, in the field of deep artificial intelligence.
Global Forest Watch is an online forest-monitoring system created by the World Resources Institute, Google, and a group of more than 40 partners. Global Forest Watch uses technologies including Google Earth Engine and Google Maps Engine to map the world's forests with satellite imagery, detect changes in forest cover in near real-time, and make this information available to anyone with Internet access.
Google[x] is a division dedicated to making quantum, 10x style, technological advancements capable of delivering "science fiction-sounding solutions." Google[x] is personally overseen by founder Sergey Brin. Brin and lab director Astro Teller, "understand that their mission is to think really audaciously, to incubate magic…have an impact on the world and then worry later about making money on it." (Brandon Baily, McClatchy Tribune, Google X: Secret lab for 'moonshot research'.)
It's clear that, along with Chrome, Google Glass, and Android, these aggressive moves have the ultimate power to provide a seamless, hyperefficient, automated world not dreamed of since some (maybe accidental) futurists wrote The Jetsons.
In terms of attracting and retaining the world's top talent, Google's policies and benefits are unparalleled in corporate America. To cite two examples, according to Forbes, “[s]hould a U.S. Googler pass away while under the employ of the 14-year old search giant, their surviving spouse or domestic partner will receive a check for 50% of their salary every year for the next decade. Even more surprising, a Google spokesperson confirms that there's "no tenure requirement" for this benefit, meaning most of their 34,000 Google employees qualify. And "[i]n addition to the 10-year pay package, surviving spouses will see all stocks vested immediately and any children will receive a $1,000 monthly payment from the company until they reach the age of 19 (or 23 if the child is a full-time student)."
Taken as a whole, Google, one of the most innovative companies in the world, is clearly not satisfied with the current state of economics and is working hard on a better, more-efficient world; one that could ultimately manifest in true economic sustainability.
That Google also believes that it can grow rapidly and earn growing revenues by following this course is as it should be, and resonates with our own Next Economy philosophies.
On the value side, Google's info looks more expensive than a Buffet-like, Graham Dodd-identified, cheap idea, but with 12/31/2014 projections of price-to-earnings of 20.2, PEG at 1.1, price-to-sales of 2.3, and price-to-book of 3.4, neither is it outrageously expensive, as high-growth firms frequently can be.
Google's cash position, revenues, margins, and growth are for now all but unassailable. Combine those fundamentals with the world's most innovative, problem solving firm, and you have everything you need for a singular growth story.
All considered, we're looking for the post-split shares to be above $700 in 2015.
Disclosure: Green Alpha Advisors is long Google in several of our strategies.
Garvin Jabusch is cofounder and chief investment officer of Green Alpha® Advisors, LLC. He is comanager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha Next Economy Index, the Green Alpha Growth & Income Portfolio, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club's green economics blog,"Green Alpha's Next Economy."