After all, an investment in Alphabet delivered a 65% return in 2021 — very impressive for a mega-capital tech stock.
Why did GOOG stumble so badly on Thursday, and is this a sign that Alphabet may not treat investors kindly this year?
If it turns out that Thursday’s drop was unwarranted, then investors have a window of opportunity. A 5% discount is nothing to scoff at.
Why Did GOOG Stock Drop 5% on Thursday?
Let’s get straight to the crux of the matter. What was the cause of Thursday’s big drop in GOOG stock? Was the company threatened with another government investigation?
Are there signs that ad spending is dropping? Actually, there was no real smoking gun at play here. However, I see two factors that might have been in play.
First, as InvestorPlace contributor Mark R. Hake pointed out on Wednesday, a Barrons report about analyst downgrades of several software companies seems to have had a ripple effect that impacted GOOG stock.
Despite the fact that the companies singled out rely on software and subscription sales for revenue — while Alphabet makes its money from ad sales — Alphabet was lumped in as the market reacted.
The second potential factor was the news from Monday about a new lawsuit launched against Google and Apple (NASDAQ:AAPL). The class action suit claims that Google essentially pays Apple to stay out of the internet search business. The result is reduced competition, higher advertising rates, and violation of American antitrust laws.
The fact that Google pays Apple for making its search engine the default on iPhones, iPads, and Macs is hardly news. Neither is the fact that the companies are under multiple government investigations as a result of the arrangement.
In 2020, the New York Times reported that Apple was receiving an estimated $8 billion to $14 billion yearly from Google. That report was part of coverage of a Justice Department antitrust lawsuit against Google.
Having another lawsuit heaped onto Alphabet’s considerable heap of legal challenges doesn’t really change the equation. As I wrote in December, a decade of antitrust lawsuits and billions of dollars in fines have done nothing to derail the growth of GOOG stock.
If anything, the specter of losing that cash from Google should worry Apple investors. According to the New York Times research, Google’s payment amounts to as much as a fifth of the iPhone maker’s annual profits.
If Google search were removed as the default on Apple devices, Apple would have to spend money to develop and operate its own search engine. Most users would likely choose to go back to Google anyway.
If Alphabet is not in any immediate danger from the latest antitrust lawsuit, and analyst downgrades of software companies relying on selling copies or subscriptions are not relevant, should you consider acting on Thursday’s near 5% drop in GOOG stock?
I may sound dismissive of the lawsuits, but the reality is that they are a potential concern. Investors need to be aware of the suits which add a small element of risk.
However, Alphabet is a Portfolio Grader “B” rated stock. It is in a pretty strong position to continue delivering growth in the long-term. Despite the lawsuits and regulatory threats, investment analysts remain extremely bullish about GOOG stock as well. The 40 analysts polled by the Wall Street Journal have GOOG rated as a consensus “buy,” with an average $3,351.49 price target. That’s 20% upside.
In other words, don’t worry about GOOG’s 5% hit on Thursday. Don’t be concerned that it’s been down since November.
If you have been thinking about adding this mega-cap tech stock to your portfolio, you’ve been given an opportunity.
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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