Googles Invested These Stocks, Should You?

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Google remains the third most valuable brand in the world and is owned by the fourth-largest company globally. Google's technological ambitions span a wide range—from smart contact lenses and autonomous vehicles to quantum computing. Driving these innovations is its primary revenue engine: ad spending, soon to be bolstered by cloud computing.

Reviewing Google's 13-F

When one of the world's leading tech companies invests in other businesses, it naturally grabs the attention of investors. Today, we'll explore Google's investment portfolio, encompassing 45 companies, to uncover key insights. For context, firms holding over $100 million in publicly traded stocks are required to file a 13-F form with the SEC. By accessing the SEC database, filtering for 13-F forms, and comparing recent filings, we can identify notable changes in Google's holdings.

As of the latest filing, Google's portfolio is worth $1.9 billion, comprising 43 stocks. Remarkably, just 13 of these stocks account for 95% of the portfolio's value, while the remaining 30 contribute only 5%. Let’s start by examining this less significant 5%. Among these, a filter for the term "Therapeutics" reveals 15 healthcare-focused stocks, each with low weightings. The remaining 15 are also predominantly tied to healthcare, reflecting Google's growing interest in this sector, particularly through its Verily business unit.

Verily and Google's healthcare stocks

By filtering for the word "Therapeutics," we identified 15 stocks with low weightings, all containing "Therapeutics" in their names. The remaining 15 stocks, except for two, are also healthcare-related. This highlights a strong focus on healthcare across these 30 stocks and raises questions about Google's aspirations in the sector, particularly through its Verily subsidiary.

According to Verily's website, their mission is to enhance healthcare precision through a unified, AI-powered platform. Over the years, we’ve followed Verily’s initiatives, including notable projects like smart contact lenses. In fact, about four years ago, we examined Verily Life Sciences' efforts to digitize healthcare, reviewing the key components of their business—an analysis that remains relevant today.

When it comes to Verily's contributions to Google's overall business, the financials fall under the "Other Bets" segment. While specific percentages are unclear, it’s evident that "Other Bets" represents less than 0.5% of Google's total revenue yet accounts for significant losses: approximately $4 billion last year and $4.6 billion the year before.

Interestingly, leaked documents suggest that Google plans to spin off Verily as a standalone entity, separating it from the parent company. Reports from Benzinga and other sources indicate that Verily employees are being issued new email addresses, losing access to Google benefits and infrastructure, and are being enticed with the possibility of an IPO. This transition could understandably cause concern among employees regarding their shift away from Google's ecosystem.

Once Verily becomes independent, an important question arises: What will Google do with its broader healthcare investments? Notably, it’s unclear which of these holdings are directly tied to Verily. As we shift focus back to Google's core portfolio, this uncertainty remains a key consideration.

Google's top stock holdings

The top 95% of Google's stock portfolio is concentrated in just 13 companies, as shown here. Many of these names are already featured in our catalog, meaning we’ve researched and analyzed them extensively—you can find those insights on our website. The real question is: how did Google come to hold these specific stocks? By answering that, we might gain a clearer understanding of their strategy, particularly regarding the healthcare stocks in their portfolio.

Google's three investment arms

Google operates three distinct investment arms: Google Ventures (GV), CapitalG, and Alphabet, the parent company.

Google Ventures (GV)

GV is perhaps the most well-known and focuses on startup investments. Unlike a traditional venture capital (VC) firm, GV operates with long-term horizons, measuring success over decades rather than individual funding rounds. It functions independently, aiming to generate returns like a typical VC rather than complementing Google's existing corporate initiatives.

Launched in 2009 with an initial $60 million capital commitment, GV now manages over $10 billion in assets with 400 active portfolio companies. Notable investments include Uber, Slack, GitLab, Flatiron Health, Verve, and One Medical. A recent Fortune article provides insight into GV's progress over the past 15 years and its plans for the future. Highlights include:

  • Doubling assets under management over the last four years.

  • Adding an average of 50 new portfolio companies annually since 2020.

