We’ll review 15 of those reasons. Who should buy Alphabet stock? Alphabet stock tickers goog and google could be one of these. The world’s most powerful company But that hasn’t stopped it from a market selloff Shares of the Google parent have declined 33 percent this year. Rising interest rates and a bearish advertising market due to recession fears have combined to send the stock plunging. While such selloffs can often translate into buying opportunities, let’s review our top 15 reasons why Alphabet stock is a buy-in 2023.
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1. Reasons to Buy Alphabet Stock
It’s a monopoly. Most monopolies are restricted by antitrust laws. But Alphabet has a drawback as the quality of a search engine improves as more users search which makes search a natural monopoly.
The industry does not lend itself to competition. This means that it will be particularly difficult for a competitor to overtake Google. Because Google, the search leader, has over 90% market share in search worldwide.
Which is a strong brand with tremendous market power and technology and this is not likely to change.
2. Reasons to Buy Alphabet Stock
Google’s formidable moat stock has a sustainable competitive advantage. There are safe investments and rough examples of mode industries including cable companies. They were given the enormous cost of building new wiring infrastructure or Coca-Cola.
A reputed name among consumers. Google definitely has a mod. This is especially impressive given the rate of Internet change and the intense competition on the Web. Its flat structure means that anyone can build a competitive service. Google, on the other hand, has been able to turn a profit and maintain its lead by increasingly delivering better results than its competitors.
It has also been able to increase its market share with its Chrome browser and Android operating system and it pays Apple to be the default search engine on Apple mobile devices.
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Its profit margin is huge. Historically Alphabet’s operating margin has hovered in the 25 to 35 range. But it’s more complicated than it used to be. Google’s core search operation is the operating margin in Google Services. That includes its advertising business as well as the hardware of Google Play. And YouTube subscriptions came in at 32, compared to 25 in the company’s most recent quarter. However, the company’s overall business was struggling. Alphabet doesn’t disclose operating profit for specific businesses like Search. It’s probably higher than Google Services.
4. Reasons to Buy Google Stock
Google Cloud could be a juggernaut. Google Cloud Alphabet’s cloud infrastructure business lags behind rivals such as Microsoft Azure and Amazon Web Services. It’s growing rapidly, with revenue up 38 to $6.9 billion in its most recent quarter. Unlike its two larger peers, Google Cloud is still losing. That should change over time, its margins are improving.
The division’s operating margin improved from minus 14 to minus 10 in the third quarter. Management set out on the recent earnings call that it remains focused on a long-term path to profitability for the cloud segment. While it may never be as profitable as AWS or Azure. Ultimately it should be a significant contribution.
5. Reasons to Buy Google Stock
The advertising market is a cyclical part of the reason why Alphabet’s stock is down. The advertising market is slowing down as businesses prepare for a possible recession. Alphabet’s revenue rose just six percent in the third quarter Advertising is a cyclical industry. The same thing happened with the advertising company when the pandemic started and during the financial crisis in 2008-9. However, the economy will eventually bounce back as we move through the cycle and that means advertising revenue on Google will pick up as well.
6. Reasons to Buy Alphabet Stock
Other bets may eventually pay off in addition to its discovery. Cloud business Alphabet has a number of moonshot projects that classify it under other bets. The best of these is its autonomous vehicle or AV division. Other bets have lost more than $20 billion in the past. Five more years brought little revenue although this may change. If AV technology ever breaks through it will definitely be a huge industry. The company also invests money in projects like fighting cancer and making products in the life sciences.
7. Reasons to Buy Alphabet Stock
It’s tightening its belt It’s easy to argue that Alphabet has spent too much on other bets. There is little to show for it. But the company plans to rein in costs, saying on a recent earnings call that it will slow hiring in the fourth quarter and next. It is unclear whether it plans to apply the same cost discipline to other bets. But investors should be encouraged by the spending controls. While Alphabet hasn’t announced mass layoffs, fellow fang stocks like Meta Platforms and Amazon have, too. As CEO Sundar Pichai has said, productivity is not up to the mark.
8. Reasons to Buy Alphabet Stock
Thrive in Tough Conditions The Great Recession in 2007-2008 was a colossal stress test that many companies failed like all stocks. Google also suffered badly from late 2007 to early 2009 under selling pressure, falling 65% from its high.
However, once the stock market recovered and the economy began to show signs of growth, the company recovered all of its losses in only three years.
More importantly, Google maintained revenue growth during this time period despite a weak economy and in addition during the Great Recession, many of its competitors were unable to survive with others falling to the brink of bankruptcy.
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9. Reasons to Buy Alphabet Stock
Share buybacks will have an impact Alphabet has long been a cash machine. But the company has recently stepped up efforts to return some of that cash to investors. Rather than simply keeping it on the balance sheet or spending it on projects like other bets during the previous year.
