Is Alphabet Stock a Buy Ahead of Earnings? With Alphabet’s fourth-quarter earnings sheet soon to be released, shareholders are undoubtedly eager to see how the markets respond once the firm’s all-important financial metrics become available.
Indeed, the tech sector suffered much throughout 2022, and, with GOOGL’s operating income falling by a massive 19% during the previous period, it’s only natural that investors might be nervous.
However, Google is an enterprise like no other, and there are plenty of reasons why the company should be robust enough to see out these near-term headwinds.
For example, Alphabet enjoys an almost unimpeachable position in the online advertising pace, with an increasingly diverse mix of supplemental revenue streams to complement its main cash-generating venture.
Moreover, GOOG’s core business is so predictable and recurrent – with high margins to boot – that you need not wait until the firm publishes its Q4 press statement before initiating any buy order. In fact, with a recent rally in value this year, it might be prudent to get in now before its share price rises out of control.
But if you’re not entirely convinced, there’s still more to win you over. Therefore, below, we’ll take a look at some key features of the organization that make it an outstanding stock, and examine some salient catalysts that could see it become even more dominant in the future.
The Power Of Connection
The phenomenon of a product or service becoming more valuable the more people use it is referred to as a network effect. This is commonly observed in digital platforms and marketplaces such as Google and Amazon, where an increase in the number of users and transactions leads to an increase in its worth.
In fact, several of Alphabet’s leading brands have benefited from these network effects. Indeed, the company’s world-famous search engine has become the power that it is today precisely because the more people used it, the more data the company had to improve its search results.
Moreover, this created a kind of positive feedback loop whereby the firm was able to build a large and loyal user base, which helped the company fend off competition and establish a dominant market position. This was not just the case with GOOG’s search engine, but, in time, with YouTube and the Google Play Store as well.
While many people take this for granted, it remains a big part – if not the principal reason – for Alphabet’s meteoric rise over the last couple of decades. And because network effects are difficult to recreate, it also makes the stock a relatively safe option for long-term investors too.
Digital Transformation Tailwinds
Google’s cloud business is expected to be a major growth catalyst for the company over the coming years, as the migration of workloads and data from legacy architectures continues apace.
In fact, one of the major advantages that Google has in the market is its already extensive infrastructure network. The company has invested heavily in building one of the largest and most advanced cloud applications in the world, allowing it to offer a plethora of services and products to its customers.
Furthermore, Alphabet’s strong focus on innovation and emerging technologies has given it an edge over its other cloud rivals. For example, Google has worked hard on creating superior artificial intelligence and machine learning algorithms, and has made these capabilities available through its native platform.
It offers a wide range of machine learning services, such as TensorFlow, Cloud ML Engine, and Google Translate API, where developers can easily build and deploy machine learning models as they see fit.
In addition to this, the firm puts a strong emphasis on cloud security and compliance, providing features like encryption at rest and in transit, security key management, and identity and access management.
It also sports a variety of certifications, including SOC 2, ISO 27001 and PCI DSS, which make it a good choice for companies that need to comply with specific regulatory requirements.
In terms of storage, GOOGL has a variety of options, such as persistent disks and a fully-managed data warehousing service called BigQuery. In this regard, its services are highly scalable, and can handle large amounts of data. They also integrate well with other Google applications, which can be beneficial for companies that make use of these tools.
As for networking, the Google Cloud Platform has a global array of points of presence that provides low-latency and high-throughput connections to the cloud.
These are based on Google’s proprietary network infrastructure, which is one of the largest and most advanced in the world. Moreover, this allows for easy integration with other services such as Google Maps, GitHub and Jenkins.
Google’s cloud business will thus be a major beneficiary of the growing trend surrounding the ongoing digitization of society, which will make it a vital component of many businesses’ transformation strategy.
Alphabet Is Heavily Discounted Right Now
After a brutal year in which, at its lowest point, GOOG’s share price fell by around 40%, it’s no surprise to find the company currently trades at a modest 19x its forward earnings.
Indeed, the firm’s year-on-year revenue growth of 18% is exceptionally good, given that the Communications Services sector as a whole managed just 7% during the same time.
Interestingly, Google’s recent workforce cuts have actually boosted sentiment in the business, with shares up 10% since the start of the year.
Moreover, there now seems to be momentum behind the brand, making it an especially compelling pick at the moment. And, if the fourth quarter does deliver some further good news, there’s no better time to buy than today.
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