  • Deploying around $1 billion annually in new and follow-on investments.

  • Significant investment outcomes, such as the $335 million investment in Uber in 2019, which they exited at its IPO.

GV’s second-largest investment is in Cribl, a unified data management platform, and they’ve shown a growing focus on life sciences, aligning with Google’s healthcare interests. GV is responsible for approximately 30% of the top 13 holdings in Google’s portfolio, which account for 95% of its total value.

CapitalG

CapitalG operates as an independent growth fund with $7 billion in assets under management. It focuses on larger investments, typically between $50 million and $200 million per company, aimed at helping businesses scale. Notable outcomes include 16 IPOs and 9 mergers and acquisitions (M&A) exits. Companies like Gusto, Duolingo, CrowdStrike, and Credit Karma have benefited from CapitalG's investments.

Alphabet

Alphabet itself also engages in strategic investments, acquiring shares through partnerships or business transactions. For example:

  • Planet Labs: Google retained shares after selling its satellite imaging business to Planet Labs.

  • Dexcom and Snowflake: Shares were acquired through strategic partnerships.

  • Tempest AI: Investment started with a creative approach via an initial convertible promissory note.

Key Holdings

Fifty-one percent of Google’s portfolio is concentrated in three companies: GitLab, Arm, and Revolution Medicines. GV initially invested in GitLab, while Revolution Medicines has seen fluctuations in Google’s holdings, with a notable reduction last quarter. Other companies, like Prime Medicine, saw significant expansion in Google’s investment last year.

This approach demonstrates the diverse strategies of Google’s investment arms, balancing innovation-focused investments with strategic acquisitions to maintain leadership in key sectors like healthcare, technology, and data management.

GitLab stock

Google has maintained its substantial position in GitLab, even after the company's IPO—a decision that has sparked speculation. Some suggest Google might eventually acquire GitLab. The latest performance numbers for GitLab are impressive.

When we last reviewed the company in March of last year, we discussed the generative AI opportunity and highlighted an expected 26% growth for fiscal 2025. Updated projections now anticipate 30% growth, showing even stronger performance. Other key metrics include a net retention rate of over 120%, indicating strong customer loyalty and expansion. Additionally, GitLab is now cash flow positive, meaning it’s no longer burning cash—a sign of a healthy business.

Rumors of a potential sale have also surfaced. A Reuters article from last summer mentioned Datadog as a potential suitor, reportedly interested in acquiring GitLab. The company has faced pricing pressures, especially in competition with Microsoft’s GitHub, as Microsoft can afford aggressive pricing strategies. While Amazon and Google are often seen as more likely acquirers, buyout speculations remain just that—speculations.

As we shift focus to Arm, let’s dive into another key holding in Google’s portfolio.

Arm stock

Arm had its IPO in August 2023, with Google as one of the investors. At the time, we analyzed the IPO and noted that once the dust settled, we’d revisit its valuation and gather additional insights.

Currently, Arm’s valuation shows a simple valuation ratio of 43—double the threshold we’d typically consider for investment, indicating it’s highly priced. However, the company boasts exceptional gross margins of around 95%, making it an incredibly attractive firm. Given its strong profitability, using a price-to-earnings ratio instead of the simple valuation ratio might provide a more accurate perspective.

We’ve added Arm to our research queue for a follow-up article to explore its valuation and performance in greater depth.

Revolution Medicines stock

Next, we have Revolution Medicines. While their clinical development pipeline is notable, we typically don’t focus on cancer drug developers. As outlined in our recent analysis on cancer blood testing, our interest lies more in holistic solutions like screening, which address broader applications.

For example, the potential market for cancer blood tests exceeds $100 billion, offering transformative possibilities for early detection—often the key to effectively combating cancer. In contrast, niche or highly specialized cancer drug applications, like those pursued by Revolution Medicines, fall outside our primary areas of interest.

Now, let’s move on to other names in Google’s portfolio that we actively cover, such as CrowdStrike, a leader in cybersecurity.

