Alphabet Inc is a US tech company which owns Google, YouTube and other online services. The stock is down 24.5% YTD
Overview
Alphabet Inc. (NASDAQ: GOOGL) is an American technology company with its HQ in California. Formed in 2015 as Google Inc’s new holding company, it was intended to restructure Google’s subsidiaries under the Alphabet umbrella, thus allowing for the more independent management of each of these groups. The conglomerate is the world’s third-largest tech company by revenue and forms part of the US’ ‘Big Five’ IT companies alongside Amazon, Apple, Meta and Microsoft.
Financials
The financials behind the tech superpower are mixed. The most recent Q1 2022 report released on 26th April is available here. As of 23rd May, the market cap sits at just over $1.44tn; levels not seen since May 2021. Profit and revenue for Q1 came in at $24.62bn and $68.01bn respectively; both slightly missing their estimates, and profit margins for the quarter fell from 27.48% in Q4 2021, to 24.47%. Alphabet’s drop is most likely a result of wider economic downturns, with the S&P 500’s continued descent, as well as interest rate hikes from the Fed. With this in mind, however, the report revealed many reasons for optimism for the firm. An already healthy EBITDA margin of 33.44% rose further to 34.84%, with gross and operating margins following suit. Liabilities tumbled 4.22% and Google's advertising revenues increased by nearly $10m. With assets sitting at $357bn and a healthy debt-to-equity ratio of 2.85, the financials of this tech giant are showing great strength in a turbulent industry.
Technicals
Since the destabilising events of Q1 2022, coupled with the Fed’s biggest interest rate hike in 22 years, GOOGL has seen its share price break the $2500/$2,450 support (red line) for the first time since last summer, but investors will be happy to see a bounce back from March 2021’s support around the $2300 mark. With the price currently ranging between this level, investors will be cautious. With the possibility of a further interest rate rise and the ongoing new lockdown restrictions in China, the stock could potentially plummet further towards early 2020 levels of $2000 (blueline). A break below here takes Alphabet towards $1,833. However, if inflationary measures have their intended effect, and tension on the international stage are eased, there is good reason to believe that GOOGL is an undervalued stock, and a push towards the $3000 mark would not be out of the question.
Summary
The competitive advantage that GOOGL possesses makes it a stand-out for any blue-chip investor. Despite Q1’s figures missing estimates, there is no doubting the financial strength of GOOGL and in a more stable post-COVID economy, the further underlying value could be unlocked. Earlier this year, Alphabet announced a 20-for-1 share split for only the second time in its history, and whilst this does not necessarily imply share price growth, similar past events have shown significant increases between the announcement date and that of the split. In GOOGL’s case, this will be July 18th, and with share prices still yet to take off since the announcements. Towards the downside, geopolitical tensions and inflationary pressures could cap the stock throughout 2022 making it a tough ride for investors because even though the stock has dropped 24.5% YTD historical data has shown Alphabet to drop further in past downturns (61% in 2007/08 and 34.9% 2020) and have prolonged periods of no movement in its stock price (2014/2015).
