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Alphabet (GOOGL - Free Report) shares slumped 9.5% on Oct 25, marking its worst day since start of the Covid pandemic in March 2020. Investors dumped Google-parent shares after revenues in the company’s Google Cloud unit trailed analyst estimates. Google posted cloud revenue of $8.41 billion, compared with the Zacks Consensus Estimate of $8.54 billion.
The underperformance in the cloud segment stood in stark contrast to Microsoft’s earnings report, which revealed a significant uptick in its Intelligent Cloud division's growth. Rising interest rates also had a negative impact on Alphabet's share price.
Can Google Cloud Turnaround in 2024?
Analysts were specifically concerned with the Alphabet results in comparison to Microsoft’s growth. Jefferies analysts noted Google Cloud grew 22%, slower than the 28% growth the company recorded in the second quarter. According to them, while interest in generative artificial intelligence is high, the industry’s challenge in developing and shaping AI infrastructure probably caused this weakness. Jefferies expect a better AI impact in 2024, as quoted on CNBC.
What Do Indicators Say About Alphabet’s Value Status?
Going by valuation metrics, forward P/E of GOOGL is 24.4 times versus the industry score of 29.6 times. The P/E (TTM) of Alphabet stands at 29.4X versus the industry P/E of 35.8X. The metrics showed undervaluation. Price-to-book ratio of Alphabet is 6.6X, almost in line with the industry P/B of 5.1X. However, price-to-sales of Alphabet is 6.1X, higher than the industry average of 4.6X.
Investors should note that return-on-equity of Alphabet is 25.5%, almost inline with the industry average of 26%. Return-on-assets of Alphabet is 17.9% versus industry average of 16.3%. The estimated 3–5-year EPS growth of Alphabet is now 15.4%, slightly lower than the industry measure of 16.2%.
Leverage & Cash Position of Alphabet
The debt-equity ratio of Alphabet is 5.1% versus 11.8% of the concerned industry. This is a positive feature for Alphabet. Alphabet sits comfortably with a cash reserve of $119.9 billion as of Sep 30, 2023, up from $118.3 billion as of Jun 30, 2023.
GOOGL spent $8.06 billion on capex, netting a free cash flow of $22.6 billion in the reported quarter. This attribute made the company a growth stock. In fact, price/free cash flow of the company stood at 24.9X, much higher than the industry average of 19.2X.
Time to Buy the Dip in Alphabet ETFs?
Veteran tech investor Paul Meeks believes that Alphabet is a pretty compelling buy ‘right now,’ as quoted on CNBC. Alphabet has an upbeat Growth score of “A” and a moderate Value score of “C”. The stock belongs to an industry and a sector that boast solid rankings. The industry lies in the top 26% and sector lies in the top 38% sections, respectively.
Still, if you are worried about Alphabet’s current weakness related to cloud revenues, you can play Alphabet-heavy ETFs like Fidelity MSCI Communication Services Index ETF (FCOM - Free Report) , Vanguard Communication Services ETF (VOX - Free Report) , iShares Global Comm Services ETF (IXP - Free Report) and Communication Services Select Sector SPDR Fund (XLC - Free Report) . Alphabet holds 12% to 13% of these funds. These funds retreated 4.4%, 4.2%, 3.6% and 4.3%m respectively on Oct 25.
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Alphabet ETFs: Should You Buy the Dip?
Alphabet (GOOGL - Free Report) shares slumped 9.5% on Oct 25, marking its worst day since start of the Covid pandemic in March 2020. Investors dumped Google-parent shares after revenues in the company’s Google Cloud unit trailed analyst estimates. Google posted cloud revenue of $8.41 billion, compared with the Zacks Consensus Estimate of $8.54 billion.
The underperformance in the cloud segment stood in stark contrast to Microsoft’s earnings report, which revealed a significant uptick in its Intelligent Cloud division's growth. Rising interest rates also had a negative impact on Alphabet's share price.
Can Google Cloud Turnaround in 2024?
Analysts were specifically concerned with the Alphabet results in comparison to Microsoft’s growth. Jefferies analysts noted Google Cloud grew 22%, slower than the 28% growth the company recorded in the second quarter. According to them, while interest in generative artificial intelligence is high, the industry’s challenge in developing and shaping AI infrastructure probably caused this weakness. Jefferies expect a better AI impact in 2024, as quoted on CNBC.
What Do Indicators Say About Alphabet’s Value Status?
Going by valuation metrics, forward P/E of GOOGL is 24.4 times versus the industry score of 29.6 times. The P/E (TTM) of Alphabet stands at 29.4X versus the industry P/E of 35.8X. The metrics showed undervaluation. Price-to-book ratio of Alphabet is 6.6X, almost in line with the industry P/B of 5.1X. However, price-to-sales of Alphabet is 6.1X, higher than the industry average of 4.6X.
Investors should note that return-on-equity of Alphabet is 25.5%, almost inline with the industry average of 26%. Return-on-assets of Alphabet is 17.9% versus industry average of 16.3%. The estimated 3–5-year EPS growth of Alphabet is now 15.4%, slightly lower than the industry measure of 16.2%.
Leverage & Cash Position of Alphabet
The debt-equity ratio of Alphabet is 5.1% versus 11.8% of the concerned industry. This is a positive feature for Alphabet. Alphabet sits comfortably with a cash reserve of $119.9 billion as of Sep 30, 2023, up from $118.3 billion as of Jun 30, 2023.
GOOGL spent $8.06 billion on capex, netting a free cash flow of $22.6 billion in the reported quarter. This attribute made the company a growth stock. In fact, price/free cash flow of the company stood at 24.9X, much higher than the industry average of 19.2X.
Time to Buy the Dip in Alphabet ETFs?
Veteran tech investor Paul Meeks believes that Alphabet is a pretty compelling buy ‘right now,’ as quoted on CNBC. Alphabet has an upbeat Growth score of “A” and a moderate Value score of “C”. The stock belongs to an industry and a sector that boast solid rankings. The industry lies in the top 26% and sector lies in the top 38% sections, respectively.
Still, if you are worried about Alphabet’s current weakness related to cloud revenues, you can play Alphabet-heavy ETFs like Fidelity MSCI Communication Services Index ETF (FCOM - Free Report) , Vanguard Communication Services ETF (VOX - Free Report) , iShares Global Comm Services ETF (IXP - Free Report) and Communication Services Select Sector SPDR Fund (XLC - Free Report) . Alphabet holds 12% to 13% of these funds. These funds retreated 4.4%, 4.2%, 3.6% and 4.3%m respectively on Oct 25.