Source: PaxForex Premium Analytics Portal, Fundamental Insight
Last year was a terrible year for Alphabet stock. The tech giant's stock tanked 40%, mirroring the poor performance of most of its peers in the tech business.
Looking back over the past year, nonetheless, it's clear that the proverbial punishment doesn't quite measure up to the crime. In other words, while last year certainly created new problems for Google and YouTube's parent company, the market has overreacted. Alphabet still has room to grow.
Investors should collectively remember and acknowledge this reality when all the dust raised in 2022 begins to settle in 2023. In turn, this could lead to a long-awaited reversal of last year's sell-off.
Don't misunderstand. Certainly, there will be enough of last year's problems and troubles in 2023. Amazon continues to make money from online advertising that at one time would have easily gone to Google from Alphabet, for example. Chief Financial Officer Ruth Porat admitted during the company's Q3 conference call in October that its modest quarterly results reflect "declining advertiser spending in some areas." That negative trend continues.
What is not reflected in the current stock price, however, are a number of changes that are just now being implemented.
One such change is the new and improved artificial intelligence (AI) that supports the company's search engine. Google's web search should produce even more relevant results, indirectly making Google a more powerful marketing tool for advertisers. These improvements in search AI are also helping to modernize Google's shopping platform, such as prompting purchases and creating a more visually engaging experience.
YouTube is also being modernized. One of the most important improvements introduced last year is the monetization of "shorts" - shorter videos that previously could not generate ad revenue. This change, which threatens to hit TikTok's deep reach, encourages creators to post more video content that advertisers and consumers increasingly want.
And these initiatives are just some of the major product enhancements the company is making. But perhaps the biggest and best overhaul is the one that users and advertisers will see the least. It's more focused leadership.
CEO Sundar Pichai's recently negotiated compensation package is tied to several very specific results. Chief among them is Alphabet's shareholder returns relative to the performance of the S&P 500. Not that Pichai hasn't always been on the same side of the table as Alphabet investors, but as of now, he has even more incentive to renew the stock's long-term bullish progress.
All things considered, there are two philosophical reasons why Alphabet stock is poised for a boost next year: its continued dominance in key markets and a misunderstanding of why its 2022 financial results have been relatively disappointing.
As for the company's dominance, according to GlobalStats data, Android's market share of mobile operating systems in use is holding steady at nearly 71 percent. GlobalStats data also suggests that Google's share of the global search market remains above 92%, where it has been for more than a decade, even if the cost per click has declined in that time.
YouTube, meanwhile, continues to expand its viewer base. According to Nielsen, YouTube - including YouTube TV - became the most-watched streaming platform in the United States in September, surpassing Netflix for the first time. That lead has since increased thanks to sports content.
And YouTube's share of the sports streaming market is about to get a lot bigger. Alphabet just struck a major deal with the National Football League to offer YouTube users Sunday NFL Sunday Ticket games. The bottom line is that Alphabet remains a giant, and Pichai begins 2023 with the same powerful weapons the company has used over the years, as well as some new ones.
Take a step back and look at the proverbial big picture. These are still unusual times. Many Web companies in 2022 have struggled to keep up with the stellar revenue growth of 2021 when most people were still living their lives online. But no one has yet seen the world slowly rid itself of the effects of the pandemic. Maybe last year's expectations were unfair. Maybe Alphabet just handled it all wrong. Maybe it was both. We just don't know.
But we know that none of these opportunities matter much anymore. The damage to stocks has already been done - and more than enough - as investors have dumped stocks indiscriminately in the past year for many the wrong reasons. Chief among them was fear of the environment and the mistaken assumption that economic issues would last forever.
This, by the way, is the crux of your opportunity. Much of the unfavorable factors that have held back Alphabet stock over the past year are now disappearing. At the same time, the company is tightening up.
Even if investors generally don't yet see a subsequent recovery, analysts do. They are predicting an 8% increase in production and a 10% increase in earnings per share, and a few more years to come. They also maintain an average "buy" rating and an average target price of about $124, which is about 40% above the current share price.
So, tie it all together. Alphabet stock is down, but it probably won't be down forever.
As long as the price is below 101.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 88.29
- Take Profit 1: 83.00
- Take Profit 2: 75.00
Alternative scenario:
If the level of 101.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 101.00
- Take Profit 1: 107.00
- Take Profit 2: 112.00
