Shares in internet search giant Alphabet Inc. (NASDAQ:GOOG, NASDAQ:GOOGL) are up 72% so far this year. GOOG is not tainted from being a meme stock, its growth is not tied to any fads like non fungible tokens (NFTs), and Alphabet is not in the race to create or distribute Covid-19 vaccines. This is a company that is involved in a wide range of businesses — many of which are growing — even as its core revenue generator continues to mint money.
The question is, at its current price, should you be considering adding GOOG stock to your portfolio? Shares are closing in on the $3,000 level so this is a decision that most investors shouldn’t make lightly. To help you make that call, let’s have a look at what Alphabet has been up to, where it’s going, and why shares have been performing so well this year.
Google Advertising Business Continues to Dominate Alphabet’s Revenue
When the FAANG (Meta (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), and Alphabet) stocks began to report their third-quarter earnings at the end of October, Alphabet was a standout.
Quarterly revenue of $65.1 billion was up 41% year-over-year (YoY). The company’s core advertising business grew at an even greater rate. The $53.1 billion in Google advertising revenue — including YouTube ad revenue — was up 43% YoY. Earnings per share of $27.99 beat analyst expectations by a wide margin. Barclay’s analyst Ross Sandler summed up the importance and strength of that advertising revenue:
“The ad market remains strong, and unlike most digital peers, Google doesn’t seem to be negatively impacted by iOS 14 or supply chain issues. Longer-term Google remains the best positioned company in digital advertising and one of our favorite names.”
The biggest threat ad revenue faced in years took place early in the pandemic when troubled retailers cut their marketing spending. Alphabet easily weathered that and spending on Google Search and YouTube ads is once again going nowhere but up. As result of those Q3 earnings, GOOG stock popped nearly 5%.
Other businesses like Pixel smartphones, Nest smart home devices, Android OS, and Stadia cloud gaming add to Alphabet’s revenue. “Bets” like the Waymo self-driving car project have the potential to contribute in the future. However, advertising revenue will still be key to Alphabet’s success in the foreseeable future.
While advertising dominates Alphabet revenue, there’s another division that is well worth watching. The cloud continues to be a high growth sector as more services move online and it will only get bigger. Alphabet has failed to dominate this area the way it has search, but Google Cloud is still a big player as the world’s third-largest cloud provider. Alphabet’s Q3 earnings showed that the company’s investment in infrastructure is paying off. Cloud revenue for the quarter was $4.99 billion, up 45% YoY.
Let’s put that in some perspective. It’s dwarfed by Alphabet’s ad revenue. However, with annualized revenue now on track to reach $20 billion per year, Google Cloud alone would be among the top 420 publicly traded companies in the world in terms of revenue.
Are There Any Potential Downsides?
The picture for Alphabet has been largely positive, however an investment in the company is not entirely without risk. The biggest issue facing the company is its sheer size and industry dominance. That has spawned a seemingly endless series of government investigations. In 2020, the U.S. Department of Justice filed an antitrust lawsuit against Google. Most recently in September, the E.U. filed an antitrust investigation over the default installation of Google Assistant on Android devices.
The E.U. has been particularly aggressive in litigating Google, assessing $9.5 billion in fines over the past decade. The Google Assistant suit has the potential to result in another huge fine.
So far, the ongoing investigations and resulting fines have failed to materially impact Alphabet or GOOG stock growth. However, the potential is there for an eventual adverse effect.
Bottom Line on GOOG Stock
At this moment, GOOG stock earns a “B” rating in Portfolio Grader. It’s a pretty solid investment choice for those investors seeking a growth stock for their portfolio. It’s not without risk — with seemingly never-ending government investigations being a particular concern — but Alphabet is a tech giant that continues to have big momentum.
With Alphabet’s market cap approaching $2 trillion and its core Google advertising business stronger than ever, signs point to GOOG stock continuing to increase in value.
On the date of publication, Louis Navellier had a long position in GOOG. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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