our analysis and opinion about Google

Café de la Bourse has put Google’s holding company, Alphabet, under scrutiny. We looked at Google’s parent company’s mission and ambitions, the details of its operations, and its financial and stock market results. We have also looked at the technical configuration of the Alphabet share price to best prepare for a possible investment. Find our analysis and our opinion on Alphabet stock.

Alphabet: mission and ambition of the holding company that owns Google

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Alphabet is an American multinational technology conglomerate holding company headquartered in Mountain View, California. It was created after a restructuring of Google on 2 October 2015 and became Google’s parent company. Alphabet is the world’s third largest technology company by revenue and one of the most valuable companies on international stock markets. It is one of the Big Five American information technology companies along with Amazon, Apple, Meta and Microsoft known as GAFAM.

The creation of Alphabet was motivated by the desire to make Google’s core business “cleaner and more responsible” (with its founders Larry Page and Sergey Brin) while giving greater autonomy to companies in the group that perform activities other than Internet services. The company is called Alphabet, referring to the collection of letters that represent language, one of humanity’s most important innovations.

Alphabet owns several companies:

  • Calico (health),
  • CapitalG (Private Equity),
  • DeepMind (artificial intelligence),
  • GV (Venture capital),
  • Intrinsic (robot software),
  • Isomorphic Labs (medical research),
  • Verily (health),
  • Waymo (autonomous driving),
  • Wing (delivery by drone),
  • X development (various technologies)
  • and of course the most famous of them: Google!

Google’s mission is to organize the world’s information and make it universally accessible and useful. Each time a search is performed, thousands, if not millions, of web pages or other content are likely to be matched. It is Google’s role to present the most useful information in response to each query. Google’s search index is the largest content library in the world. It consists of web pages, images, books, videos and more.

Also read our US stock market guide: how to invest in US stocks?

What is Alphabet’s current strategy?

Alphabet relies on several main axes to guide its strategy: on the one hand, diversifying its activities and introducing new products and services on a regular basis, and on the other, corporate acquisitions.

Starting from the search engine industry in 1998, the company’s product portfolio was expanded considerably. Today, Alphabet offers the broadest range of technology products and services across its many portfolio companies.

Alphabet’s business strategy involves rapid growth through acquisitions. From the start until 2022, Alphabet has acquired over 240 companies. The Internet giant’s ability to effectively integrate its corporate culture into new companies it acquires is one of Alphabet’s strongest competitive advantages.

Finally, Alphabet maximizes its profits by creating a closed ecosystem. Google has created a collection of interconnected services and applications. Customers typically enter this ecosystem by using the Chrome browser, watching YouTube videos, or using Gmail. In no time they are invited to use additional services such as Drive, Play, Calendar and others. The wider range of products a customer uses, the more Google earns from advertising in different formats.

In addition, machine learning and artificial intelligence (AI) have been central to the company’s efforts for several years and directly influence Alphabet’s business strategy. The introduction of Google Assistant and its integration into a new family of hardware devices such as Pixel and Google Home in 2016 is a big step for the company towards improving machine learning and artificial intelligence.

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Google: Strengths and Weaknesses of the Alphabet

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Also read our article Competitive advantages: Porter’s five forces

Overview of Alphabet’s business

Alphabet is a collection of various companies that primarily specialize in Internet services and software.

Today, Alphabet is an Internet giant that dominates the markets for mobile operating systems (Android), browsers (Chrome), search (Google Search), and online advertising (Google Ads). Each of Google’s major products, such as Android, Chrome, Gmail, Google Maps, Google Play, Search and YouTube, has over 1 billion monthly active users.

The company’s business is divided into three main segments: Google Services (Android, Chrome, Hardware, Google Maps, Google Play, Search, YouTube), Google Cloud (Google Cloud Platforms and Google Workspace) and Other Betting. Google Services generates 92.4% of revenue, while Google Cloud generates 7.2%

Google services

Google essentially generates revenue by providing performance advertising (clicks or other action) and brand advertising (only serving ads). The company’s main product is its search engine, or more precisely the combination of a search engine and search advertising.

