Image source: Getty Images
As in the previous three quarters, Google’s parent company posted another disappointing set of results. Consequently, the Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) stock prices fell and may experience further weakness this year. However, I am willing to ride short-term headwinds for long-term gains.
$102.35 $-2.43 (-23%) Monday, February 6, 2023 at 3:40:11 PM Greenwich Mean Time
falling short
Alphabet’s fourth-quarter numbers were no cause for celebration. The declines were prominent across the board with both top and bottom performers missing analyst estimates. Total revenue increased 1% due to support from Google Cloud and other revenue. Otherwise, the pushback in advertising was prominent, and YouTube Shorts continued to cannibalize its long-form content.
| Metrics | Consensus | Q4 2022 | Q4 2021 | Growth |
|---|---|---|---|---|
| Google Search Revenue | $43.30 billion | $42.60 billion | $43.30 billion | -2% |
| YouTube revenue | $8.3 billion | $7.96 billion | 8.63 billion dollars | -8% |
| Google network revenue | $8.90 billion | 8.480 million dollars | 9.310 million dollars | -9% |
| Google cloud revenue | $7.3 billion | 7.32 billion dollars | $5.54 billion | 32% |
| Other income | $8.10 billion | $8.80 billion | $8.16 billion | 8% |
| total revenue | $76.65 billion | $76.05 billion | $75.33 billion | 1% |
| Diluted earnings per share (EPS) | $1.21 | $1.05 | $1.53 | -31% |
The near-term outlook for Alphabet shares isn’t bright either. Advertising and cloud spending is forecast to grow at a much slower rate this year. Numerous reports suggest that global ad spend will only grow a meager 4.5% compared to 7.6% last year and double digits in previous years. Furthermore, Google continues to lose market share after years of dominance.
A noteworthy GAAP
However, despite not being in their upper and lower estimates, I think the negative sentiment surrounding Alphabet’s stock is overstated. This is because by zooming out from the headline numbers, you can see a clearer picture of the company’s overall performance. This is especially the case when comparing their GAAP and non-GAAP numbers.
Do not shy away from the company’s declining margins this period. However, it is also important to note that the group posted a large loss on equities (-$1.49bn) this year versus a gain ($2.52bn) last year. These do not have a material impact on Alphabet’s underlying business model and were realized losses from equity investments. Those losses represent approximately -$0.11 in EPS. Combine that with constant currency revenue and the tech giant actually reported EPS in line with estimates.
Discounting the near-term noise, the conglomerate has a bright long-term future ahead of it. YouTube may continue to see weakness in the coming quarters. But the board’s ambitious plans for the platform to introduce e-commerce and turn it into a streaming service may see it come back stronger than ever. Additionally, Shorts grew from 30 billion to 50 billion daily views over the past year.
And with fears that ChatGPT could take Google’s place as the world’s largest search engine, Alphabet has responded with its own chatbot at LaMDA. The language model will be released to the public this year and more details will be revealed this week.
Don’t Bet Against Alphabet
So am I going to buy more Alphabet stock then? Well, its current and future valuation multiples are trading at multi-year lows. This could indicate a cheap buy, especially considering its high upside potential.
| Metrics | valuation multiples | industrial average |
|---|---|---|
| Price-Earnings Ratio (P/E) | 21.2 | 30.0 |
| Forward price-earnings (FP/E) ratio | 20.4 | 33.3 |
In addition, he has an impeccable set of finances. Plenty of cash reserves and strong free cash flow could see Alphabet instigate a new share buyback program to boost shareholder returns and, more importantly, its EPS.
Therefore, it is not surprising to see people like Morgan Stanley, fargo wells, barclays, and many other brokers rate the stock a ‘buy’, with an average price target of $129. As such, I wouldn’t write off Alphabet so soon, and I will dollar cost average given the tremendous upside potential.
var config = {
apiKey: ‘1ed121d592e04642d57912bb369ef696621661a3’,
product: ‘PRO_MULTISITE’,
logConsent: false,
notifyOnce: false,
initialState: ‘NOTIFY’,
position: ‘LEFT’,
theme: ‘DARK’,
layout: ‘SLIDEOUT’,
toggleType: ‘slider’,
iabCMP: false,
closeStyle: ‘button’,
consentCookieExpiry: 90,
subDomains : true,
rejectButton: false,
settingsStyle : ‘button’,
encodeCookie : false,
accessibility: {
accessKey: ‘C’,
highlightFocus: false },
onLoad: function () { // hide Cookie Control recommended settings button.
