Alphabet Inc. (NASDAQ:GOOG, GOOGL) now presents a very attractive opportunity after tech stocks experienced a selloff due to geopolitical tensions. GOOG stock stands to gain more than lose in this trying climate.
Why is that? Well, it’s complicated, but a hint can be found in the company’s name.
The Meaning Behind Alphabet’s Name
The modern English alphabet, based off the Latin alphabet, has 26 characters that we use to write, speak and communicate each day. The each letter combined in our written and spoken languages allow us to learn from one another, conduct business and make connections. Imagine then, a hypothetical situation in which a person is cut off from the alphabet — unable to communicate with their fellow people. The symbolic meaning is that Google is the leading search engine today globally, and without it, a massive information source is taken away.
The phrase “you can find anything on Google” is not far from reality. For business and marketing/advertising purposes, each company wants to be on Google, having its website indexed by it. The power of being the number one search engine in the world is priceless. What would happen if Russian businesses were no longer searchable on Google?
Google has announced it has “stopped selling online advertising in Russia, a ban that covers search, YouTube and outside publishing partners.”
Alphabet has joined numerous other businesses cutting ties with Russia.
News that Russia’s communications regulator Roskomnadzor issued orders to Google to stop YouTube ads spreading information about the war in Ukraine is no surprise. It is no surprise either that “Google last year paid more than 32 million roubles in fines over content violations.”
When you are the largest search engine globally it is very hard and challenging to comply with all local regulations. I see two main risks for Google now. First, the exposure of revenue generated in Russia and second, the social challenge about misinformation.
Regarding the revenue generated through the Russian economy “Google’s turnover in Russia in 2020 was 85.5 billion roubles ($790 million).” In 2020, Alphabet generated revenue of $182.5 billion. That means Russia contributed only 0.43% of Google’s overall revenue.
Will this pause of ads in the Russian economy harm Alphabet’s revenue? The answer is yes, but as shown by the calculation it should not be a dramatic change. The real question moving forward is will the ban be temporary or lasting? It depends.
Russia’s economy is the 11th largest economy in the world. That kind of market is hard to stay out of for long. But it also largely depends on the war in Ukraine, which no one can truly predict.
A Strong Q4 2021 Earnings Report
In fourth-quarter 2021, GOOG stock reported a beat on EPS and revenue. EPS GAAP of $30.69 was a beat by $3.45 and revenue of $75.33 billion was a beat by $3.50 billion.
The financial strength of GOOG stock is great, and profitability is very strong. In 2021, operating margin increased to 30.6% from 22.6% in 2020, net margin expanded to 29.51% from 22.06% and free cash flow increased to $67,012 million versus $42,843 million in 2020.
The 20-for-one stock split that is subject to shareholder approval would make shares much more affordable for new investors without diminishing value for current investors, which should make it more attractive for everyone.
GOOG Stock Bottom Line
Alphabet can play a historic role in the dissemination of information during a tumultuous time. These days, information is power. Google is one of the biggest actors in the space. From a financial perspective, GOOG stock is incredibly attractive, especially after the tech selloff.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
