Amid mounting fears of a US recession, how resilient is Google stock to a business downturn compared to other technology firms? This is a critical question for investors interested in GOOGL stock. Google parent Alphabet (NASDAQ:GOOGL) finally outperformed high-tech peers known as the “FANG” stocks in 2021. However, it is in the same situation as Facebook-parent Meta Platforms (NASDAQ:FB), Amazon.com (NASDAQ:AMZN), and Netflix (NASDAQ:NFLX) this year, as technology stocks experience a meltdown.
In 2021, GOOGL shares increased by 65%. So far, in 2022, shares have fallen by around 21%. In early July, Google shares surpassed its 50-day moving average. However, it has dropped below the 50-day moving average. This is a bearish sign. GOOGL earnings are due on July 26. Alphabet has announced a stock split of 20-for-1, which will take effect after the market closes on July 15. The stock split may clear the path for the IT behemoth to join the Dow Jones Industrial Average. Retail investors may find GOOGL shares more appealing.
The big picture: As the coronavirus emergency fades, Google shares will face increasingly tricky year-over-year growth comparisons in 2022. Bank of America recently reduced its projections for GOOGL shares, citing concerns about the slowing growth of the US economy.
GOOGLE Stock: Investing In Growth
Google posted first-quarter earnings and revenue that fell short of Wall Street expectations. In the first quarter, Alphabet derived 80% of its revenue from Google advertising, 10% from Google Other, 9% from cloud computing, and 1% from Other Bets. The company’s investments keep increasing. Alphabet anticipates a “significant increase” in capital spending in 2022, reflecting investments in computer servers, internet data centers, and office space buildings.
Google’s board of directors has approved an additional $70 billion in stock repurchases. The business repurchased $13 billion of Google shares in the first quarter, up from $13.5 billion in December and $12.6 billion in September.
GOOGL Stock: Cloud Profitability Not Near?
Investment gains, which had previously played a significant role in GOOGL stock earnings beating in 2020 and 2021 due to growing stock prices, reversed in the first quarter. GOOGL shares developed a cup chart pattern in early 2022. However, shares fell in April as institutional ownership declined. Google has increased transparency under incoming Alphabet CEO Sundar Pichai. Google began releasing cloud computing revenue metrics with its fiscal 2020 fourth-quarter release. However, the cloud business has yet to become viable. The cloud business recorded an operational loss of $931 million in the first quarter of 2022, compared to a loss of $974 million the previous year.
GOOGL Stock: Is YouTube Profitable?
Some speculate that Google may also open the books on YouTube. It’s unclear whether YouTube is profitable or not. Google claims that YouTube Shorts, a competitor to TikTok, now has 1.5 billion users worldwide. However, YouTube Shorts is not yet profitable.
Google spun off its quantum computing technology group as a separate company in March 2022. GOOGL stock has tumbled out of the IBD Leaderboard after a long run. The Leaderboard is an IBD-curated list of top stocks that excel on technical and fundamental indicators.
GOOGLE Stock: Play Store Revenue To Fall
The Play Store has been a revenue growth driver with the Android mobile operating system incorporated into devices sold worldwide. However, in September 2021, a federal judge ruled that Apple (AAPL) must allow mobile app creators to direct consumers to alternative payment methods, granting an injunction requested by Epic Games in a year-long court battle. Google’s policies are also being scrutinized.
Google said in 2021 that service costs on the Play Store would be reduced from 30% to 15%. Revenue will be reduced as a result of the change. Google stock’s artificial intelligence power extends across digital advertising, the Google Cloud Platform, YouTube, and consumer hardware items. GOOGL is just one example of an artificial intelligence stock to keep an eye on.
GOOGLE Stock: Advertising Core Business
While Google has grown into cloud computing and consumer hardware, digital ads generate the majority of revenue. Google has delayed plans to end support for third-party cookies in Chrome by late 2023, two years later than initially planned. Amazon is reducing Google’s market share in internet search-related advertising. As Amazon gains traction in digital advertising, Google has made significant adjustments to how it handles e-commerce listings. Google has also strengthened relations with Shopify (SHOP), an e-commerce software provider.
