Google, whose stock is traded as Alphabet (NASDAQ: GOOGL), the name of its parent company since 2015, has experienced difficulties not limited to those presented by the COVID-19 pandemic. However, we would argue that, particularly in these troubled times, the new “king of cash” represents a safe bet for investors.
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Before the bear
The turbulence the company is facing is not limited to the COVID-19 pandemic. In 2019, Alphabet reported better-than-expected fourth-quarter profits, but lower-than-expected revenues. In 2020, first-quarter earnings of $6.84 billion were reported, or $9.87 a share. This is only marginally up compared with $6.66 billion, or $9.50 a share in the same period from 2019. A further setback was the company getting hit by a $1.7 billion fine by the European Commission in the same period. The EU, which has been called a regulatory superpower as it sets regulatory standards for the rest of the world, has regularly rattled its sabre at the multinational giant. This level of a fine is a significant setback, never mind the damage this kind of fine does to Google’s reputation. None of this has been helped by the fact that advertising revenues have felt a major squeeze, which certainly is brought on by the effects of COVID-19, and the tailspin it has sent the economy into.
Resilience rooted in strength
Despite these challenges, though, Google is still the same operation it was before the pandemic and the downturn that it triggered. It is still a giant, sprawling corporation with fingers in all the pies of our increasingly digitized lives. It doesn’t look too much like the company is operationally phased by the troubles the pandemic is causing the economy at large. The fact that we are spending more time online is likely to be huge; as the economy re-opens, the company will be in a position to leverage its massive power to recapture lost advertising revenue, whilst subscription revenues have continued to grow throughout.
One advantage is that Google has been here before. More than a decade ago, it had the digital advertising field all to itself for more than a decade ago, before Facebook Inc. (NASDAQ: FB), Snap Inc. (NYSE: SNAP), and Twitter Inc. (NYSE: TWTR) emerged as online ad rivals. The company learned the importance of having other forms of revenue, even if advertising remains the mainstay of their business. They have diversified based on their business experience before the financial crisis. YouTube subscription revenues and Google’s Cloud Platform and other paid services have grown to become important sources of revenue for the company. What’s more, they are in a position to use the crisis as an opportunity. They command a huge share of all digital advertising, some 32.3% of total digital advertising revenues worldwide, meaning that they will be in a strong position to bounce back quicker than smaller companies who may have to shed employees or even fold.
As former Google Chief Executive Eric Schmidt said in a Zoom (NASDAQ: ZM) conference with business leaders, investors, and media on April 7, Google’s aim is to “use the opportunity of the crisis to reconfigure and ensure the decisions you make now make you stronger when this lifts — a year or maybe less.”
Google/Alphabet may not be the bargain it was in March, but considering our increasing reliance on their products to live and work, and the company’s already institutional place in our lives, it is certainly a safe place for money.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Ronan is an admirer of companies like Patagonia, who combine style with functionality, and a pioneering approach to mitigating their impact of society and the natural world.