var recommendedSettingsButton = document.getElementById(‘ccc-recommended-settings’);
if (recommendedSettingsButton) {
recommendedSettingsButton.classList.add(‘hide’);
} },
text: {
title: ‘Privacy Notice’,
intro: ‘This site uses cookies, pixels, and other similar technologies to improve your web site experience and to deliver you personalised ads about our own and third party products and services. Please read more about how we collect and use data about you in this way in our Cookies Statement in our Privacy Policy. You can change your cookie settings in your browser at any time. ‘,
necessaryTitle: ”,
necessaryDescription: ”,
thirdPartyTitle: ‘Warning: Some cookies require your attention’,
thirdPartyDescription: ‘Consent for the following cookies could not be automatically revoked. Please follow the link(s) below to opt out manually.’,
on: ‘On’,
off: ‘Off’,
accept: ‘Accept’,
settings: ‘Cookie Preferences’,
acceptRecommended: ‘Accept Recommended Settings’,
notifyTitle: ‘Privacy Notice’,
notifyDescription: ‘This site uses cookies, pixels, and other similar technologies to improve your web site experience and to deliver you personalised ads about our own and third party products and services. Please read more about how we collect and use data about you in this way in our Cookies Statement in our Privacy Policy. You can change your cookie settings in your browser at any time. ‘,
closeLabel: ‘Save Preferences and Close’,
accessibilityAlert: ‘This site uses cookies to store information. Press accesskey C to learn more about your options.’,
rejectSettings: ‘Reject All’,
reject: ‘Reject’,
},
branding: {
fontColor: ‘#fff’,
fontFamily: ‘Arial,sans-serif’,
fontSizeTitle: ‘1.2em’,
fontSizeHeaders: ‘1em’,
fontSize: ‘1em’,
backgroundColor: ‘#313147’,
toggleText: ‘#fff’,
toggleColor: ‘#2f2f5f’,
toggleBackground: ‘#111125’,
alertText: ‘#fff’,
alertBackground: ‘#111125’,
acceptText: ‘#ffffff’,
acceptBackground: ‘#111125′,
buttonIcon: null,
buttonIconWidth: ’64px’,
buttonIconHeight: ’64px’,
removeIcon: false,
removeAbout: false },
necessaryCookies: ( ‘wordpress_*’,’wordpress_logged_in_*’,’CookieControl’,’PHPSESSID’,’fivc’,’fivs’,’fivp’,’Ookie’,’Fool_subinfo’,’_gads’,’_gid’,’_gat’,’_ga’,’__utma’ ),
optionalCookies: (
{
name: ‘Sharing’,
label: ‘I would like content tailored to my personal preferences.’,
description: ‘We work with advertising partners to show you ads of products and services you may be interested in. You can choose whether or not to have ads delivered in a personalised way by setting this option. You can return to review this setting at any time by clicking the "C" logo in the bottom left corner of any page.’,
cookies: ( ‘_ga’, ‘_gid’, ‘_gat’, ‘__utma’, ‘_gads’ ),
onAccept: function () {
// Add Facebook Pixel
!function(f,b,e,v,n,t,s)
{if(f.fbq)return;n=f.fbq=function(){n.callMethod?
n.callMethod.apply(n,arguments):n.queue.push(arguments)};
if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;
n.queue=();t=b.createElement(e);t.async=!0;
t.src=v;s=b.getElementsByTagName(e)(0);
s.parentNode.insertBefore(t,s)}(window,document,’script’,
‘https://connect.facebook.net/en_US/fbevents.js’);
fbq(‘init’, ‘901682110316659’);
fbq(‘track’, ‘PageView’);
fbq(‘consent’, ‘grant’);
// End Facebook Pixel
// Enable Google ad personalization
// gtag (‘set’, ‘allow_ad_personalization_signals’, true ) ;
},
onRevoke: function () {
fbq(‘consent’, ‘revoke’);
// Enable Google ad personalization
// gtag (‘set’, ‘allow_ad_personalization_signals’, false ) ;
},
recommendedState: ‘on’,
lawfulBasis: ‘consent’,
},
),
statement: {
description: ”,
name: ”,
url: ‘https://www.fool.co.uk/help/privacy-and-cookie-statement/’,
updated: ”
},
};
CookieControl.load(config);
