Alphabet: Any weakness following the results should be taken as a buying opportunity | Investing.com

  • Alphabet shares have lost a third of their value since peaking in November on growth concerns.
  • Alphabet is expected to post single-digit revenue growth when it reports third quarter results tomorrow.
  • The company has a broad reach in the digital economy that is difficult to contest, making its business recession-proof.

Year-to-date, it’s hard to be bullish on social media stocks as companies across all industries have cut advertising spend to deal with tough financial conditions.

Snap’s (NYSE:) stock plunge last week after the company’s latest report added more fuel to the flames, leaving the market concerned about upcoming industry reports. .

Despite this bleak outlook, I don’t think investors should lump all social media names together. I see compelling arguments to buy shares of Google’s parent company Alphabet (NASDAQ:) (NASDAQ:) if the stock were to fall on weak earnings .

The California-based company has lost about a third of its value since its peak in November, due to fears that the owner of the world’s most popular search engine could see sales decline after a massive expansion during the pandemic.

According to consensus analyst estimates, Alphabet is expected to report double-digit revenue growth when it reports third quarter results tomorrow after market close. Aside from a quarter at the start of the pandemic, this would mark the weakest period for Google’s parent company since 2013.

GOOGL Consensus Estimates

GOOGL Consensus Estimates

Source: Investing Pro

The threats to Alphabet’s stocks are real and may cause some short-term turbulence, but buying the stock of Google’s parent company isn’t terribly complicated, in my view. The company’s vast reach in the digital economy is hard to contest, making its business recession-proof.

Google has a monopoly in the search engine market, with a market share of around 90% outside of China. Research is also Alphabet’s main profit driver. The Google services segment, which includes search, generated $22.8 billion in operating profit in the second quarter, with an operating margin of 36.2%.

Alphabet has maintained this dominance in the search industry through its massive investments and innovations, which are paying off. The company’s improved AI capabilities provide better experiences for users and make it much harder for competitors to break Google’s stranglehold.

Another unique strength Alphabet holds in the social media segment is that it controls the largest video search engine, YouTube, which offers a social media platform and streaming capabilities, making it a highly targeted product. for young and old audiences.

In August, Pew Research haspublished a investigation comprehensive about American teens and social media. An impressive 95% of teens surveyed said they use the video platform. More teens said they visit YouTube “almost constantly” than any other app.

Percentage Of Teens In Apps Or Sites

Percentage Of Teens In Apps Or Sites

In addition to these strengths, Alphabet is well positioned to capture market share from its peers, including Meta Platforms (NASDAQ:) and Twitter (NYSE:).

For example, there is a lack of visibility on Mark Zuckerberg’s metaverse company, which is trying to stem the decline in popularity of its flagship Facebook platform. We don’t know how long it will take for this massive undertaking to pay off.

Likewise, no one knows how Elon Musk’s bid to restructure Twitter will turn out if he manages to acquire the company. This upheaval in the social media landscape means companies will divert more of their advertising dollars to Alphabet-owned properties, where engagement is growing.

While other social media companies struggle to retain followers and attract limited advertising dollars, Alphabet’s other businesses are also showing strong growth, further diversifying its business.

Sales of the “Google Cloud” division, a rapidly expanding market segment where the company ranks third after Amazon (NASDAQ:) and Microsoft (NASDAQ:), are showing strong momentum. In the second quarter, Google’s cloud service sales jumped 36% from a year earlier to $6.28 billion.

Additionally, this month, Google announced a wide slew of updates to its cloud computing offerings to close the gap with rivals, in a bid to capitalize on its strength in artificial intelligence.

Conclusion

Google’s results tomorrow could show some weakness, due to reduced advertising spending by companies. Still, it’s one of the best mega-caps to buy after losing more than 30% of its value. The company is well positioned to perform well in the event of a potential economic downturn, due to its dominance in the digital advertising market and its strong growth momentum in other areas of the digital economy.

Disclosure : At the time of writing, the author was long on Alphabet stock. The opinions expressed in this article are solely those of the author and should not be considered as investment advice.

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Alphabet: Any weakness following the results should be taken as a buying opportunity | Investing.com


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