Google-backed stocks

CrowdStrike: This AI-driven cybersecurity leader is one we’ll be revisiting soon, as we’re preparing an annual check-up.

Dexcom: Recently, we moved Dexcom to the "Avoid" category in our Tech stock catalog due to slowing revenue growth. This decline is attributed to management missteps and increased competition from companies like Abbott. Additionally, the rise of Ozempic, the weight-loss drug, poses a threat to their diabetes market.

UiPath: UiPath is navigating its transition from robotic process automation to what it calls "Agentic AI." They’ve introduced an auto AI pilot and several demos that remind us of Palantir’s AIP. It all comes down to growing revenue, and UiPath is focusing on building its own foundational AI model and expanding its internal AI team. We’ll check in with them in April to see how this transition is progressing.

Prime Medicine: Gene editing has taken a bit of a backseat lately, as investors flock to newer trends. However, the potential for gene editing to cure previously untreatable diseases remains strong. Prime Medicine’s approach, which is seen as more precise and efficient than CRISPR, is promising. They’re expected to report initial data from a phase 1/2 clinical trial this year and recently secured a deal with Bristol Myers Squibb for additional funding. While we’re focused on other gene-editing companies, Prime Medicine still holds potential, but it's not one we closely follow.

Snowflake: Known for its role in the Big Data growth story, Snowflake’s growth has slowed to just 26%. They’re playing catch-up with AI, trying to keep pace with Databricks. They also faced a data breach, which has now passed, potentially making their stock more attractive. We’ll revisit Snowflake in August to see how they’re evolving.

Planet Labs: Planet Labs is targeting 10% growth this year, which just meets our minimum expectation. However, management has struggled with forecasting and execution, so we’ll reassess them in April to determine if there’s any improvement.

Tempest: We covered Tempest around the time of their IPO, and now that the IPO hype has settled, it’s time for a follow-up. They’ve shown strong, consistent revenue growth, and we’ll revisit their performance shortly.

Lastly, Freshworks is a new name on Google’s list that we haven’t yet explored. We’ll be diving into it soon to see what potential it holds.

New Stock

Freshworks is the first Indian SaaS company to be listed on NASDAQ, which has been a topic of interest for some of our premium subscribers. If you're watching and would like us to cover it, feel free to share your thoughts in our Discord Community. We can set up a poll, and everyone can vote.

The company provides cloud-based tools for CRM, IT service management, and e-commerce marketing—a jack-of-all-trades approach. While it’s impressive, we prefer to focus on market leaders in each of these niches rather than companies with a broader but less specialized offering. Freshworks may be catering to smaller client segments, possibly by geography, though we're unsure.

Next, we have Verve Therapeutics, whose standout offering is a gene-editing treatment aimed at reducing cholesterol with a single course of treatment, potentially eliminating the need for long-term cholesterol medication for the elderly. Unfortunately, their trials didn’t progress as hoped, and they’ve paused those efforts. Now, their focus has shifted to Verve 102, though some of the initial appeal has diminished.

Sana Biotechnology is another name on the list. Their focus is on using engineered cells as medicines. A quick look at their pipeline reveals a reliance on a few lead candidates, which is concerning. We prefer to see partnerships with large pharmaceutical companies that can provide funding and support, allowing for a broader pipeline of drugs to be developed.

Conclusion

Google Ventures stands out from other corporate venture capital arms, which was something I found surprising. Their CapitalG investment arm, focused on later-stage companies, is equally intriguing. Additionally, Alphabet invests in both publicly traded stocks and privately held firms for various strategic reasons. Each of these investments in Google's portfolio has its own backstory, and understanding these moves requires context.

Just like the actions of active managers, changes in Google's investments over time don’t always offer clear insights. The potential spin-off of Verily could have notable implications for their healthcare holdings, but overall, I was left wondering about Google's decision-making process regarding whether to continue holding shares in companies they invested in pre-IPO. For example, while they exited Uber, they chose to retain their position in CrowdStrike. I found this comparison particularly interesting.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub

# 💰 Stocks to watch today?(22 Jan)

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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