Amid rising fears of a U.S. recession, how resistant is Google stock to a business downturn versus other technology companies? That’s a key question for investors eyeing GOOGL stock.
Third-quarter earnings for Google stock are due Oct. 25. Estimates have been trending down. In the September quarter, analysts say the core digital advertising business could be pressured.
“We see a moderation of Search & Other year-over-year revenue growth in Q3 vs. Q2 based on our checks (with e-commerce and travel outperforming but housing and autos stable to worse,” said Goldman Sachs analyst Eric Sheridan in a report.
Technical ratings for Alphabet (GOOGL) have weakened.
GOOGL Stock Split
Google plans to slow hiring amid a possible economic recession. In a cost-cutting move, Google plans to shut down its Stadia gaming service in January. It launched the Stadia streaming service in 2019.
GOOGL stock jumped 65% in 2021. Thus far in 2022, Google shares have dropped 29%, under-performing vs. the S&P 500. The S&P 500 has retreated 22%.
The internet giant completed a 20-for-1 split for shares of Google-parent Alphabet after the market close on July 15. GOOGL stock is down about 9% since the stock split.
Alphabet repurchased $15.19 billion of Google stock during the second quarter, up about 19% from a year earlier. The internet search giant has bought back $54.58 billion in Google stock over the last 12 months.
Google Stock: Amazon Product Search
Alphabet aims to boost its advertising business through e-commerce-related internet search. At the same time, it hopes to chip away at Amazon.com‘s (AMZN) dominance in product search.
Google’s internet search business will hold up better than other advertising formats, such as social media, analysts say.
Google has rolled out the Performance Max advertising platform. It automates buying across YouTube, internet search, display, Discover, Gmail and maps. Performance Max lets advertisers manage campaigns across all Google ad inventory. Advertisers that use the tools convert more shoppers into buyers, Google says.
Google in 2021 finally outperformed high-tech peers once called the “FANG” stocks. But the other FANGs — Facebook-parent Meta Platforms (FB), Amazon and Netflix (NFLX) — have struggled this year amid a bear market in technology stocks.
In the long run, the GOOGL stock split could pave the way for the tech giant to enter the Dow Jones Industrial Average. Google stock could be more attractive to retail investors.
GOOGL Stock: Tough Year-Over-Year Comparisons?
The big picture: Google stock this year faces more difficult year-over-year growth comparisons in 2022 as the coronavirus emergency fades.
In a near-term boost for its advertising business, Google has delayed phasing out internet cookies to 2024. After originally delaying the elimination of third-party cookies on the Chrome web browser to 2023, Google says it will delay the phase-out to 2024. The cookies track consumers on the web. Google will continue to test its alternative targeted ad technology called “Privacy Sandbox.”
In early 2022, Alphabet said it expected a “meaningful increase” in 2022 capital spending, reflecting investments in computer servers in internet data centers and construction of office space.
GOOGL Stock: Artificial Intelligence Prowess
Most investors still know the company as Google, even though the internet search giant reorganized as holding company Alphabet in 2015. The restructuring move separated Google’s core internet advertising business from so-called moonshots, such as autonomous vehicles and the Verily Life Sciences unit.
In March 2022, Google spun off its quantum computing technology group as a separate company.
Google stock’s strength in artificial intelligence spans digital advertising, the Google Cloud Platform, YouTube and consumer hardware products. GOOGL stock is just one artificial intelligence stock to watch.
At a Google developers conference in mid-May, the company demonstrated how it uses AI tools in a wide range of applications, including Google Workspace, Google Maps, virtual reality, and voice-based search.
After a long run, GOOGL stock has dropped out of the IBD Leaderboard. The Leaderboard is IBD’s curated list of leading stocks that stand out on technical and fundamental metrics.
Big Tech Stocks Face Regulatory Headwinds
With the Android mobile operating system built into devices sold worldwide, the Play Store has been a revenue growth driver.
A federal judge ruled in September 2021 that Apple (AAPL) must allow mobile app developers to steer consumers to outside payment methods. Google’s policies also are under scrutiny.
Google in 2021 said service fees at its Play Store would drop to 15% from 30%. The move reduced revenue.
The Justice Department in October 2020 filed an antitrust lawsuit against Google. The Justice Department charged that Google has harmed competition and consumers by monopolizing internet search and search-related advertising. Due to its huge cash holdings, GOOGL stock has shrugged off three fines totaling $9.3 billion levied by the European Union on antitrust grounds.
Google has offered to split parts of its ad-tech business into a separate company under its parent Alphabet to ward off a second expected antitrust lawsuit from the Department of Justice, the Wall Street Journal reported.
One question involves Alphabet’s ability to make large acquisitions. Amazon has been active making acquisitions. But Google may be under more scrutiny amid anti-trust concerns.
In December, 2019, Google co-founder Larry Page stepped down as Alphabet’s CEO. Pichai, who headed the Google unit, replaced him. Google co-founder Sergey Brin stepped down as Alphabet’s president.
