Is Alphabet “old” tech or “new” tech?
Revenue growth has slowed. Concerns about more tech regulation in Washington could also hurt its YouTube unit.
Many of Alphabet’s non-core businesses continue to lose money, leading to worries that the company is a one-trick pony named Search. Its non-core businesses include its so-called Other Bets companies, which include self-driving unit Waymo, life sciences subsidiary Verily and drone delivery service Wing.
And perhaps the company’s biggest problem: It’s hard to figure out if Alphabet is still a high growth momentum stock or a mature old tech firm.
Alphabet’s earnings are expected to grow about 14% a year, on average, for the next few years. That’s certainly still respectable but it’s lower than the projected growth rates of more dynamic companies like Facebook, Amazon and Netflix.
But the company probably doesn’t want to throw in the towel and admit it has nothing better to do with its cash. Facebook, Amazon and Netflix don’t pay dividends.
Why Alphabet stock could stage a comeback
Some of the worries that have held the stock back may be overdone.
The company’s recent push to promote new advertising tools for professional content creators could be good news for Alphabet, said Nomura Instinet analyst Mark Kelley in a report Wednesday.
Ads on the YouTube channels for big media companies have higher rates and are considered “brand safe” for marketers, Kelley argued.
Alphabet’s plans to feature ads on Google’s relaunched news feed — called Discover — on the Google mobile home page could also be attractive to marketers given that the ads could reach up to about 800 million users worldwide, Kelley said.
Alphabet will report its second quarter earnings on July 25. If the company allays some of the concerns about a slowdown in its sales and earnings, then the stock could finally start performing as well as the rest of the FAANG companies.
Breakup fears may be overdone
Investors shouldn’t be too concerned about Alphabet being broken up — or even severely penalized — by US antitrust regulators, said Jefferies analyst Brent Thill.
“US regulators focus on ‘consumer welfare’ so it might be hard to argue that lower prices or better products are hurting consumers,” Thlll wrote, even though some argue that Alphabet and other big techs may be harming smaller rivals.
Even in the unlikely event that tech giants were broken up, Alphabet could still wind up doing quite well, Thill added.
“Breakups are not always a bad thing for stocks,” he wrote, adding that the sum of the various parts at Alphabet could even be higher than the firm’s current combined value.