Larry Page, the co-founder of Google, resigned as Alphabet’s CEO in December 2019. Pichai, who led the Google unit, took his post. Sergey Brin, the co-founder of Google, also resigned as Alphabet’s president. Despite significant investments in data centers for cloud computing, artificial intelligence, YouTube, and consumer products, Google’s profit margins continue to be a concern. Google’s accounting processes were altered in early 2018. It began reporting earnings in accordance with GAAP or generally accepted accounting principles. Earnings under GAAP include stock-based compensation.
According to Bank of America, YouTube’s subscription business will generate $18 billion in income by 2025, up from $5 billion in 2020. Furthermore, YouTube is prospering as large businesses shift advertisement budgets away from linear TV and digital media. Google announced in late 2021 that YouTube has over 30 million music and premium paying users, with YouTube TV having more than 3 million subscribers.
GOOGL Stock: Fundamental Analysis
Earnings per share declined 6% to $24.62 in the March quarter. Google announced a $1.07 billion loss on stock investments, which reduced profit by 99 cents per share. Earnings are reported in accordance with generally accepted accounting rules or GAAP. In addition, gross revenue increased by 23% to $68.01 billion. Analysts expected Google to earn $25.74 per share on $68.05 billion in revenue. Google reported a 44% increase in cloud computing income to $5.82 billion, compared to projections of $5.73 billion. Meanwhile, YouTube advertising revenue increased 14% to $6.87 billion. Analysts also projected that YouTube’s ad income would be $7.21 billion.
The company reported net revenue of $56.02 billion, excluding traffic acquisition costs, compared to projections of $56.26 billion. Google’s traffic acquisition costs (what it pays to have traffic directed to its websites) increased by 23% to $11.99 billion. This exceeded projections of $11.69 billion, with rising TAC being a bearish indicator.
GOOGL Stock: Cloud Computing Business
In addition, Google completed its acquisition of smartwatch maker Fitbit in January. Analysts believe the $2.1 billion deal will help Google enter the health and fitness sector. Google announced the Pixel watches, which will be available in late 2022, at the “I/O” software developers conference in May.
Meanwhile, Google’s cloud computing sector faces stiff competition from Amazon and Microsoft (MSFT). Google hired Thomas Kurian, a former Oracle (ORCL) executive, to boost organizational performance. According to bulls, Google Cloud Platform is gaining market dominance due to its emphasis on security, open source software, and data analytics.
Google paid $2.6 billion in cash for data analytics business Looker in 2019. Looker’s analytics platform, situated in Santa Cruz, Calif., employs business intelligence and data visualization technologies. Analysts believe that more purchases to bolster Google’s cloud business are likely. On March 7, Google announced the acquisition of cybersecurity business Mandiant (MNDT) for $23 per share in an all-cash $5.4 billion transaction. Mandiant specializes in cyber-incident response and cybersecurity testing. Last year, FireEye separated from Mandiant. Mandiant will become part of Google’s cloud computing company after the deal is completed.
UBS expects Google Workplace corporate productivity solutions to strengthen the cloud computing unit in the enterprise market.
GOOGLE Stock: Is It A Buy Now?
According to IBD Stock Checkup, Google’s Relative Strength Rating is merely 57 out of a possible 99. The best stocks have an RS rating of 80 or above. Google stock has a B-minus Accumulation/Distribution Rating. This grade considers price and volume movements in stock over the last 13 weeks of trading. The grading ranges from A+ to E and assesses institutional purchasing and selling in a company. A+ denotes heavy institutional buying, whereas E denotes heavy selling. Consider the C grade to be impartial. The IBD Composite Rating for GOOGL is 86 out of a possible 99.
IBD’s Composite Rating combines five distinct proprietary ratings into a single, simple rating. A Composite Rating of 90 or higher indicates the top growth stocks. On a daily chart, Google stock has an entry point of 3,031.03. Some of the technical ratings have risen. As of July 13, GOOGL stock is not in a buy zone due to volatility in the IT sector.
Featured Image: DepositPhotos © EdZbarzhyvetsky
