If someone asks you about some piece of information that you’re not aware of, there are two things you will probably do. You will either open your mobile and check on Google or directly tell them to “Google it!”. Google has become so commonplace in our everyday lives that it has advanced from being a brand to now being used as a “verb”.
Over 3 million searches are done on Google every day. Google is owned by Alphabet, which is the parent company that owns multiple well-known brands like YouTube, Fitbit, AdSense, PlayStore, Maps, Gmail, Android, etc. And if you look at the performance of Q1 of 2022, Google has reported $68 billion, which is a 23% growth compared to the previous year. So, is Google (GOOG) a great long-term investment? Let’s take a closer look.
Why are brokerages still recommending Google shares?
Google has consistently beaten market estimates in the past, and as of Feb 2, 2022, Alphabet shares were up 11% at an all-time high. Alphabet’s revenue was up by 32% to $75.33 billion, while its EPS was at $30.69, 12% above estimates. Looking more closely.
- Advertising revenue was up 33% to $61.24 billion, which holds the lion’s share of the business of 81%.
- Google cloud revenue was reported at $5.54 billion, up by 45%.
In digital ad spending, Google topped the market with a 28.61% share in 2021, which is higher than Facebook, which reported 24.2% and Amazon’s 11.6%. That’s not all, here are some more reasons as to why Google is a good stock to buy:
- Robust business model – Alphabet’s core business comes from selling ads online on their own and affiliates’ websites. This helps generate excess cash flow, which Alphabet then uses to invest in other meaningful businesses.
- Future focused – Being a tech giant, Alphabet is using Google and its other brands to collect data from users and use AI as a program to customise and offer unique products and services to its customers.
- International growth – Alphabet has been looking good at growing in the emerging markets in Asia. For example, the GooglePay app has seen over 1 billion downloads in India and is one of the most preferred apps for digital payments today.
What’s the performance of Alphabet’s other top ventures?
In Q1 of 2022, Google reported $68 billion in revenue, translating to a 23% YoY growth in comparison to $55.3 billion.
Alphabet cited growth in search and cloud as major drivers for the businesses.
Looking more closely, Youtube and cloud have also been major contributors to the growth of the business. The company reported that it has over 2 billion signed-in users, and the time spent viewing videos on YouTube has grown despite in-person activities being resumed.
Their new venture, Youtube Shorts, has reported 30 billion views which is four times as much as it was a year ago. However, monetisation of this new venture continues to remain a challenge.
Youtube ad revenue has reported $6.8 billion, which is a 14% rise from the previous year. Meanwhile, the cloud computing revenue saw a 44% rise to $5.82 billion as against the market estimates of $5.73 billion.
Will Google continue to invest in other businesses?
In the release of Q1 results of 2022, Google has said they will continue to make investments in Capex, R&D and talent to support the long-term value of the investors.
The acquisition of Fitbit for $2.1 billion dollars closed in January. Analysts say that this purchase will help Google enter the health and fitness market. They plan to launch pixel watches later in 2022, which will integrate technology from Fitbit.
Bull analysts say that the Google Cloud Platform is taking share as it focuses on security, open source software and data analytics. In 2019, Google purchased data analytics firm Looker for $2.6 billion in cash. It is also going to acquire cyber security firm Mandiant for $23 a share in an all-cash deal for $5.4 billion.
What does the stock split announcement mean?
Ever since it became public in 2004, Alphabet has made only one stock split in 2014 and is now making a stock split in July 2022. A stock split is when a company chooses to split its shares in a fixed ratio leading to the creation of new shares and reducing the price of an individual share that was already existing.
This causes the total share count to increase and the stock price to go down. From an investor’s point of view, the shares of a company become more accessible and affordable and can also lead to higher volumes in trading.
Alphabet has announced a 20-for-1 stock split on Feb 1, 2022, and investors will receive the additional shares by Jul 15, 2022. This means that if you own 1 share of Google, then you will receive an additional 19 shares because of the stock split. The value of your share might not change, but you get additional shares that you can trade.
A 20:1 stock split will attract more retail investors into buying shares. Retail buying surged when Apple and Tesla announced their stock split. Apple’s 4:1 stock split in July 2020, led retail investors from purchasing less than $150 million shares each week to over $1 billion shares. After Tesla’s 4:1 stock split in August 2020, the share purchase went from around $30 million per week to over $700 million.
GOOGL (Class A) or GOOGL (Class C): Which Stock should you buy?
Google has two classes of shares that are traded publicly, and they are given unique ticker names – GOOGL and GOOG. Both these stocks trade in a similar price range but their inherent nature or class is different. GOOGL shares belong to the Class A category, whereas GOOG shares belong to the Class C type.
GOOGL (Class A) stock shareholders will get ownership and voting rights. Conversely, GOOG (Class C) stock shareholders will only get ownership but no voting rights.
Since the Class A shares of Google have voting rights, the share price trades with a bit of premium over the price of GOOG, which are the Class C shares without voting rights.
If there are Class A and Class C shares, a question about whether Class B Google shares exist begs to be asked. They do exist, but they are not publicly traded. Founders and other key insiders hold Class B shares and have higher voting rights of 10 votes per stock.
So which stock should you invest in? Well, it depends on your analysis and the affordability of the stocks.
What concerns to look out for before investing in Google?
As mentioned earlier, Google is more known as a verb than a brand. After knowing its varied models and products and services, it has offered, who wouldn’t want to put a bet on Google and consider it a great long-term investment? However, here are a few things to remember before investing in Google.
- Having a strong moat – Companies that have a strong moat are often tough to beat in the competition. They have a competitive advantage over the rest, and users don’t have many other options to go to. With its strong search engine and advertising business, Google has dominated the market, especially after the fierce growth and competition on the internet.
- Past performance – checking the performance of the company over the years gives an idea of how stable the company is. Consistent growth indicates stability and strong fundamentals, which Google certainly has.
- Regulatory risks – because of Google’s dominance, this has brought a lot of attention to regulating the market that Google operates in. Governments like to regulate things to ensure that these companies take no undue advantage.
What are the different ways to invest in Google stock?
Alphabet is a registered stock traded in NASDAQ that goes by the name of GOOGL. To buy shares of Google, you can invest in the following ways.
- Invest directly in Alphabet shares – The Alphabet stock is not available in Indian markets, but by opening a trading account with Stockal, you can directly get access to the US stock market and trade shares of not only Alphabet but also other companies registered on the market as well
- Investing in ETFs – If you’re someone who’s unfamiliar with direct investing or do not have the time to monitor the stock every day, then you can consider investing in ETFs or Exchange Traded funds that have holdings in Alphabet Inc. ETFs are a group of various equities and bonds that trade as a single fund. They are comparatively more affordable than stocks. Stockal offers a myriad of ETFs (for eg, Global X NASDAQ 100 Covered Call ETF or Global X SuperDividend US ETF) to choose and invest.
Due to its significant weight in NASDAQ, Google is included in a lot of active and passive index funds.
- Investing through mutual funds – similar to ETFs, mutual funds are also a collection of securities, equities and bonds of various asset classes. You can choose to invest in a fund that has exposure to Google stocks, although very limited.
If you have still not bought shares of Google, then this is a very good time to consider investing for the long term, given the market conditions undergoing a price correction. Alphabet has rewarded its investors with a gain of 4,610% since its IPO, despite undergoing corrections in the past. There is no iota of doubt on Google’s search dominance as it holds 92% of the share market globally and 28% of the world’s digital ad market.