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As in the previous three quarters, Google’s parent company posted another disappointing result. Consequently, the Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) stock price is down and may look weaker this year. However, I am willing to deal with short-term problems for long-term gains.
$102.35 $-2.43 (-2.3%) Monday, 06 February 2023 at 15:40:11 Greenwich Time
Come up short
Alphabet’s Q4 numbers are nothing to celebrate. Refusal is equally important in the board with the upper and lower line is not the analyst’s estimate. Total revenue gained 1% due to some support from Google Cloud and other revenue. Otherwise, the decline in advertising is significant, with YouTube Shorts continuing to undercut long-form content.
| Metric | Consensus | Q4 2022 | Q4 2021 | Growth |
|---|---|---|---|---|
| Google Search Income | $43.30 billion | $42.60 billion | $43.30 billion | -2% |
| YouTube revenue | $8.30bn | $7.96bn | $8.63 billion | -8% |
| Google Network Revenue | $8.90 billion | $8.48 billion | $9.31 billion | -9% |
| Google Cloud Revenue | $7.30bn | $7.32 billion | $5.54 billion | 32% |
| other revenue | $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 short-term outlook for Alphabet stock isn’t bright either. Advertising and cloud spending are forecast to grow at a slower pace this year. Many reports suggest that global advertising spending will only grow by 4.5% compared to 7.6% last year, and double the previous years. In addition, Google continues to lose market share after years of dominance.
A GAAP is worth listening to
Although there are no upper and lower estimates, I think the negative sentiment about Alphabet stock is overdone. That’s because when you zoom out of the main figures, a clearer picture of the overall performance of the company can be seen. This is especially true when comparing GAAP and non-GAAP numbers.
There is no shame in the company’s margins falling this term. However, it is also important to note that the group reported a large loss in equity securities (-$1.49bn) this year compared to a profit ($2.52bn) last year. This does not have a material impact on the underlying business model of Alphabet, and they are realized losses from investments in shares. The loss is about – $0.11 in EPS. Couple that with constant currency gains and the tech giant actually reported EPS broadly in line with estimates.
Short-term distractions aside, the conglomerate has a bright long-term future. YouTube may continue to see weakness over the next few quarters. But the board’s ambitious plans for the platform to introduce e-commerce and become a streaming service may come back stronger than ever. What’s more, Shorts has grown from 30bn to 50bn daily views over the past year.
And because of the fear that ChatGPT has the potential to take Google’s place as the world’s largest search engine, Alphabet has returned with its own chatbot in LaMDA. The language model will be released to the public later this year with more details to be revealed this week.
Don’t bet on Alphabet
So, should I buy more Alphabet stock? Well, multiples of current and future value are traded in years. This could indicate a cheap buy, especially when considering the potential upside.
| Metric | Multiples of value | Industry average |
|---|---|---|
| Price-to-earnings (P/E) ratio. | 21.2 | 30.0 |
| Price-to-earnings ratio (FP/E). | 20.4 | 33.3 |
In addition, it has a perfect financial set. A large pile of cash reserves and strong free cash flow could see Alphabet instigating a further share buyback program to boost shareholder returns and more importantly, its EPS.
Therefore, it is not a surprise to see such Morgan Stanley, Wells Fargo, Barclays, and many other brokers rate the stock ‘buy’, with an average price target of $129. So, I’m not going to write off Alphabet any time soon, and it’s going to be dollar cost averaging because the upside potential is so high.
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