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Google stock in 2021 finally outperformed other “FANG” stocks. But Google-parent Alphabet (GOOGL) as well as Facebook-parent Meta Platforms (FB), Amazon.com (AMZN) and Netflix (NFLX) have struggled in 2022 amid a bloodbath in technology stocks.
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GOOGL stock jumped 65% in 2021. Thus far in 2022, shares have dropped about 20%.
Alphabet has announced a 20-for-1 stock split, which takes effect after the close of business July 15. The stock split could pave the way for the tech giant to enter the Dow Jones Industrial Average. GOOGL stock could be more attractive to retail investors.
Amazon’s 20-for-1 stock split took effect June 6. AMZN stock gained nearly 2% in the first day of trading after the stock split.
The big picture: Google stock this year faces more difficult year-over-year growth comparisons in 2022 as the coronavirus emergency fades.
Google reported first-quarter earnings and revenue that missed Wall Street targets. YouTube advertising growth fell short of expectations amid rising competition with TikTok.
Google Stock: Investing In Growth
Hiring and investments continue to ramp up for the company. Alphabet expects a “meaningful increase” in 2022 capital spending, reflecting investments in computer servers in internet data centers and construction of office space.
Google’s board of directors has authorized $70 billion in additional stock repurchases.
In Q1, the company repurchased $13 billion of Google stock vs. $13.5 billion in the December quarter and $12.6 billion in the September quarter.
“After using up most of its previous authorization, Google topped up its buyback program in April with the board authorizing an additional $70 billion of repurchases,” said a recent Deutsche Bank report. “The new and incremental $70 billion authorization surpasses the prior $50 billion authorization announced in April 2021, and thus by extension is a larger portion of the company’s current market cap given the current drawdown across tech. Its current repurchase program represents 5% of market cap, but the Street is estimating that buybacks over the balance of 2022 and through 2023 will equate to 7% of market cap, suggesting an expectation of high utilization of the program over the next several quarters and future top-ups.”
Helping GOOGL stock has been a rebound in digital advertising as the coronavirus emergency fades. Google aims to be a bigger player in e-commerce, such as in online travel. But macroeconomic concerns, such as growing currency headwinds, pose a problem for the online search giant.
GOOGL Stock: Institutional Ownership Weakens
In Q1, investment gains that often played a big role in earnings beats for GOOGL stock in 2020 and 2021 amid rising stock prices, reversed.
GOOGL stock in early 2022 formed a cup chart pattern. But shares pulled back in April as institutional ownership weakened.
Under new Alphabet Chief Executive Sundar Pichai, Google has improved transparency. Google began disclosing cloud computing financial metrics with its fourth-quarter report in fiscal 2020.
But the cloud business has yet to turn profitable. In the first quarter of 2022, the cloud business reported an operating loss of $931 million vs. a $974 million loss a year earlier.
Google’s cloud business plans to raise prices for some services in October.
GOOGL Stock: Is YouTube Profitable?
Some wonder if Google might also open the books on YouTube. But whether YouTube is profitable or not remains a mystery.
Most investors still know the company as Google, even though the internet search giant reorganized as holding company Alphabet in 2015. The restructuring move separated Google’s core internet advertising business from so-called moonshots, such as autonomous vehicles and the Verily Life Sciences unit.
In March 2022, Google spun off its quantum computing technology group as a separate company.
After a long run, GOOGL stock has dropped out of the IBD Leaderboard. The Leaderboard is IBD’s curated list of leading stocks that stand out on technical and fundamental metrics.
Google Stock: Play Store Revenue To Fall
With the Android mobile operating system built into devices sold worldwide, revenue growth from the Play Store continues to be a bright spot.
But a federal judge ruled in September 2021 that Apple (AAPL) must allow mobile app developers to steer consumers to outside payment methods, granting an injunction sought by Epic Games in a year-long court battle. Google’s policies also are under scrutiny.
Google in 2021 said service fees at its Play Store would drop to 15% from 30%. The move will reduce revenue.
Google stock’s strength in artificial intelligence spans digital advertising, the Google Cloud Platform, YouTube and consumer hardware products. GOOGL stock is just one artificial intelligence stock to watch.
At a Google developers conference in mid-May, the company demonstrated how it uses AI tools in a wide range of applications, including Google Workspace, Google Maps, virtual reality, and voice-based search.
Large-cap internet stocks face regulatory headwinds.
The Justice Department in October 2020 filed an antitrust lawsuit against Google. The Justice Department charged that Google has harmed competition and consumers by monopolizing internet search and search-related advertising. Due to its huge cash holdings, GOOGL stock has shrugged off three fines totaling $9.3 billion levied by the European Union on antitrust grounds.
The Justice Department, though, could force Google to restructure if it wins in court. Some analysts say Google stock will be worth more if the company is broken up. A legal battle likely will drag on for years.
Google Stock: Advertising Core Business
While Google has expanded into cloud computing and consumer hardware, digital advertising still makes up the lion’s share of revenue. Google has delayed plans to have its Chrome internet browser stop supporting third-party cookies by late 2023, two years later than its initial timeframe.
