Alphabet Inc (GOOGL) Stock Is a No-Brainer, Buy Ahead of Earnings

Shares of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) have rebounded about 9% since falling to recent low of $915.31 on July 3. This suggests that GOOGL stock holders are feeling more confident about what the tech conglomerate will reveal when it reports second quarter fiscal 2017 earnings results after Monday’s close.

Alphabet Inc (GOOGL) Stock Is a No-Brainer, Buy Ahead of Earnings
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GOOGL stock closed Friday at $993.84, just shy of its record high of $1,008.61. The shares, which are prone to big moves after reporting earnings, have risen more than 25% year to date, besting the 10% rise in the S&P 500 index.

While GOOGL stock can easily gap up on strong numbers, or fall if the numbers disappoint, it doesn’t change the fact that Google has many routes toward sustainable growth in the quarters ahead.

For the three months ended June, Wall Street is looking for Alphabet to deliver adjusted earnings of $8.25 per share on revenue of $25.64 billion. This means earnings would be down about 2% from last year’s profit of $8.42 per share, while revenue is expected to rise almost 20% year over year.

For the full year ending in December, earnings are projected to be $33.97 per share, down slightly from $34.34 a year ago, while full-year revenue of the $107.87 billion would rise 19.5% year over year.

Reasons to Love GOOGL Stock

The main driver of Alphabet’s business has been Google Search, which accounted for more than 95% of first-quarter revenue. Digging deeper, the company’s dominant advertising business contributed to roughly 87% of Google’s revenue, versus 13% for the non-advertising segment.

Notably, Google’s core search business is not only driving higher user engagement, its volumes have risen in the process, thanks to 44% rise in Q1 total paid clicks.

These growth trends bode well for what’s ahead for the advertising industry. Spending on digital advertising is projected to rise 18% in 2017 to $229.25 billion, up from $194.6 billion in 2016. Google and Facebook Inc (NASDAQ:FB), which are broadly regarded as dominating mobile, are expected to benefit from the bulk of that growth, affirming the extent to which advertisers continue to value their respect powers when it comes to connecting with potential customers.

In Google’s case, however, which has also seen its mobile platform rise, it has a healthy lead over Facebook in digital ads. And, much of Google’s growth has to do with YouTube, which currently has more than 1.5 billion viewers watching in excess of an hour of video each day on mobile devices, particularly smartphones. Management is looking to leverage that reach with the recently launched YouTube TV, a live and on-demand streaming service that can possibly accelerate cord-cutting.

Google will charge $35 per month for the subscription service, which allows access to up to 40 television networks, along with YouTube creator content. It would seem Google has beaten Apple Inc. (NASDAQ:AAPL) to the punch. Apple has been trying to launch a television service of its own for quite some time, but conversations with various networks have hit roadblocks.

At the same time, this puts Google in line to compete with both traditional cable operators such as Time Warner Inc (NYSE:TWX) and Comcast Corporation (NASDAQ:CMCSA), as well as Netflix, Inc. (NASDAQ:NFLX).

Meanwhile, the company’s advances in cloud computing, where it competes with, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) continues to keep GOOGL relevant in high growth markets, too. Combined with moonshots such as self-driving cars and artificial intelligence, where GOOGL is arguably a leader in those categories, gives it an inside track on ways to further monetize its search dominance.

Bottom Line for GOOGL Stock

From a valuation perspective, GOOGL stock — currently trading $992 — is still relatively cheap, despite being priced at 24 times fiscal 2018 estimates of the $40.53 per share, which assumes year-over-year EPS growth of almost 20%.

Plus, when factoring its war chest of around $92 billion, plus another $38 billion in operating cash flow, GOOGL stock should be owned, not traded.

I expect Monday’s quarterly results to affirm that stance. But, despite what Monday’s numbers might reveal, GOOGL is still a long-term play and remains on track to reach $1,100 by this time next year.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.

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