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The Mandiant Acquisition Is Yet Another Reason to Buy Alphabet

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·4 min read
In this article:
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  • Alphabet (GOOG, GOOGL) is doing very well because of its impending stock split.

  • The acquisition of Mandiant will be a gamechanger for the company’s cloud business and this will push shares higher.

  • Google Play is allowing Spotify (SPOT) to implement its own in-app payment system, which could majorly shift the balance of power.

GOOG stock: letters spelling out google
GOOG stock: letters spelling out google

Source: rvlsoft / Shutterstock.com

It’s getting hard to ignore Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). The tech giant is buying cyber security firm Mandiant in a $1.5 billion deal to boost its in-house cyber security resources. Its expert consulting services can have a massive impact on the future of cloud security, which is why GOOG stock is on a high despite the recent app-billing concession.

GOOG

Alphabet

$2,854.08

GOOGL

Alphabet

$2,842.29

What’s Happening in GOOG Stock

At the same time, we are just a few short weeks away from Alphabet’s landmark 20-for-1 stock split, which will make shares cheaper. This could lead to entry on the Dow Jones Industrial Average (DJIA).

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Amidst these developments, one challenge has emerged for Google recently. The future version of the Spotify (NYSE:SPOT) app allows its users to create an account and subscribe directly from the app instead of doing it through Google Play.

Up until now, developers were not allowed to charge users on Google Play and Apple’s (NASDAQ:AAPL) App Store for digital goods or services using their credit card information. It had to operate as a middle-man because users are billed for services through Google, which takes at least 15% of the total profit.

However, Alphabet is still a model of how the tech sector will develop in the future. We should expect this to continue for years to come.

Mandiant Could Change Cloud Security

Mandiant provides endpoint protection and threat intelligence services. It also offers consulting, incident response, and managed services.

The company got off the ground in 2004. It has since positioned itself as a leading expert on cyber security, working with many companies and organizations to protect them from attacks.

After its buyout, there have been a lot of discussions about two factors. First is the price tag. Google’s revenue grows every year, and it’s a free cash machine. But paying $5.4 billion is still a serious amount of capital to allocate toward its cloud business.

However, it’s important to remember Google has major ambitions in the cloud space. Google Cloud’s fourth-quarter revenue leaped by 45% in the fourth quarter, while overall revenue increased 32%. So, the segment is a high growth area, despite it remaining unprofitable.

Plus, the company still trails Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) in the cloud business. Google needed a pick-me-up for its cloud business, and Mandiant will give it just that.

The Impending GOOG Stock Split

In July, Alphabet is preparing to complete a 20-1 stock split. It wants to reach out to the average investor by making its stock available for purchase at a lower price.

Opening up the stock to a wider set of investors makes sense. One of the major effects of the pandemic is that retail investing has become a major force in the world of finance. Therefore, offering an opportunity for this investor base makes perfect sense.

Interestingly, the split could also lead to the company’s inclusion in the DJIA, which measures the performance of 30 large companies. It has been around for more than 100 years and is one of the most accurate stock indices around. However, if Google were added now, its value would throw the Dow off balance and not accurately reflect the market any longer.

Google’s Third-Party Payments Pilot

The app industry continues to grow with no signs of slowing down anytime soon. Consumer mobile app spending for 2021 has been estimated at $170 billion, up from $143 billion in 2020. In 2021, downloads of apps reached 230 billion, up 5% from before. Mobile ad spending was $295 billion in 2021, up 23% from the previous year.

Not surprisingly, investors were a little on edge when they learned Google would start piloting a third-party billing system. It is partnering with Spotify as its test case, and information surrounding the deal is scant. Google has announced it will begin in select markets, but hasn’t revealed which ones.

Google Play takes commissions of 15% to 30% today, so this could potentially revolutionize digital distribution, making it much more profitable for developers. However, it is important to keep things in perspective. The development is only a small one in the bigger picture of the industry.

In light of all this, GOOG stock is a solid pick, as catalysts outweigh any possible revenue dips from its pilot program.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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