Amazon is taking market share from Google stock in internet search-related advertising. With Amazon gaining ground in digital advertising, Google has made big changes in how it handles e-commerce listings. Google has also deepened ties to Shopify (SHOP), a provider of e-commerce software.
In December, 2019, Google co-founder Larry Page stepped down as Alphabet’s CEO. Pichai, who headed the Google unit, replaced him. Google co-founder Sergey Brin stepped down as Alphabet’s president.
Google’s profit margins remain an issue amid high investments in data centers for cloud computing, artificial intelligence, YouTube and consumer products. In early 2018, Google changed accounting methods. It switched to reporting GAAP earnings, or generally accepted accounting principles. GAAP earnings include stock-based compensation.
Bank of America forecasts that YouTube’s subscription business will reach $18 billion in revenue by 2025, up from $5 billion in 2020. In addition, YouTube is benefiting as major brands shift ad budgets from linear TV to digital channels. In late 2021, Google reported that YouTube has more than 30 million music and premium paid subscribers, while YouTube TV has more than 3 million subscribers.
GOOGL Stock: Fundamental Analysis
In the March quarter, earnings fell 6% to $24.62 per share. Google reported a loss of $1.07 billion on equity investments, reducing profit by 99 cents per share.
The company reports earnings under generally accepted accounting principles, also known as GAAP.
Also, gross revenue rose 23% to $68.01 billion. Analysts had predicted Google earnings of $25.74 per share on revenue of $68.05 billion.
Google said cloud-computing revenue rose 44% to $5.82 billion vs. estimates of $5.73 billion.
Meanwhile, YouTube advertising revenue rose 14% to $6.87 billion. Also, analysts had estimated YouTube ad revenue of $7.21 billion. Social media firm TikTok’s advertising growth has boomed via its short-form videos. That poses a headwind to YouTube’s growth, analysts say.
The company said net revenue, minus traffic acquisition costs, came in at $56.02 billion vs. estimates of $56.26 billion. Traffic acquisition costs — what Google pays to have traffic directed to its websites — jumped 23% to $11.99 billion. That surpassed estimates of $11.69 billion. Rising TAC is a bearish signal.
Waymo Autonomous Vehicle Business
A key question for investors is how much should Google’s self-driving-car project Waymo and “Other Bets” such as the Verily Life Sciences unit figure into valuation.
In early 2018, some analysts projected Waymo’s long-term valuation in a range of anywhere from $75 billion to $125 billion. Expectations for autonomous vehicles, though, have been lowered recently.
Waymo in early March raised $2.25 billion in funding from outside investors. including private equity firm Silver Lake, the Canada Pension Plan Investment Board and Abu Dhabi’s Mubadala investment arm.
While Google did not disclose Waymo’s valuation in the funding round, reports said it was only $30 billion.
Waymo CEO John Krafcik, head of the autonomous vehicle unit since 2015, resigned in early April. Alphabet said he would be replaced by two co-CEOs — Tekedra Mawakana and Dmitri Dolgov. Mawakana had been Waymo’s chief operating officer while Dolgov was Waymo’s chief technology officer.
Waymo in December announced a new alliance with China’s Geely. They plan to collaborate in a Zeekr-branded, self-driving van.
Another question is the performance of Google’s hardware business. It’s battling Apple in smartphones and Amazon in smart-home appliances.
GOOGL Stock: Cloud Computing Business
Also, Google’s acquisition of smartwatch maker Fitbit closed in January. The $2.1 billion purchase could help Google make a push into the health and fitness market, analysts say.
At the “I/O” software developers conference in May, Google said Pixel watches to be launched in late 2022 will integrate technology from Fitbit.
Google’s cloud computing business, meanwhile, faces tough rivals in Amazon and Microsoft (MSFT). Google brought in Thomas Kurian, a former Oracle (ORCL) executive, to improve performance in the corporate market.
Bulls say Google Cloud Platform is taking share as it focuses on security, open source software and data analytics.
In 2019, Google purchased data analytics firm Looker for $2.6 billion in cash. Santa Cruz, Calif.-based Looker’s analytics platform uses business intelligence and data visualization tools.
More acquisitions to boost Google’s cloud business could be coming, analysts say. Google on March 7 said it’s acquiring cybersecurity firm Mandiant (MNDT) for $23 per share in an all-cash $5.4 billion deal.
Mandiant provides cyber-incident response and cybersecurity testing services. FireEye split off Mandiant last year. Upon the close of the acquisition, Mandiant will be part of Google’s cloud computing business.
In the enterprise market, UBS expects Google Workplace business productivity tools to give a boost to the cloud computing unit.
Google Stock: Is It A Buy Now?
Meanwhile, Google’s Relative Strength Rating is only 38 out of a best possible 99, according to IBD Stock Checkup. The best stocks tend to have an RS rating of 80 or better.
Google stock owns an Accumulation/Distribution Rating of E. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
GOOGL stock holds an IBD Composite Rating of 67 out of a best possible 99.
IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Google stock holds an entry point of 3,031.03 on a daily chart.
As of the market open on June 6, GOOGL stock is not in a buy zone amid volatility in the tech sector.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and 5G wireless.
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