Google’s parent company Alphabet (NASDAQ: GOOGL) released its earnings results after the US market closed yesterday. Although revenues in every sector showed growth, figures across the board missed analysts’ expectations. With that in mind, should I still buy Alphabet stock?

Snapping back

With Alphabet missing both its top and bottom line consensus, I was surprised to see the stock pop as high as 5% in after-hours trading. There could be several reasons for this. However, I’d attribute it to the increase in advertising revenue despite Snap’s lacklustre Q2 earnings last week, which warned of lower ad spend last quarter.

Having said that, all of Alphabet’s core businesses saw growth on a year-on-year (Y/Y) basis. These figures defied the doom and gloom Snap posted in its earnings report, which spooked the stock market into a sell-off.

Vision for the future

So, with an increase in its top line, why did the Nasdaq-listed firm see a decline in its EPS? The two main culprits were higher labour costs and further investments in tech. CEO Sundar Pichai said the tech giant is planning to continue heavily investing in developing its offerings.

The latest AI-integrated search features are already showing promise, as Multisearch and Google Lens have seen increasing levels of adoption among users. The feature brings up relevant information related to objects it identifies using visual analysis. This allows people to use text and images at the same time, while giving users the ability to ask questions about what they see.

On the YouTube front, Alphabet announced a partnership with Shopify last week. This collaboration enables Shopify merchants to feature their products across YouTube channels and content. And with YouTube Shorts continuing to grow fast, this feature could help to monetise it.

As for Cloud, I was happy to see revenues continuing to hit fresh highs. Pichai confirmed that demand for the service remains robust, with more enterprises expected to come on board as new features get added. The acquisition of Mandiant that’s expected to be completed by the end of the year should also help with this. As the bulk of the company’s capital expenditure went towards servers and data centres, I’m confident in Cloud’s long-term earnings potential.

Returning for more

Although such developments excite me as an investor, I’m well aware of the risks associated with investing in Alphabet. There’s the obvious macroeconomic headwind that’s expected to dent ad spend in the near term. This was confirmed by CFO Ruth Porat on the earnings call.

More worrying is the rise of TikTok. Google exec Prabhakar Raghavan admitted around 40% of Gen Z users prefer searching via TikTok or Instagram over Google. If it fails to improve its search features or win over users, Alphabet’s core business could be compromised.

Yet, I have confidence in this experienced team to continue developing its products and services, and fend off competition. The board has shown its ability to return value to its investors time and time again.  In fact, Q2 hosted the biggest share buyback in the company’s history. Therefore, I remain bullish and will look to buy more Alphabet stock for my portfolio while it’s cheap.

The post Should I buy Alphabet stock after its Q2 earnings? appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares). Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), and Shopify. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Alphabet (NASDAQ: GOOGL) share price just ‘lost’ 95% of its value today. The stock was trading above the $2,200 mark on Friday but is now trading just above $110. Here’s why, and whether I’ll be buying Alphabet stock for my portfolio.

Heading Dow-wards?

The sole reason for the drop in the Alphabet share price is its recent 20-to-1 stock split. Those who held the stock when the US market closed on Friday were awarded 19 additional stocks for every stock they held. The value of each stock has been divided by 20 as well.

According to the board, the reason for this split is to encourage higher trading volume while making access to Alphabet stocks easier. However, this is a double-edged sword. While a ‘cheaper’ stock encourages more volume to boost its share price, it also means that it’s more vulnerable to being shorted and driving the share price down. This is a genuine risk considering the negative sentiment surrounding the current bear market.

Nonetheless, the main prospect from the stock split is Alphabet’s potential entry into the coveted Dow Jones index. The index includes 30 of the most prominent companies listed on US stock exchanges. Given Alphabet’s prominence, analysts are predicting it’s a matter of when and not if the NASDAQ-listed firm gets inducted. If this happens, I expect the Alphabet share price to rally, as institutions tracking the index will have to purchase the stock.

What now?

Despite the excitement surrounding its stock split, the Alphabet share price is still down 20% this year. Fears of a recession have led investors to speculate that growth in advertising spending, Alphabet’s main source of revenue, will stall. As such, analysts’ earnings per share (EPS) estimates have seen downward revision over the last 90 days.

Alphabet’s stock plunged after it reported its Q1 earnings results, as some key figures fell short of analysts’ expectations. Slowing advertising spending from the Russia-Ukraine conflict along with currency headwinds were some of the reasons cited by management for the underperformance. But with Alphabet set to report its Q2 results next Tuesday, I’m hoping that there will be better news. EPS is expected to come in lower than a year ago. But I’ll be paying close attention to the guidance provided, in hopes the group is on track to achieve 15% revenue growth for the year.