The company has spent $43.9 billion on stock buybacks over the past nine months, repurchasing 433 million shares. Those buybacks reduced its share count by 3.2 percent. A drop in the stock price and $116 billion in cash and balance sheet the company could receive. More aggressive with buybacks which will help drive earnings per share.
10. Reasons to Buy Alphabet Stock
The stock is cheaper than S&P 500. On a trailing basis, Alphabet stock trades at a price-to-earnings ratio of just 19.5, which compares to the S&P 500’s 20.5 price-to-earnings ratios based on the company’s future earnings growth. So the market seems to say that Alphabet will grow profits more slowly than the broader market. Given the company’s track record of dominance in search and its share buyback program, that seems like a mistake. The business may struggle next year if the recession hits it will bounce back in the long term.
11. Reasons to Buy Alphabet Stock
YouTube could make a streaming splash. YouTube isn’t generally regarded as a major competitor in the streaming wars, but the changing video-sharing platform has no true partner on the free side. Payment options like YouTube TV and YouTube Premium should help the company. Monetize that sticky user base. Both services now have more than 80 million subscribers, up from more than 50 million a year ago. Thereby making them a legitimate competitor to both Netflix and Spotify.
12. Reasons to Buy Alphabet Stock
Google has a firm grip on search engine supremacy even with the rise of YouTube and Google Cloud. Most of the letter business is still Google searches. Its core money maker Google Search generated $39.5 billion in revenue in the third quarter.
Total revenue was 57.2 percent of total revenue, although the annual revenue growth was modest, at only 4.2 percent. The strength of the US dollar made it likely that the actual annual revenue growth was much higher. The amount of money Google makes outside its home market will drop this year. Why Google Search Revenue Is Still Growing.
It’s simply the service has a virtual monopoly on the search engine market. The steady growth of Internet users around the world is writing. Google Search has a market share of 90 or more in most countries around the world except China, with several hundred million new users according to independent estimates. connect to the Internet each year and those who are already using it spend more time doing so. This means there is more advertising opportunity for Google.
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Because people search for information and products. It doesn’t matter what people are searching for on the internet. The vast majority are doing so through a Google search. Unless something drastic changes within search, that’s going to make Alphabet a boatload of money. Google’s dominance of the engine market should continue in the near future and should lead to continued top-line growth.
13. Reasons to Buy Alphabet Stock
Alphabet stock receives positive analyst ratings. As evidenced by the fact that 48 out of 51 sell-side analysts covering the company’s stock have given Google either a buy or strong buy rating. Although Wall Street continues to be very bullish on Alphabet stock. The important indicator of investor sentiment is the change in analyst ratings over time, not the absolute rating that matters.
14. Reasons to Buy Alphabet Stock
Google stock is a good long-term investment in Alphabet. Recent metrics send positive signals about its long-term growth outlook. It’s amazing that Alphabet is now in such a strong financial position. Even if it executed the largest quarterly share buyback in the company’s history in Q2.
2022 Google has an estimated $125 billion in cash and short-term investments on its books as of June 30, 2022. Given the free cash flow generative nature of the company’s business Alphabet’s cash pile is likely to continue growing multiple times in the coming years.
An inability to generate positive cash flow with a weak balance sheet and a lack of additional capital needed to support future growth or reward shareholders with capital returns isn’t Google’s problem. Alphabet is among the minority of companies that have the financial strength to support both. Capital investment and capital return It is indeed reasonable to assume that Google will allocate an increasing proportion of capital to share buybacks and other shareholder capital return initiatives in the coming years.
15. Reasons to Buy Alphabet Stock
The track record is clear that Alphabet’s sales and profits have grown steadily since going public in 2004. It has given a return of about 4000 percent to the investors. However, the stock is down significantly in the last year. Alphabet is arguably stronger than ever. Monopoly on the search and ever since Apple stopped targeting ads. Advertisers’ budgets have moved from social media to search.
The company has plenty of money to return to shareholders through buybacks and should continue to grow over time in the market. Alphabet’s best days are still ahead despite the stock crisis, especially with the emergence of connected TVs including YouTube.
Alphabet stock is definitely a Buy rated company. In our view, there are several things that long-term investors will like about Alphabet, including the potential for shareholder capital appreciation, positive expectations for operating profit margin expansion, and a long growth runway for Google Cloud. This concludes our analysis. 15 Reasons to Buy Alphabet Stock Tell us in the comments below if you think now is a good time to buy Alphabet stock and best of luck with your investing.
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I am not a financial advisor. Always engage a Financial Adviser to advise you on financial decisions. Always do your research as the information and tips shared in these blogs are for educational purposes only. The Information and tips are therefore not investment advice. If you decide to invest without your own research, you do so at your own risk. No rights can be derived from the information discussed in this blog. investing involves risks, you can lose (part of) your investment.