Don't search too deeply into Alphabet's revenue fall, argues Andrey Yashunsky, co-founder at multi-national technology conglomerate Prytek.
Despite revenues falling for the first time in its history, Alphabet's Q2 earnings shows the owner of Google has far more pluses than minuses for income-focused investors. However, there is still some confusion around exactly what investors are investing in.
When buying Alphabet stock, investors may think they are investing in Google's search business but in reality, they are investing in an Exchange Traded Fund (ETF) fund whose companies are at different stages of growth.
The entire investment ecosystem needs to be shaken up to serve long-term value creation, not stand-alone gambles serving a small elite at the disadvantage of companies in need of capital"
But more broadly, Alphabet's approach is more inspiring rather than confusing. The concept of an investment firm using the technology it invests in for more than simply equity upside is becoming very attractive.
Instead of just focusing on equity returns, investment firms are actually using the technology they pump money into to create the next wave of product innovation.
This is in stark contrast to alternative models which involve moving money from capital owners to the entrepreneurs without taking any risk whatsoever. Where is the innovation if there is no risk? The reality is that the people who run these types of investment models are sitting on billions of dollars which, as a result, means there is no incentive for them to change.
Rule number one of creating value is to be outside your comfort zone. But how can any billionaire credibly claim to be outside their comfort zone? In contrast, the capital owners are putting their own money on the line, while the entrepreneurs work every hour god sends risking future income which they gave up when they originally raised capital.
This is why a decentralized, ecosystem-based businesses, united by a common vision, like Alphabet, is becoming the go to model for visionary investors looking for disruptive technology and corporate expertise, as well as higher returns from lower risks.
Visionary investors just want to create value. Someone who invests to build a metals factory 100 years ago and did not think about how much return on income they were getting, they only cared about getting the factory built.
The Alphabet model is unquestionably the right one which is why other investment firms are following suit by creating ecosystems. Of course, it is going to take other firms time to create as many ecosystems as Google. But one thing these firms must do, that is different, is ensure that the multiple businesses that make up their ecosystem are interconnected.
From mobile phones to electric vehicles and even quant computers, Google has multiple business lines that have nothing to do with the original search business.
With this in mind, despite confusion around what people are buying when purchasing Alphabet stock, investors need to look at the bigger picture. The entire investment ecosystem needs to be shaken up to serve long-term value creation, not stand-alone gambles serving a small elite at the disadvantage of companies in need of capital.
This elite are made up of speculative investors and the only thing that motivates them is the fear of missing out on profit. Alphabet goes against this investment norm which is why investors should not be put off by these Q2 results.
Rising incomes in Asia will probably be the most important investment story of the 2020s. Asia is home to 60% of the world's population, with both China and India each accounting for about 18% of the global total.