From our Fund Manager’s Desk
Alphabet: a quality compounder for a world in flux
We regularly explore the investment rationale behind the holdings in the Melville Douglas Global Equity Fund. In this edition, we highlight Alphabet, the parent company of Google and YouTube.
Our investment philosophy focuses on owning durable businesses with high returns on capital, defendable competitive advantages, and management teams with a proven track record of execution. Alphabet aligns perfectly with these criteria; it is a business that reinvests strategically, innovates relentlessly, and compounds value over time.
Alphabet is the quintessential ‘quality compounder’. With billions of users across a dozen platforms, the company is deeply embedded in the daily digital fabric of society. These platforms are no longer just popular; they have become essential utilities. Over the last two decades, the company has successfully fended off numerous challenges to its position as the internet’s dominant search engine and gateway to the World Wide Web. The results of this success are astonishing: since 2004, revenue has grown more than 100-fold to $400 billion, and Alphabet is expected to report more than $130 billion in operating profit for the 2025 financial year alone. This is a testament to the business’s scale, resilience, and strategic excellence.
The evolution of a giant
The company’s history can be defined by three distinct eras. The first was the era of disruption. Google famously began as a Stanford PhD research project and graduated to a garage in Menlo Park, where it would become the product we know it as today. The founders’ vision was clear:
In its early years, Google solved the fundamental problem of a fragmented internet dominated by cluttered portals like AOL and Yahoo. The innovation that drove its success was the PageRank algorithm, which indexed the internet and made it easily searchable. This created an immediate competitive moat that remains robust today.
What followed those early years was a decade of strategic expansion. Assets such as Android, Chrome, YouTube, Google Maps, and Gmail were either launched with precision or acquired and seamlessly integrated. Each move was intentional, building an ecosystem that users loved, winning their loyalty and scaling exponentially. Alphabet’s position at the centre of the internet was cemented through its control of the most important and frequently used digital properties.