Google Cloud

Google Cloud Platform (GCP), offered by Google, is a suite of cloud computing services that run on the same infrastructure used internally by Google. GCP provides a variety of services such as servers, data storage systems, and turnkey data analytics and machine learning services.

Other bets

Other bets or “Moonshots” are a portfolio of promising new companies that are set to change the face of the industry they operate in or dominate new industries. These businesses include health care, capital investment, Internet services, and other businesses. Currently, machine learning and AI development are at the heart of Alphabet’s efforts.

Alphabet’s net revenue is distributed geographically as follows: United States (45.8%), Americas (5.6%), Europe/Middle East/Africa (30.7%) and Asia/Pacific (17.9%).

Also read our article 5 tips for investing in technology companies

Basic analysis of the alphabet

Alphabet’s earnings for the second quarter of 2022

Alphabet’s revenue and earnings grew in the second quarter of 2022, but remained below analysts’ expectations. Alphabet shares have lost more than a quarter of their value since the start of 2022.

Following the second quarter 2022 earnings announcement, Sundar Pichai, CEO of Alphabet and Google, said: In the second quarter, our performance was driven by search and cloud. The investments we’ve made over the years in artificial intelligence and IT help make our services especially valuable for consumers and highly effective for businesses of all sizes. We will continue to invest responsibly in artificial intelligence “.

Revenue of $69.69 billion

Alphabet’s second-quarter revenue was $69.69 billion, slightly below analysts’ expectations of $69.9 billion. Revenue growth in the June quarter was 13% compared to 62% a year earlier. Advertising revenue was $7.34 billion in the second quarter, while the market was hoping for $7.52 billion.

Google Cloud’s revenue, which grew 35.6% year-over-year (the slowest growth in several years), was below analysts’ forecasts for the quarter.

Alphabet’s profits remain stable

Alphabet reported a marginal 0.4% rise in profit from $19.36 billion in the second quarter a year earlier to $19.45 billion in the second quarter next year. Alphabet’s earnings per share (EPS) reached $1.21, compared to the market estimate of $1.28.

Google’s parent company did not provide financial forecasts for the rest of the year.

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Alphabet technical analysis

Graphical analysis of the Alphabet share price

Alphabet stock chart analysis October 2022

Source: Tradingview, indicative data

Alphabet Stock Technical Analysis

Over the past 12 months, the Alphabet share has fallen 27.7 per cent. After several years of stock market euphoria, Google’s holding company is affected by the inflationary macroeconomic context and the rise in interest rates, which particularly affects technology companies.

Since the start of the year, Alphabet stock has been in a descending channel (in gray on the chart). In the short term, the trend is quite negative with Alphabet stock price below its 30-day moving average (in yellow on the graph). MACD is negative and above its signal line. On the other hand, the Stochastic RSI is in the overbought zone, suggesting a potential technical correction in the coming days.

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Our take on the Alphabet stake

Given Alphabet’s slowing revenue growth, some investors have been quick to take profits to lock in the gains from Alphabet’s rising stock price over the past few years. However, it is wise to look at areas where Alphabet may be experiencing levels of stagnation or even decline, and those that are performing well with plenty of room to maneuver.

The cloud is one of them and has a good dynamic with stable growth. This year the sector has been affected by inflation and falling demand, but these economic difficulties will not last forever and this activity should generate significant growth for Alphabet. Now could be an interesting time to initiate a long-term position in Alphabet stock while keeping a close eye on upcoming releases from Google’s parent company.

Also read our file How to invest in the stock market in 2022? Our step-by-step guide

Turbo Exchange Alphabet

Contact your stockbroker to trade Alphabet shares. For example, you can choose to use a Turbo call or Turbo put type of derivative product to take advantage of the up and down swings in Alphabet stock.

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All of our information is generic in nature. They do not take into account your personal situation and in no way constitute personal recommendations for carrying out transactions and cannot be equated to a financial investment advisory service or to any incentive to buy or sell instruments. The reader is solely responsible for the use of the information provided, without recourse against the publisher of Cafedelabourse.com. The responsibility of the publisher of Cafedelabourse.com cannot be held responsible in any way in case of errors, omissions or inappropriate investment.

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