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Why Alphabet (GOOGL) Stock Is Rated A Sell Right Now
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Alphabet’s (GOOGL - Free Report) Google is search king! It’s the go-to place for anything at all we want to know, the biology teacher, the finance guru, the philosopher, the astrologer, the best cook and the best gardener. In fact, I’ve even heard mothers telling their kids to ask “Google Uncle”!
And yet, Google hasn’t been around for a hundred years; it rapidly grew to prominence by creating programs that could store our knowledge and then share it with people looking for the information. But as more people turned to Google for both these reasons, Google’s online real estate started increasing in value and advertisers flocked to the scene. This is the fuel that helped Google grow into the giant it is today.
The social angle: At its core, Google is a company specializing in knowledge dissemination. This can be between people who are familiar with each other and between those who are not. While there’s a certain objectivity in case of an unknown source, information from a known source is generally more trusted. For several years, Google has tried to increase its social value, but none of its efforts gathered momentum. On the other hand, social networking companies like Facebook , Twitter and the professional network LinkedIn that will soon become part of Microsoft (MSFT - Free Report) mushroomed. Of these, Facebook is the most prominent as it has amassed a huge number of users. Moreover, as it grows in size, it is able to provide both objective and subjective information. Most importantly, the huge and growing user base makes it very attractive to advertisers. For example, it was recently reported in the media that Priceline would move some of its advertising spend from Google to Facebook. Priceline is one of Google’s biggest clients, so this move is likely to have a significant impact.
The commerce angle: For most people, Google was where the Internet started, so you’d type in what you want into Google and it just took you to the right place. But as companies like Amazon (AMZN - Free Report) , eBay, Netflix, Priceline , Expedia (EXPE - Free Report) , etc grew, many of these places became the first place to start out for specific queries. If you’re looking to buy a shirt for instance, it makes sense to go to the Amazon website directly, or in the increasingly mobile world we have today, you can go directly to the retailer’s app. The same is true for travel and entertainment information and service providers. So overtime, these companies have been pulling away users from Google.
Of course that’s not the end of the story and we have competition to thank for Google’s solution to the problem. Online retailers are winning at the expense of brick-and-mortar retailers while service providers like Expedia are charging a huge premium from hotels and airlines. It’s also becoming clear that a user doesn’t want all the world’s apps cluttering up his/her device. So there is unlikely to be steady download and use of apps (other than the most oft-used ones). Also, the big retailers and service providers don’t want to lose business to the small players, so many of them continue to advertise on Google as well. All these factors created a window of opportunity for Google, which it is exploiting currently. Google is offering hotels and smaller retailers a technology platform to offer their products and it’s also throwing in product details for comparison shopping. This is good for business, but there are legal problems.
The legal angle: Google is embroiled in legal battle across practically all continents. Apart from being a huge drain on resources, these duels have earned for it a bad name on privacy concerns, anti-competitive concerns, patent infringements and what have you. The good news is that the company has had extraordinary success in the courtroom and with government officials around the world. It’s natural to expect that its streak of “good luck” can change at any time, so investors remain wary.
What the numbers say: The company has missed estimates in three of the last four quarters despite growing revenue and earnings strongly in each of these quarters. The company appears to be playing it close to the vest, so growth numbers are probably a better indicator than consensus estimates. Significantly, estimates for the out quarters and fiscal years 2016 and 2017 are all trending down.
However, balance sheet cash and investments at $75.26 billion just isn’t a number you can complain with. The revenue generating machinery is so strong and diversification opportunities so robust that despite pressures in the core business, some investors would be hopeful. And honestly, this isn’t abnormal for a company with a Zacks growth style score of A.
To Sum Up
Google is hardly a write-off at any time. But there is a good and bad time to get in on any stock. The shares have a Zacks Rank #4 (Sell) signifying that it will be hard to make profits on the stock in the next month or so. We therefore recommend investors avoid the shares for now.
