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Despite the minor glitch in the last couple of months, the technology is serious. Nasad 100 The index is still down by 24% in 2022. This puts it firmly in the territory of a bear market, and although these conditions are difficult for investors to navigate, they have created some attractive opportunities.
Google’s parent company Alphabet (GOOGL -1.25%) (GOOG -1.00%) It just announced its second quarter earnings results on July 26. It largely missed Wall Street’s expectations, but there were some bright spots, sending the stock up 7% in the next trading day after a positive response from investors.
Alphabet’s new 20-for-1 stock split in early July made it a more affordable proposition for small investors. And on the back of the earnings report, now might be a good time to build a position.
Image source: Getty Images
Spelling diversity continues to shine.
Alphabet’s diverse portfolio of businesses has created diverse revenue streams for the company, so when some segments struggle, others often underperform. That’s a valuable trait to have in the current tough economic climate.
Google Search remains Alphabet’s core service, but is supported by the world’s leading video platform, YouTube, and the expanding hardware division responsible for the Pixel smartphone and Nest series of home devices. But Google Cloud was the fastest in the second quarter by a wide margin.
While Alphabet’s total revenue grew just 13 percent year-over-year to $69.7 billion in the quarter, Google Cloud saw a revenue jump of more than 35 percent over the same period, rising from $4.6 billion to $6.3 million in Q2 2021 revenue. The second quarter of this year. Google Cloud represents just 9% of Alphabet’s revenue base, but because that segment is growing faster than the company, that’s up from 7.4% last quarter.
It may not be the last time that Google Cloud outperforms the rest of the alphabet. The cloud industry continues to grow in value, according to an estimate by Grandview Research of cloud services in 2016. It suggests it could be a $1.5 trillion annual opportunity by 2030. And advanced tools like analytics, cybersecurity, or machine learning will only expand.
Watch YouTube for the rest of 2022 (not literally, of course).
Alphabet (when it was still Google) bought video platform YouTube in 2006 for $1.65 billion. It generated $7.3 billion in revenue in the second quarter of 2022 alone, so it’s safe to say the bet is on. Growth was slow for the quarter at just 4.8%, but it contrasted with the very strong number seen in the quarter last year.
The future of the platform is exciting. Alphabet reports that YouTube’s “short-form” format reaches more than 1.5 billion monthly users and has 30 billion daily views. This is important because ByteDance is designed to compete directly with TikTok, historically the fastest growing social media platform. The user base of Shorts is roughly equal to that of TikTok, an impressive startup that started two years ago.
In addition, YouTube created a new partnership with the e-commerce platform Shopify This month it allows creators to tag products in their videos and live streams, so consumers can buy directly from the content they watch. This marks a new level in digital commerce, making the entire experience more engaging.
The font collection looks very attractive now
Alphabet’s stock is down 22% in 2022 on the back of a broader tech selloff, and currently trades at a discount to the Nasdaq 100 index.
The company generated $72 billion in net income over the past four quarters, which translates to about $5.37 in earnings per share (adjusted for the most recent stock dividend). That puts Alphabet stock at a price-to-earnings multiple of 20.9, which is 18% cheaper than the Nasdaq 100 Index’s multiple of 25.7.
The advertising industry faces some headaches for the rest of 2022. High inflation is hitting the corporate sector’s bottom line, forcing companies to cut spending on online items like shopping. The consumer may suffer from rising interest rates, which means advertisers may get a lower return on investment.
But some early indicators suggest that the worst of these pressures may be in the rearview mirror. If that’s the case, Alphabet stock is an excellent buy here, especially for investors with a long-term horizon.
Alphabet CEO Susan Frey is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in the mentioned shares. The Motley Fool has positions and recommends Alphabet (A shares), Alphabet (C shares) and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.
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