Hi there! If you‘re an investor interested in the technology sector, you‘ve probably asked yourself "Is Google still a good stock to buy?" With its shares down over 30% from their peak, let‘s dive into the key factors to evaluate if now looks like an opportune time to invest in Alphabet (Google‘s parent company) stock for the long run.
Overview
Alphabet is one of the world‘s most dominant internet enterprises thanks to Google‘s ubiquitous search engine and market-leading digital advertising technologies. However, its growth has moderated over the past year amidst a slowing economy.
In this analysis, we will assess Google‘s current financial health, competitive positioning, growth drivers and valuation metrics to determine if its stock presents a compelling risk-reward profile for long-term investors.
Dominance of Search
As you most likely experience daily, Google thoroughly dominates the search engine market. Its 92% global share means over 9 out of 10 search queries funneled through Google‘s portal.
The chart below illustrates just how thoroughly Google has monopolized internet search over the past decade. This grants it unmatched scale and the power to monetize online attention.
Data Source: StatCounter Global Stats
Additionally, Google-owned YouTube now reaches over 2 billion monthly active users, cementing video as the company‘s second massive advertising venue alongside search.
Financial Track Record
Google‘s growth over the past 5 fiscal years is nothing short of remarkable for a company of its towering size:
| Year | Revenue | Net Income | Cash from Operations |
|---|---|---|---|
| 2018 | $136.8 billion | $30.7 billion | $35.2 billion |
| 2019 | $161.9 billion | $34.3 billion | $46.5 billion |
| 2020 | $182.5 billion | $40.3 billion | $51.9 billion |
| 2021 | $257.6 billion | $76.0 billion | $78.7 billion |
| 2022 | $282.8 billion | $60.4 billion | $85.5 billion |
Data Source: Alphabet 10-K Filings
As you can see, Alphabet has doubled its top line in just 5 years! Profits and cash generation have also soared to fuel investments into emerging technologies like artificial intelligence, autonomous vehicles, healthcare and more.
However, revenue growth did decelerate to just 9% last year. Lower online ad spending, difficult comparisons to lockdown-fueled growth in 2021 and currency fluctuations all played a role.
But importantly, Google maintained stellar profitability with operating margins exceeding 30% last year. Its fortress balance sheet also ended 2022 with $124 billion in cash to weather any storms.
Competitive Pressures
Of course, tech moves incredibly fast and I must highlight rising competitive risks you should stay aware of as an investor:
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Digital Advertising: Meta Platforms is Google‘s closest threat here. Facebook, Instagram and WhatsApp reach over 3.5 billion people globally. Targeted social media ads threaten search ads‘ dominance in marketing budgets.
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Cloud Computing: Amazon Web Services and Microsoft Azure own over 50% market share currently, forcing Google to play catch up in enterprise cloud spending.
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Hardware and Software: Apple controls the valuable iOS ecosystem and sells over 250 million iPhones annually. Google must mostly rely on licensing Android to third-party mobile vendors.
Many emerging startups also nip at Google‘s toes across fields like artificial intelligence, quantum computing, blockchain technology and more.
However, betting against Google‘s relentless innovation has proven foolhardy for the last 20+ years. Their immense cash flows fund moonshot projects most companies can only dream of.
Valuation Metrics
As the famous saying goes "Price is what you pay. Value is what you get." So what valuation are we paying for Google‘s dominance?
Alphabet stock trades at close to:
- Forward P/E Ratio: 17x
- PEG Ratio: 1.3x
- EV / EBITDA: 12x
Compared to tech titans Microsoft (29x), Apple (22x), Meta Platforms (14x) and Amazon (over 50x), Google‘s multiples look quite reasonable.
Its valuation also marks a significant discount to the stock‘s 5-year average forward P/E of 23x.
The Wall Street analyst consensus rating on the shares is a Buy with average price target around $130, representing 46% upside.
Final Verdict
Given Google‘s recession-resistant services, substantial lead in digital ads and cash generation, its stock appears attractively priced for long-term investors.
Near-term uncertainty persists as online ad spending fluctuates with economic cycles. But its current risk/reward tradeoff tilts decisively positive for patient investors with 5+ year time horizons.
So is Alphabet still a good stock to buy? I believe so even after its tremendous run over the past decade. The world remains reliant on Google technologies in both work and personal contexts. Its AI-driven innovation also continues unabated.
Add in a reasonable valuation and I view the recent 30% share price correction as a buying opportunity.
I hope this analysis helps shed light on Google‘s investment case. Let me know if you have any other questions!
