Source: PaxForex Premium Analytics Portal, Fundamental Insight
Alphabet has seen remarkable performance over the past year, with its stock climbing from around $115 last July to a high of $191.75 on July 10, a 67% increase.
Several factors contributed to this surge, including the introduction of its first-ever dividend. Despite the significant rise in stock price, potential new investors haven't necessarily missed out.
Alphabet's future, however, is somewhat uncertain due to two critical antitrust lawsuits. Here’s a closer look at whether now is a good time to buy shares.
Alphabet's stellar first-quarter performance has been a major driver of its stock's rise this year. The company reported revenue of $80.5 billion, a 15% increase from $69.8 billion in the same quarter last year. Additionally, its operating margin improved to 32% from 25%, and quarterly net income soared to $23.7 billion from $15.1 billion, resulting in diluted earnings per share of $1.89, up from $1.17 the previous year.
Alphabet also maintained its strong free cash flow (FCF), generating $16.8 billion in the quarter and $69.1 billion over the trailing 12 months. The company concluded the quarter with an impressive balance sheet, holding $407.4 billion in assets against $114.5 billion in liabilities, and $108.1 billion in cash, cash equivalents, and marketable securities.
A highlight was the announcement of its first dividend: $0.20 per share quarterly, yielding 0.4%.
Alphabet's financial success is driven by growth across multiple segments. Its advertising business is thriving, buoyed by increased digital ad spending. The global digital ad market is projected to grow at double-digit rates in 2024 and beyond, with advertising revenue contributing $61.7 billion of Alphabet's $80.5 billion quarterly revenue. Additionally, its Google Cloud segment saw revenue rise to $9.6 billion from $7.5 billion in 2023, making it the third-largest cloud provider globally.
Moreover, Alphabet's subscription and other services, including YouTube Premium, generated $8.7 billion in revenue, up from $7.4 billion the previous year.
These robust results, coupled with the introduction of a dividend, present compelling reasons to consider investing in Alphabet stock.
There are potential concerns to consider when evaluating Alphabet stock.
Alphabet is currently facing significant antitrust lawsuits from the U.S. government, posing a potential risk. One lawsuit targets the Google search engine, and the other addresses Alphabet's lucrative digital advertising business. The trial for the search engine case concluded in May, and a judge's decision is pending. The trial for the digital ad case is set to begin in September. The outcomes of these cases could significantly impact Alphabet's shares, as they threaten key areas of the business.
The search engine case involves Alphabet's agreements with companies like Apple, which make Google Search the default option in their products. These contracts have helped Google achieve a market share of over 90%. In the first quarter, Google Search contributed $46.2 billion to Alphabet's $80.5 billion in revenue. The government contends that these deals establish a monopoly for Google in the search market.
Additionally, Wall Street analysts have a cautious outlook on Alphabet. The current consensus rating for Alphabet is overweight, with a median share price target of $195.25. This suggests that Alphabet's stock may not have much upside over the next 12 months from its current price of around $188.
Given these factors, potential investors might consider waiting until the antitrust cases are resolved before buying shares.
If Alphabet emerges from the lawsuits with a favorable outcome or manageable fines, its growth across multiple business segments, strong free cash flow, and solid financials make the stock a promising investment.
As long as the price is above 183.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 187.61
- Take Profit 1: 193.00
- Take Profit 2: 199.00
Alternative scenario:
If the level of 183.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 183.00
- Take Profit 1: 176.00
- Take Profit 2: 171.00