Shares of online search behemoth Alphabet (GOOG)(GOOGL) are attempting to stage a recovery from a 30% decline from peak to trough. Alphabet stock continues to be a glimmer of value in big tech. Unlike other fallen FAANG darlings, Alphabet is not facing an existential crisis in need of a pivot. With so much going for the firm, from YouTube to its resilient search business, it’s really hard to pass it up at around 22 times trailing earnings.
I view it as outstanding value in the big-tech space and continue to remain incredibly bullish as the firm looks to outdo its social-media rivals in ads come the recession.
A Rare Earnings Miss, but Nothing Wrong with Alphabet Stock
Alphabet is fresh off a rare second-quarter miss, but there was nothing fundamentally wrong with the firm as it moved through the same slate of macro headwinds as most other firms. The search and cloud segments continued to flex their muscles and could remain resilient going into a period of economic contraction. Further, the incredibly strong greenback posed a major issue for the FAANG behemoth.
Google’s ad revenues grew nearly 12%, while YouTube witnessed 13.5% growth. These are not outstanding growth numbers by any stretch of the imagination. However, compared to the social-media firms that saw their ad businesses get crushed in recent quarters, Alphabet remains a steady ship. As social-media firms struggle to find their footing following Apple’s (AAPL) devastating privacy update, I’d look for Alphabet to take share in ads, not just in search, but in YouTube.
YouTube isn’t just a place to watch funny videos. It’s a wide-moat firm that’s become impossible to replicate, given the swelling magnitude of content. The management team could leave YouTube alone, and it’d still be an essential cash cow for Alphabet. In any case, Alphabet is continuing to invest in YouTube in an effort to make the old-time internet app new again through the eyes of users.
YouTube Shorts Appears to be One of the Best Answers to TikTok
YouTube Shorts isn’t just short video clips. The interface is social-media-like and has been growing at a rapid rate since going live around two years ago. Shorts now generates tens of billions of views per day. That’s unreal growth from a feature that could grow to become superior to Meta Platforms’ Reels and TikTok.
With the move away from social media feeds and towards video, YouTube is in a great spot to outgrow rivals in the space. Undoubtedly, TikTok is a video-based social-media app that’s taken the world by storm. Though TikTok is arguably the hottest right now, there’s not much stopping a rival from replicating its features.
At the end of the day, there’s nothing truly unique about TikTok that rivals can’t copy. Meta Platforms has already made its own TikTok-like offering, with Reels. With such a deep-rooted foundation in video, with many influencers, and the addition of YouTube Shorts, it seems like Alphabet will already has its own answer to TikTok.
As YouTube continues to improve upon YouTube Shorts, one has to think that the tables will turn in its favor.
As I noted in prior pieces, federal regulators have taken aim at China-owned TikTok. If they get their way, TikTok may be pushed aside, providing a massive boon to YouTube Shorts and Reels.
Considering the tight integration with its existing videos, I think YouTube Shorts could be the next big thing after TikTok.
Even if YouTube Shorts is to grow no further, YouTube is a timeless platform that won’t be subject to the same competitive pressures as some of the trendier apps out there like Meta’s Facebook.
Alphabet Wants a Piece of the Streaming Market
YouTube isn’t just a terrific platform to make a lateral move into social media. YouTube is reportedly hard at work on a “channel store” where users can shop for various streaming services. Indeed, the inclusion of such apps within the YouTube ecosystem could enhance engagement. Indeed, YouTube wants to get in on streaming at its moment of weakness.
After pulling the plug on creating original content a while back, it’s clear that Alphabet wants to see a clearer path to economic profits before jumping aboard the content-spending mouse wheel — a term I coined previously.
If YouTube ever decides to get back into content creation (its FAANG rivals have already been in the space for quite some time), it has a pretty solid foundation to do so.
Is GOOG Stock a Buy or Sell?
GOOG stock has a Strong Buy consensus rating based on 11 Buys assigned in the past three months. The GOOG stock price target of $144.64 implies 28.6% upside potential. Analyst price targets range from a low of $132.50 per share to a high of $165 per share.
Takeaway – Shares of Alphabet are Value Hiding in Plain Sight
You don’t need to look far to find great value in the tech sector. Alphabet seems absurdly cheap relative to the growth drivers it has under the hood. While a recession could dampen a few quarters, it will not take long before the firm is back to its old market-beating ways. YouTube is a great response to TikTok, and its search and cloud businesses continue to be on the right side of a secular trend. In short, Alphabet is firing on all cylinders, and further innovations could add to its dominance.
