With Alphabet stock beneath $100, I’ve been buying

There aren’t many things that are needed to make a business successful in the long run. But it can be difficult for one company to have it all. And I think Google and YouTube are parents Alphabet (NASDAQ: GOOG ) (NASDAQ: GOOGL ) is set for continued success. Alphabet stock is below the $100 mark, after losing 28% of its value over the past year. Lately I’ve been buying for my portfolio.

So why do I think Alphabet has what it takes to be a great business not only now but in the long term?

The target market is large

The market for the various services that Alphabet provides is already growing – and I expect it to stay that way. Demands like cloud hosting and email providers are set for decades, in my opinion.

What about the search, the jewel in the crown? I see some risk here – AI services may provide people with the information they need without having to look for it. That could potentially cut into Alphabet’s massive revenue-generating ad sales.

But I see it the other way. Google’s mission has long been about organizing the world’s information. So far, search is the most obvious way. But I can use AI or other innovations to match the delivery model for the moment. In the long term, I expect Google to remain the market leader in the real business of search: connecting users to information.

Competitive advantage

Other companies compete in the same area. They compete very impressively, like Microsoft and Amazon. So what sets Alphabet apart?

I think the pie is big enough that it can be divided between several players and remain lucrative for each. I think Amazon, Alphabet and Microsoft can all make huge profits in the future from cloud computing, for example.

But I also think Alphabet has some strong competitive advantages. Brand, large user base, technical capabilities and patent library help differentiate. They also help keep users loyal.

Monetization and cash flow

One thing that drives me a lot in tech stocks is the scarcity or profitability.

To be a good business in the long run, a company needs to be profitable – and have money coming in as well. Accounting profit is good, but free cash flow is the oil that greases the business engine.

The company’s most recent quarter was seen as disappointing by investors, who marked Alphabet’s stock down. But the business reported net income of $13.6bn and free cash flow of $16bn. That’s a huge number for one quarter. In my mind, they underline how great Alphabet’s business model is.

I bought shares

But a good business does not always make a worthwhile investment. After all, if I had bought into the firm a year ago, I would now have a significant loss of paper.

What about today’s value?

A market capitalization of $1.2trn sounds huge. But with net income last year of $60bn, the price-to-earnings ratio is only about 20.

In the long run, I think Alphabet’s strong business features can help increase revenue, maybe a lot. So I think Alphabet’s current share price is a good buying opportunity for my portfolio. I have captured it!