Searching for profits

Alphabet stock is currently the largest holding in my portfolio, so should I be buying more? Well, the company has a flawless set of financials to begin with. A 5.1% debt-to-equity ratio and a mountain of cash ($134bn) puts it in an excellent position to grow and withstand an economic downturn. Additionally, it boasts high-quality earnings with excellent growth prospects from its latest developments. These include YouTube Shorts, Google Cloud, Google Workspace, Waymo, and even an improvement to Google Search.

So, with an average price target of $158.98, this gives the current Alphabet share price a 40% upside. As such, I’ll be looking to buy more of its stock as I believe Alphabet has the potential to substantially increase my wealth in the long term.

The post What just happened to the Alphabet share price? appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares). Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Any investor in growth stocks is counting their losses at the moment. In fact, over the past six months, the Nasdaq, which is full of tech and high-growth companies, has fallen around 28%. Over the past year, it has dropped an even more depressing 31%. However, despite the pain that my portfolio has felt due to this tech sell-off, as a long-term investor, I feel that this is a great time to pick up some quality companies on the cheap. Alphabet (NASDAQ: GOOGL) is one of my favourite growth stocks right now, and I’ve recently initiated a small position. 

Recent performance 

Over the past six months, the Alphabet share price has largely tracked the Nasdaq index, falling around 25%. In the past year, it has fallen 12%. Alongside reacting to the general tech sell-off, there are several other reasons for this decline.

Firstly, inflationary pressures are causing large issues for the tech giant as other companies are being forced to reduce their advertising budgets to deal with increasing costs. As Alphabet makes most of its revenues from digital advertising, this may mean declining revenues for the group.

Secondly, YouTube, which makes up over 10% of Alphabet’s revenues, is facing rising competition from the likes of TikTok. This has caused YouTube’s growth to slow to around 14% in the first quarter, which could cause further negative investor sentiment.

The strengths 

Evidently, there are several risks with Alphabet shares. However, in comparison to other growth stocks, I believe that the company is well equipped to deal with these pressures. 

For one, there were many positives to take away from the recent results. Indeed, net income from operations rose to over $20bn, up from $16.4bn last year. This highlights that the firm’s operations are performing resiliently in the current macroeconomic climate.

Further, I’m impressed by the firm’s diversified business model. For instance, alongside its large advertising business, it’s also one of the global leaders in the cloud market, which is experiencing strong growth right now. For instance, in the Q1 results, the company’s cloud revenues rose 43% year-on-year to $5.8bn. Amid surging revenues, I equally feel that the cloud business is close to profitability. This factor could help the Alphabet share price surge. 

What am I doing with this growth stock now? 

For me, Alphabet is a no-brainer buy at its current price and therefore, I’ve initiated a position recently. Indeed, it currently trades at a price-to-earnings ratio of under 20, placing the growth stock at similar valuations to companies in very low-growth industries. This indicates that the Alphabet share price may have now reached the bottom. 

And the company has authorised a share buyback programme of $70bn, which should help boost metrics such as earnings per share. It also indicates that management feels the current share price is too low. I share this view and will continue to add to my position during the current bear market. 

The post After the Nasdaq correction, I just bought this dirt-cheap growth stock appeared first on The Twelfth Magpie.

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• This famous growth share’s doubled in a year. Too late to buy?

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Stuart Blair owns shares in Alphabet. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Alphabet (NASDAQ: GOOGL) share price is down 20% this year. Nonetheless, it has managed to outperform its index, the Nasdaq. With a number of groundbreaking features implemented to the Google search engine, and a 20-to-1 stock split coming up, the Alphabet share price could be about to rally.

Searching for direction

Alphabet is the market leader in the search engine and advertising field, by way of Google. Even so, it continues to innovate its product and service offerings. CEO Sundar Pichai introduced a multisearch feature at the company’s latest annual general meeting (AGM). The feature gives users the ability to search with images and text simultaneously. Additionally, Alphabet incorporated scene exploration into Google, which gathers insights about multiple objects within images, with local information for search being added as well. For example, this allows users to search for a product in the area.

Not only do these new features generate a much better experience, but it also allows for a better connection to form between users and merchants. As a result, this should improve advertising revenue for Alphabet.

Split coming up

At Alphabet’s latest AGM, shareholders finally approved the 20-to-1 stock split. The split doesn’t change the company’s financial position, but it does encourage an increase in trading volume. This makes the stock more accessible to investors, as its current $2,200 price tag makes the stock look expensive.

A cheaper-looking stock also makes Alphabet more lucrative to institutions and investors. One of these is Warren Buffett, who has made no secret of his regret at not buying Alphabet stock. Perhaps this could be an opportunity for the Oracle of Omaha to purchase a position in one of the world’s biggest companies.