Under new Alphabet Chief Executive Sundar Pichai, Google has improved transparency. Google began disclosing cloud computing financial metrics with its fourth-quarter report in fiscal 2020. The cloud business has yet to turn a profit.
In addition, YouTube’s profitability remains a mystery.
Google’s overall profit margins remain an issue amid high investments in data centers for cloud computing, artificial intelligence, YouTube and consumer products.
GOOGL Stock: U.S. Recession Looming?
Alphabet reported June-quarter earnings and revenue that missed Wall Street targets as YouTube and its cloud computing business fell short of expectations. But Google’s core digital advertising business edged by views.
Alphabet said earnings fell 11% to $1.21 per share. Gross revenue rose 16% to $69.7 billion. Analysts had predicted Google earnings of $1.27 per share on revenue of $69.62 billion. A year earlier, Google reported earnings of $1.36 per share on revenue of $61.9 billion.
Meanwhile, advertising revenue rose 11% to $56.29 billion, edging by estimates of $55.97 billion.
However, YouTube revenue rose only 5% to $7.3 billion. Analysts had estimated YouTube ad revenue of $7.52 billion, up 7%. YouTube’s sales growth slowed from 14% in the first quarter.
Google said cloud-computing revenue rose 36% to $6.28 billion, missing estimates of $6.41 billion. The cloud unit’s operating loss increased to $858 million from $591 million in the year-earlier period.
Google repurchased $12.8 billion of its own stock in the second quarter. In the first quarter, the company repurchased $13.3 billion of Google stock.
Waymo Autonomous Vehicle Business
A key question for investors is how much should Google’s self-driving-car project Waymo and “Other Bets” such as the Verily Life Sciences unit figure into valuation.
In early 2018, some analysts projected Waymo’s long-term valuation in a range of anywhere from $75 billion to $125 billion. Expectations for autonomous vehicles, though, have been sharply lowered.
Waymo in 2021 raised $2.25 billion in funding from outside investors. including private equity firm Silver Lake, the Canada Pension Plan Investment Board and Abu Dhabi’s Mubadala investment arm.
While Google did not disclose Waymo’s valuation in the funding round, reports said it was only $30 billion. It could be lower now.
Waymo CEO John Krafcik, head of the autonomous vehicle unit since 2015, resigned in early April 2021. Alphabet said he would be replaced by two co-CEOs — Tekedra Mawakana and Dmitri Dolgov. Mawakana had been Waymo’s chief operating officer while Dolgov was Waymo’s chief technology officer.
Waymo in December 2021 announced a new alliance with China’s Geely. They plan to collaborate in a Zeekr-branded, self-driving van.
Another question is the performance of Google’s hardware business. It’s battling Apple in smartphones and Amazon in smart-home appliances.
GOOGL Stock: Cloud, Hardware, Security Acquisitions
Google on Oct.6 introduced two aggressively priced Pixel smartphones. The Pixel 7 starts at $599. The bigger Pixel 7 Pro starts at $899.
The new smartphones will compete with the recently launched iPhone 14 series handsets. The entry-level iPhone 14 starts at $799 while the Pro models start at $999.
Also, Google’s acquisition of smartwatch maker Fitbit closed in January. The $2.1 billion purchase should help Google make a push into the health and fitness market, analysts say.
Google’s cloud computing business, meanwhile, faces tough rivals in Amazon and Microsoft (MSFT). Google brought in Thomas Kurian, a former Oracle (ORCL) executive, to improve performance in the corporate market.
Bulls say Google Cloud Platform is taking share as it focuses on security, open source software and data analytics.
In 2019, Google purchased data analytics firm Looker for $2.6 billion in cash. Santa Cruz, Calif.-based Looker’s analytics platform uses business intelligence and data visualization tools.
More acquisitions to boost Google’s cloud business could be coming, analysts say. Google acquired cybersecurity firm Mandiant (MNDT) for $23 per share in an all-cash $5.4 billion deal.
Mandiant provides cyber-incident response and cybersecurity testing services. FireEye split off Mandiant last year.
In the enterprise market, UBS expects Google Workplace business productivity tools to give a boost to the cloud computing unit.
The Google Workspace productivity tools have more than 3 billion monthly active users globally and more than 8 million paying customers, Google said at the Goldman Sachs Communacopia conference.
Google Stock: Is It A Buy Now?
Meanwhile, Google’s Relative Strength Rating is only 46 out of a best possible 99, according to IBD Stock Checkup. The best stocks tend to have an RS rating of 80 or better.
Google stock owns an Accumulation/Distribution Rating of D-minus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
GOOGL stock holds an IBD Composite Rating of 64 out of a best possible 99.
IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
As of Oct. 22, GOOGL stock is not in a buy zone amid volatility in the tech sector. It needs to forge a new base to be actionable.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and 5G wireless.
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