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Stock Analyst Update

HTC Purchase Can Help Google Grow Online Search

The move could further strengthen Alphabet's moat as Pixel and other hardware can bring in more users, increasing user count/engagement, from which more data will be compiled to drive more online ad revenue growth.

Mentioned:

 Alphabet’s (GOOG) Google announced it is purchasing HTC’s Pixel-only talent and non-exclusive rights to some of HTC’s IPs for approximately $1.1 billion in cash. In our view, this deal represents Google’s further emphasis on its end-to-end consumer hardware development strategy as price is no longer a differentiator for Google. We think the firm is targeting the smartphone and overall consumer hardware market more aggressively to maintain and/or grow its dominance in the online search market. We believe this could further strengthen Alphabet’s network effect and intangible assets moats as Pixel and other hardware can bring in more users, increasing user count and user engagement, from which more data will be compiled and utilized to drive more online ad revenue growth. It remains to be seen whether such a tactic will bear fruit, as Google is in fierce competition with Apple and Samsung within the smartphone market. We still have a wide-moat rating and a $910 fair value estimate for this 3-star name. 

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Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.