Moreover, the reduced price tag will most probably get the tech stock into the Dow Jones index. This would result in a large volume of institutional buying, thus increasing the Alphabet share price. In the past, stock splits at big companies have often been preceded by rallies leading up to the split. So, if Amazon‘s latest run up to its stock split is anything to go by, Alphabet shares may be in for a rally.

Growth rally

While Alphabet narrowly missed earnings expectations in its Q1 results, this was down to an increase in R&D spend. This was shown in the company’s AGM, as improvements made in Google Maps, Google Assistant, Google Cloud, Google Workspace and other bets were on display. Therefore, I expect these improvements to have a positive impact on usability and future revenue.

With a forward price-to-earnings (P/E) ratio of 20, the Alphabet stock looks extremely lucrative to me. A market leader with healthy growth prospects and a flawless balance sheet are perfect traits I look for in a company whenever I invest.

It’s also worth mentioning that Alphabet has an excellent record of having a high return on capital employed. This gives me plenty of confidence as an investor. As such, with its share price at a 1-year low, I’ll be looking to buy more Alphabet shares for my portfolio.

The post Is Alphabet stock about to rally? appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• This famous growth share’s doubled in a year. Too late to buy?
• Is Alphabet’s equity raise a stock market warning sign?

John Choong owns shares of Alphabet (Class A Shares) at the time of writing. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), and Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Golden opportunity?

Given the wild swings for stocks and lower cash value from high inflation, the casual observer might have expected gold to do well. On the contrary, this week saw gold trade at its worst levels since February. This was due to the strength of the US dollar, as it hit a 20-year high, rebuffing views that the greenback is a dying dinosaur. While both gold and cash offer more safety than equities, gold has underperformed the stock market over most time periods. As such, I feel the golden opportunity isn’t investing in gold, but rather in the stock market over the long term.

There’s been lots of noise but no real direction as to whether the falls are a great buying opportunity, or just the first step in a much more serious bear market. If inflation remains high, further rate rises look inevitable. This is bad news for property, equities, and bonds, especially if paired with an economic downturn. Despite that, it’s worth noting that although the stock market seeing plenty of red lately, history’s on its side. Since its inception, the US S&P 500 has rebounded from every single market crash, for instance.

Time in the market is better than timing the market

Many investors seek to time the market by finding a bottom before investing. Unfortunately, it’s very rare that this actually works. The best-known investor globally, Warren Buffett, once said: “I haven’t the faintest idea what the stock market is going to do when it opens on Monday.” More often than not, investors have to suffer a little bit of pain before seeing a return on investment. Be that as it may, being patient is easier said than done. It’s never easy investing your savings only to watch them lose half their value. Hence why it’s crucial to pick the right stocks.

Picking the right stocks

That brings me on to how to do that. Do your due diligence — that’s the most important thing before investing in the stock market. Like the oracle of Omaha, I follow a strict checklist before purchasing stocks. I look for:

• Solid fundamentals (Low debt and healthy cash levels).
• A company with pricing power or high margins.
• Great earnings potential.

These qualities sound simple, but they’re more difficult to find in many companies than not. Nonetheless, one such company that exhibits all these traits is Google owner, Alphabet. The mega-cap boasts an excellent balance sheet, healthy margins (30%), and great earnings potential through the development of its many offerings. Nevertheless, its share price is down 20% this year as the firm came in short of earnings expectations and future underperformance remains a risk. However, I’ll be capitalising on its lower price to add to my Alphabet position.

The post My 3 best tips on how to invest in today’s stock market appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares) at the time of writing. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Alphabet (NASDAQ: GOOGL) reported earnings for its Q1 2022 results yesterday evening. Since then, Alphabet shares have taken a tumble as earnings missed analysts’ expectations. They’re still up a few percent over 12 months though. However, amid the latest sell-off, here’s why I’ll be buying more shares of Alphabet.

(Y) is everyone overreacting?

Although revenue came in at $68bn, matching the 23% growth estimates, earnings per share (EPS) underperformed. Analysts had been expecting EPS of $25.60, but were disappointed when the headline number came in a dollar lower.

Aside from that though, everything else in the earnings report was actually rather decent. Google’s biggest revenue driver in Search grew by 24% as it benefited from an uptick in retail and travel-related searches. Additionally, Alphabet managed to retain its stellar operating margins of 30%, undeterred by inflationary pressures.

So, if revenue grew and operating margins remained steady, where did all the earnings go? Well, the answer lies in the conglomerate’s cash flow statement. CFO Ruth Porat disclosed that the company spent £9.8bn on long-term investments such as property, technology, equipment, servers, and talent. This is the most the S&P 500 company has ever spent on Capex, showing that Alphabet has used this quarter to innovate its offerings.

