Earlier this year, Warren Buffett and Charlie Munger told Berkshire Hathaway investors that passing on Google stock shortly after its initial public offering on August 19, 2004 was a mistake. According to Buffett, Google’s founders approached Berkshire with a investment prospectus, but, he admitted, “I blew it.”
In retrospect, Google would have been a winning investment. When it first hit the stock market in 2004, the search engine was worth less than toothpaste-maker Colgate-Palmolive, at about $27 billion at the close of trading that day. Today, it’s the second largest company of the S&P 500 Index with a market value of about $648 billion. And its early investors rose right alongside it.
An investor who bought Google stock 13 years ago at its IPO price of $85 would now own a piece of the company worth about 22 times their original investment. That also takes into account the company’s stock split in 2015, when it restructured under a larger company called Alphabet.
Put it another way: A dollar in 2004 would have turned into 22, one hundred into $2,200, one thousand to $22,000, with an investor offering $45,500 becoming a millionaire by Friday.
In comparison, an investor who had decided to invest in the S&P 500 would’ve only received a 2.3 times return on their initial investment.
Meanwhile, the company’s revenue growth has outpaced that of its stock. In 2016, Alphabet reported revenue of $90.3 billion, which has grown 28 times since 2004. The majority of the revenue also still comes from advertising on Google websites, about 89%. That now also includes video-sharing platform YouTube, which Google bought in 2006.
Alphabet’s surge has come as Google’s search engine has become an integral part of its estimated billion-plus monthly users. In fact, its search engine has become the most frequented site on the web, according to Amazon-owned Alexa, with consumers spending nearly 8 minutes each on the site daily.
Alphabet is also looking to other areas for growth. The company is steadily growing its cloud services business, while expanding its artificial intelligence capabilities via acquisitions such as DeepMind. It’s also working on drones, self-driving cars, and smart cities. The company has even started selling consumer hardware like its Pixel smartphone.