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Why Alphabet (GOOGL) Stock Is Rated A Sell Right Now
Alphabet’s (GOOGL - Free Report) Google is search king! It’s the go-to place for anything at all we want to know, the biology teacher, the finance guru, the philosopher, the astrologer, the best cook and the best gardener. In fact, I’ve even heard mothers telling their kids to ask “Google Uncle”!
And yet, Google hasn’t been around for a hundred years; it rapidly grew to prominence by creating programs that could store our knowledge and then share it with people looking for the information. But as more people turned to Google for both these reasons, Google’s online real estate started increasing in value and advertisers flocked to the scene. This is the fuel that helped Google grow into the giant it is today.
ALPHABET INC-A Price and EPS Surprise
ALPHABET INC-A Price and EPS Surprise | ALPHABET INC-A Quote
So What Could Be Going Wrong Now?
The social angle: At its core, Google is a company specializing in knowledge dissemination. This can be between people who are familiar with each other and between those who are not. While there’s a certain objectivity in case of an unknown source, information from a known source is generally more trusted. For several years, Google has tried to increase its social value, but none of its efforts gathered momentum. On the other hand, social networking companies like Facebook , Twitter and the professional network LinkedIn that will soon become part of Microsoft (MSFT - Free Report) mushroomed. Of these, Facebook is the most prominent as it has amassed a huge number of users. Moreover, as it grows in size, it is able to provide both objective and subjective information. Most importantly, the huge and growing user base makes it very attractive to advertisers. For example, it was recently reported in the media that Priceline would move some of its advertising spend from Google to Facebook. Priceline is one of Google’s biggest clients, so this move is likely to have a significant impact.
The commerce angle: For most people, Google was where the Internet started, so you’d type in what you want into Google and it just took you to the right place. But as companies like Amazon (AMZN - Free Report) , eBay, Netflix, Priceline , Expedia (EXPE - Free Report) , etc grew, many of these places became the first place to start out for specific queries. If you’re looking to buy a shirt for instance, it makes sense to go to the Amazon website directly, or in the increasingly mobile world we have today, you can go directly to the retailer’s app. The same is true for travel and entertainment information and service providers. So overtime, these companies have been pulling away users from Google.
Of course that’s not the end of the story and we have competition to thank for Google’s solution to the problem. Online retailers are winning at the expense of brick-and-mortar retailers while service providers like Expedia are charging a huge premium from hotels and airlines. It’s also becoming clear that a user doesn’t want all the world’s apps cluttering up his/her device. So there is unlikely to be steady download and use of apps (other than the most oft-used ones). Also, the big retailers and service providers don’t want to lose business to the small players, so many of them continue to advertise on Google as well. All these factors created a window of opportunity for Google, which it is exploiting currently. Google is offering hotels and smaller retailers a technology platform to offer their products and it’s also throwing in product details for comparison shopping. This is good for business, but there are legal problems.
The legal angle: Google is embroiled in legal battle across practically all continents. Apart from being a huge drain on resources, these duels have earned for it a bad name on privacy concerns, anti-competitive concerns, patent infringements and what have you. The good news is that the company has had extraordinary success in the courtroom and with government officials around the world. It’s natural to expect that its streak of “good luck” can change at any time, so investors remain wary.
What the numbers say: The company has missed estimates in three of the last four quarters despite growing revenue and earnings strongly in each of these quarters. The company appears to be playing it close to the vest, so growth numbers are probably a better indicator than consensus estimates. Significantly, estimates for the out quarters and fiscal years 2016 and 2017 are all trending down.
However, balance sheet cash and investments at $75.26 billion just isn’t a number you can complain with. The revenue generating machinery is so strong and diversification opportunities so robust that despite pressures in the core business, some investors would be hopeful. And honestly, this isn’t abnormal for a company with a Zacks growth style score of A.
To Sum Up
Google is hardly a write-off at any time. But there is a good and bad time to get in on any stock. The shares have a Zacks Rank #4 (Sell) signifying that it will be hard to make profits on the stock in the next month or so. We therefore recommend investors avoid the shares for now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>