Hey, Google. What’s the weather like today?

Cloudy, with a chance of sunshine — that’s my key takeaway from Google Cloud’s performance. Despite Cloud revenue growing 44% year on year at $5.8bn, there was a slowdown in growth from the last quarter as losses widened. Google Cloud is a business that Alphabet views to be potentially as lucrative as Search, hence why it’s heavily investing in it. Management continues to aggressively invest in its Cloud segment through global infrastructure, cybersecurity, and data analytics. I’m expecting this move to bring in more customers over time, as demand for safe and efficient cloud computing increases.

Guidance was also fairly positive. Tailwinds from hybrid working habits continued to push Google Services higher as revenue for the segment came in at $61.4bn. While YouTube’s growth took a hit, its short-form offering secured 30bn daily views in Q1. This was four times higher than in the previous year. In fact, time spent on YouTube continued to grow, shrugging off worries about TikTok taking users away.

Given that Russia only accounts for 1% of revenues, sanctions shouldn’t affect the firm’s earnings too drastically. Nevertheless, it’s worth noting that European advertisers pulled back on advertising in March due to the conflict.

Alphabet That

Alphabet has an excellent record in generating healthy returns on capital employed (26.7%). With that in mind, an EPS miss is not my biggest concern. Especially when earnings was spent on investments to secure bigger returns in the future. Pair that with a $70bn share buyback programme (5% of its publicly available shares), and this is yet another masterclass of capital allocation from Ruth Porat.

With a free cash flow of $15.3bn and a debt-to-equity ratio of 5.8%, Alphabet is in an extremely healthy position to bring shareholders value for the long-term future. I’m confident that it’s only a matter of time before the tech giant bounces back. As such, I’m buying more shares for my portfolio.

The post Alphabet shares tumble after earnings miss. Here’s why I’m buying more appeared first on The Twelfth Magpie.

More reading

• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• This famous growth share’s doubled in a year. Too late to buy?
• Is Alphabet’s equity raise a stock market warning sign?

John Choong owns shares of Alphabet (Class A Shares) at the time of writing. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Going b(A)ck to (B)asi(C)s

Google’s parent company, Alphabet (NASDAQ: GOOGL) is one blue-chip that cannot be ignored. The conglomerate has a track record of beating the S&P 500, and produces stellar returns with a 30.2% return on equity. Alphabet earns the bulk of its revenue from advertising and search.

Its cloud segment is also starting to gain momentum as it races towards profitability. Given the firm’s dominance in these rather monopolistic industries, I believe Alphabet has what it takes to continue growing while holding a defensive position in my portfolio.

The blue-chip boasts an extraordinary balance sheet with close to zero debt and huge sums of cash. Its profit margins are that of a mining company, currently standing at close to 30%. With such an excellent track record and a forward price-to-earnings (P/E) ratio of 22, I’ll definitely be buying more shares. Although this evening’s earnings report could disappoint, I’m confident in Alphabet’s ability to generate long-term returns.

Dune forget Dunelm

One of Britain’s biggest homeware retailers, Dunelm (LSE: DNLM) has been largely overlooked since Covid restrictions were lifted. Many thought that the stock would dip as consumers opt to spend money outside of their homes. However, the blue-chip continues to impress. Its most recent earnings report showed a a 25% increase in its earnings, and total sales were up 10.6% year over year.

Even though recent GDP and retail sales numbers were lacklustre, Dunelm remains strongly positioned. The fine print within the retail sales figures showed that household goods stores saw a 2.6% increase in sales. With Dunelm’s 8.5% increase in active customer growth to go with that, the firm has strong pricing power to battle the inflationary storm. A forward P/E ratio of 13 and a decent dividend yield of 3% makes this stock an intriguing one to look out for, once the next set of retail sales data is released.

A saucy dip for this blue-chip

Rio Tinto (LSE: RIO) is one of the world’s largest iron ore miners. Its share price has taken a tumble due to recent disappointing Q1 production numbers and lockdowns in China. While I do expect the share price to continue dipping, I reckon there may be a buying opportunity sometime in May and beyond.

Mining companies are notorious for, “Using windfalls to dig more materials out of the ground. And the opposite is true when prices hit rock bottom. Production is reigned in and cash is conserved. These are the supply forces that self-regulate commodity cycles”, as FreeTrade analyst Paul Allison states.

Therefore, the blue-chip will eventually have an influx of demand for iron again, driving iron prices back up. This should happen once China eases its Covid restrictions. Buying shares before this occurs could possibly see my portfolio getting a bumper gain. Moreover, a 10% dividend yield could see me earning a little bit of passive income while waiting for iron ore prices to climb.

The post 3 blue-chip shares I’d buy in May appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares) at the time of writing. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.