Alphabet Inc. (GOOG) Buy or Sell Stock Guide

February 12, 2020

Are you looking for the analysis of Alphabet Inc. (GOOG) stock? Are you wondering what the bulls and the bears say about it?

If so, you came to the right place. In this stock guide, we will share with you 15 reasons to buy and 11 reasons to sell GOOG stock. You’ll get a perspective on what the bulls and the bears say about it.

The analysis below may be also helpful to you if you have any of the following questions about GOOG stock:

  • Is GOOG a buy or a sell?
  • Should I sell or hold GOOG stock today?
  • Is GOOG a good buy / investment?
  • What are GOOG analyst opinions, recommendations and ratings?

Let’s start with the bull case. Here are the reasons to buy GOOG stock:

1. Alphabet is showing increased appetite in the Home Assistant space. The company made its foray into this market in October 2016 with the launch of Google Home. Google Home performs an array of tasks such as playing music, reading books, managing calendars, answering queries, searching places, calling over cabs, controlling smart home devices and so on.

2. Alphabet focuses on innovation, launching products and services for multiple industries. The development and enhancements of its search technology over time has created win-win situations wherein buyers, sellers and the public at large were benefited. The success of this strategy led to very strong growth since inception.

3. Google has been growing rapidly in this fast-growing highly-competitive cloud market. The company has signed many partnerships and has been opening data centers to extend its cloud footprint worldwide.

4. The company’s history of execution is unparalleled. Alphabet has made significant investments to diversify its revenues, but still managed strong double-digit growth, which is indicative of good management execution. The strength in the core search business was supported by the successful integration of major acquisitions (AdMob, DoubleClick, YouTube, ITA and Nest to name a few), which provided it with the technology for sustained growth in the highly dynamic and competitive markets in which it operates.

5. Although the desktop was the most popular computing device in the past, mobile search is now equally if not more popular. That is because there is a growing tendency among users to look for information at the exact time the need arises. The plethora of mobile Internet devices that are making their way to the market is making it easier on the device front.

6. Alphabet has a number of mobile initiatives. First, it is leveraging its Android OS not just to build search market share but also to drive sales of apps and digital products through Google Play. The company continues to bring improvements with each version of the OS, at the same time spurring app development.

7. Online and mobile video consumption is soaring and Alphabet remains strongly positioned here with the YouTube platform. In its race to target TV ad dollars, Alphabet allowed third-party (Nielsen and comScore) tagging of YouTube videos to determine the effectiveness of ads on YouTube versus ads shown on TV. The Google Preferred program pulls out the top 5% of the most engaging content on YouTube for advertisers.

8. Alphabet has increased focus on the online payments segment. The first phones incorporating Near Field Communication (“NFC”) technology were introduced quite some time back, but adoption was slow because it required retailers to invest in new terminals and because ISIS (the payments service created by wireless carriers) stood in the way. But Alphabet has since struck a deal with carriers, bought out most of the ISIS technology, and even acquired distribution rights for last-mile access in some cases.

9. Alphabet is clearly getting more serious about ecommerce opportunities in an attempt to diversify away from the increasingly competitive search market. For search advertising to be effective, Alphabet needs to track certain user activity, which it does through cookies (programs installed on user devices) or when users agree to share location with the Maps app.

10. Another area of diversification that is likely to gain traction over the next few years is Android Auto. This is a technology that projects the user’s Android phone (Lollipop version or later) onto a car’s dashboard enabling the use of Alphabet technology like Google Now and access to Maps, directions, music and other apps on the phone just by placing the phone in the allotted space. The phone also charges automatically.

11. As the number of online users and usage increases, so will digital ad spending, of which Google will remain one of the main beneficiaries.

12. Android’s dominant global market share of smartphones leaves Alphabet’s Google well positioned to continue generating top-line growth as search traffic shifts from desktop to mobile.

13. The significant cash generated from the Google search business allows Alphabet to remain focused on innovation and the long-term growth opportunities that new areas present.

14. GOOG quarterly revenue growth was 20.00%, higher than the industry and sector average revenue growth (4.54% and 3.66%, respectively). See GOOG revenue growth chart.

15. GOOG average analyst rating is Buy. See GOOG analyst rating chart.

Now that you understand the bull case, let’s look at the reasons to sell GOOG stock (i.e., the bear case):

1. Alphabet faces significant litigation all over the world as a result of its dominant position in search. Regulatory scrutiny continues to worsen with the competition commission issuing several statements of objections (which precedes judicial proceedings unless settled).

2. There are also some other margin pressures: foreign currency impact, fast-paced international growth, and a growing volume of lower-priced YouTube clicks.

3. Google's Android Pay, an NFC-enabled payment system for transaction processing at a large number of retailers, faces significant competition at the moment from Apple Pay and rival payment systems: PayPal, Amazon, Samsung, Square, etc.

4. Alphabet has made numerous attempts to build a position in the social segment. This is because social networking through websites, such as Facebook and Twitter are places where people are sharing a lot of personal information and preferences that may be used to develop more customized results and thereby enable better targeting of advertisements. The fact that people are spending more time on social networks means that they are spending less time on the browser.

5. The company is likely to see an increased amount of competition from Facebook for digital advertising dollars. The social network has already taken the lead in display ads and has now doubled down on video.

6. There is little revenue diversification within Alphabet, as it remains heavily dependent on Google and the state of the search ad space.

7. Alphabet is allocating too much capital toward high-risk bets, which face a very low probability of generating returns.

8. Google’s dominant position in online search is not sustainable, as more companies and regulatory agencies are contesting the methods through which the company has been extending its leadership.

9. GOOG stock price ($1518.27) is close to the 52-week high ($1519.02). Perhaps now is a good time to sell? See GOOG price chart.

10. GOOG profitability is declining. The YoY profit margin change was -10.15 percentage points. See GOOG profitability chart.

11. GOOG average analyst price target ($1516.63) is below its current price ($1518.27). See GOOG price target chart.

Now let's look at the key statistics for GOOG:

Metrics GOOG
Price $1,435.56
Average Price Target / Upside $1,516.63 / 5.65%
Average Analyst Rating Buy
Forward Dividend Yield 0.00%
Industry Internet Content & Information
Sector Technology
Number of Employees 98,771
Market Cap $1,042.26B
Forward P/E Ratio 24.36
Price/Book Ratio 6.44
Revenue (TTM) $161.86B
YoY Quarterly Revenue Growth 17.30%
Profit Margin 21.22%

What are your thoughts on GOOG?

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