Is the bear case for Alphabet stock persuasive?

When investing, I always try to see both sides of the argument for or against owning a particular stock. I have considered buying shares in it Alphabet (NASDAQ: GOOG ) (NASDAQ: GOOGL ) stock for my portfolio because of what I see as the company’s long-term prospects. But in the past year, Alphabet shares have fallen 23%.

Clearly, many investors feel less bullish about the tech giant than I do. Here are some reasons why.

The economic environment is bad

As the owner of popular websites like Google and YoutubeAlphabet makes a lot of money by selling advertising space.

But advertising is a discretionary expenditure for many companies. That means in the current recession, they may be cutting back on advertising costs.

Advertising requests

What is the biggest risk to sales and profits at Alphabet? I think. In its most recent quarter, the company posted a 6% annualized revenue growth. Although positive, it is lower than the 41% recorded in the same quarter last year. Operating income fell 19%, while net income fell 27%.

As a long-term investor, I don’t just consider a single quarter’s performance. But the new profit numbers were not pretty. The advertising market can see the demand drop, hence the profit. I think that makes owning Alphabet stock less attractive.

Buffett-style moat

The key element of the bull case that attracts me to invest in companies is the power of competitive advantage, or what investor Warren Buffett calls ‘trench‘.

Alphabet has a large user base and offers a wide range of services. Learning more about each user helps businesses target their ads. Users take time and effort to get to grips with the firm’s services, making them less likely to switch to competitors.

Rising competition

These models can withstand increasing competition. For example, TikTok it is increasingly used as a search tool, which can make Google’s key services unusable for some digital users. Youtube it may suffer from the growing popularity of video on competing platforms.

If Alphabet sees a decline in its user base in the coming years, it threatens revenue and profitability. That helps explain the falling share price — and why it may continue to go south.

I want to buy shares

I think the bear case above includes some persuasive points. After all, the company has a market capitalization of $1.3tn. To justify it, it has to show a lot of commercial potential in the long term.

But on balance, I still find the investment case compelling.

I see the advertising downturn as temporary not permanent. In fact, over the long term, I expect digital ad spending to grow. While competition is a real threat, Alphabet has been a strong innovator for its entire existence. I was able to manage the growth of my competitors while still making huge profits.

If I had the money to invest today, I would take advantage of last year’s drop in Alphabet’s stock price to add it to my portfolio.