What is happening to Google Stock?

On By Littum

Alphabet warehouse (NASDAQ: GOOG ) has been in the news lately, with the Justice Department proposing the sale of Google Chrome and sharing data with rivals, among other measures to end its monopoly. The judge has set the trial on motions until April 2025. Google will have a chance to present its own motions in December. (1) It was known that Google is facing antitrust cases and the means could be as extreme as selling the Android platform. This overhang has also weighed on GOOG stock’s performance of late. Looking at a slightly longer period, GOOG stock has seen a 23% increase from levels of $144 in early 2022 to $177 now. This can primarily be attributed to:

  1. -one 32% increase in company revenue from $258 billion in 2021 to $340 billion now; and
  2. one 8% decline in total shares outstanding, thanks to $171 billion the company spent on share buybacks; partially offset by
  3. -one 14% decrease in the company’s P/S ratio to 6.5x now, cons 7.6x in 2021 due to investor concerns about the antitrust case against Google.

What Driven Google’s Revenue?

Google’s revenue Growth in recent years has been driven by its cloud business, which is seeing strong momentum, with segment sales rising a solid 72% between 2021 and 2023. However, its 11% contribution to the company’s total sales is much less than the 56% for its Google search business. The core search business is also performing well and the company’s AI integration is helping it achieve higher ad revenue, a trend that is expected to continue in the near term.

Looking at the most recent quarter, Google’s revenue of $88.3 billion in Q3 reflected a 15% year-over-year gain. Growth was led by its cloud business, with segment sales up a solid 35% to $11.4 billion. Google search revenue rose 12% to $49.4 billion, and YouTube ad revenue also rose 12% to $8.9 billion year-over-year. The company’s self-driving car unit — Waymo — now sees 150,000 weekly paid trips. Waymo could be the next big thing for Google. See how Waymo could be worth $5 trillion.

Not only did the company experience strong revenue growth, its profitability has improved. Alphabet’s operating income rose 34% from $79 billion in 2021 to $105 billion now. Its operating margin improved slightly from 30.6% in 2021 to 30.9% in the trailing 12 months.

Is Google Stock Up?

Up 26% this year, GOOG stock has marginally outperformed the broader S&P500 index, up 24%. However, the rise in GOOG stock in recent years has been far from consistent, with annual returns significantly more volatile than the S&P 500. The stock returned 65% in 2021, -39% in 2022 and 59% in 2023. In contrast, is Trefis High quality portfoliowith a collection of 30 stocks, is significantly less volatile. And it has outperformed the S&P 500 every year in the same period. Why is that? As a group, HQ Portfolio shares outperformed the benchmark index with less risk; less of a roller coaster ride as it turns out HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment surrounding interest rate cuts and Google’s antitrust case, GOOG could face a similar situation as it did in 2022 and underperform the S&P over the next 12 months – or will it see a sharp jump? From a valuation perspective, we think the share price appears to be reasonably priced. We evaluate Google’s valuation to be $182 per share, broadly in line with its current levels of $178. Our forecast is based on 23x expected earnings of $8.05 per share in 2024. The 23x figure is higher than the stock’s average P/E ratio of 18x over the last three years. GOOG stock trades at a multiple lower than some of its peers, with META trading at 25x and AMZN at 40x expected earnings. This is because there is still a significant risk for Alphabet.

Google is facing antitrust lawsuits alleging that the company monopolizes the marketplace and general search services. The remedies may include, among other things, a dissolution of the company, regulatory supervision and restrictions on companies. Now Google has a monopoly with 90% of searches. The latest argument by prosecutors focused on the company’s search engine – Chrome – which is a widely used browser with over 3 billion users. Chrome is very important to Google as it acts as a gateway through which users access the search engine. The web browser alone could be worth as much as $20 billion. (2) In addition, the prosecutors stated that Google should share data it collects from users with competitors. And if the funds don’t increase competition, Google should consider selling Android.

Neither of these solutions would bode well for Alphabet’s businesses in the long term. As such, despite strong growth visibility in the cloud business, on the back of AI demand and continued ad revenue gains, we believe the stock may not see any meaningful growth in the near term. Separately, check out Could Upstart stock double from here?

While GOOG stock appears to be priced appropriately, it’s helpful to see how Google’s peers price on metrics that matter. You will find other valuable comparisons for companies across industries at Peer comparisons.

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