Alphabet Inc. (NASDAQ:GOOG, NASDAQ:GOOGL) recently released mixed earnings that disappointed investors, resulting in a drop in its stock price. The company’s revenue rose 11% year over year to $76.93 billion, but this was below market expectations, which had forecasted revenue of $85.15 billion. Furthermore, the quarter-over-quarter (QoQ) revenue growth rate was only 2.8%, with Q3 sales coming in at just $2.09 billion higher than the previous quarter’s $74.6 billion in sales. Investors had also hoped for higher growth in Google Cloud sales, which only rose by 4.7% from $8.0 billion in Q2 to $8.4 billion in Q3.
Despite the mixed earnings, Alphabet remains a highly profitable company with strong free cash flow (FCF). In Q3, it generated $22.6 billion in FCF, a 3.77% increase from the Q2 FCF figure. The FCF margin remained elevated at 29.4% in Q3.
In response to the stock’s downturn, there has been significant call option activity, particularly in out-of-the-money (OTM) strike prices for both GOOG and GOOGL stock. This suggests that some investors may view the drop as overdone and see potential for a rebound. Additionally, some of these call options offer opportunities for covered calls, such as the $130 strike price calls due on November 3, which offer a 1.0% yield on today’s spot price.
Contrarian investors may view the company’s strong FCF generation and see the potential for the stock to recover. Using FCF yield metrics, it is possible to estimate a higher value for GOOG stock, potentially implying significant upside potential from the current market cap. However, it’s important to note that these calculations are based on various assumptions and estimations.
In summary, while Alphabet’s recent performance disappointed some investors, there is still optimism in the market. Some see the drop in Alphabet’s stock as an opportunity, and there is a focus on the company’s FCF generation and its long-term potential.
Featured Image: Megapixl
Author Faith Yakubu 
