Alphabet Stock Is Fundamentally Sound Despite Ad Revenue Miss

  • Alphabet (GOOG,GOOGL) remains fundamentally strong despite ad revenue snag.
  • The company is working to rectify the problem and likely will.
  • Consider this a buying opportunity and act accordingly.
Alphabet Inc. (GOOG, GOOGL) and Google logos seen displayed on smartphones

Source: IgorGolovniov / Shutterstock.com

There are a few obvious reasons to be negative about Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) stock of late. Namely, the tech wreck and underwhelming ad revenue figures within its latest earnings report have been making investors fret. But despite the obvious issues, take the opportunity for what it is: a chance to pick up GOOG shares at prices that are almost certain to bounce upward in the future. 

Ticker Company Price
GOOG Alphabet Inc. $2,098.17

Fundamentally Fine Despite Issues

By now it’s old news: Alphabet’s first quarter earnings results showed certain strengths, but contained a revenue problem. Let’s begin with what Wall Street was expecting from the Silicon Valley giant. 

The Street was looking for $68.1 billion in revenue and earnings per share (EPS) of $25.96. It was also seeking $7.48 billion of that 68.1 billion in revenues to be represented in the form of YouTube ad revenue. 

But YouTube ad revenue only reached $6.869 billion in the quarter. That meant that the company was well short of the $7.48 billion expected on that front. It also meant that Alphabet would only reach $68.011 billion in revenue in the quarter. That figure was shy of the $68.1 billion anticipated by Wall Street as EPS figures also disappointed. 

But that says something. YouTube ad revenue underwhelmed by $611 million and the company only missed overall revenue expectations by $89 million. That suggests that overall, the company’s performance is nothing to fret over. 

That said, investors are worried that YouTube’s declining ad revenues could continue. I don’t believe that’s a serious issue. Here’s why.

Addressing Competition

ByteDance’s TikTok is one of the reasons for the underperformance of YouTube ad revenue. TikTok videos are very short compared to traditional YouTube videos. But it’s clear that the company will attempt to claw back the revenue TikTok took from YouTube with its shorts feature. 

YouTube shorts are, as their name suggests, short. They’re lightly monetized now, but you may have noticed that they are being featured more heavily on YouTube’s platform if you use it. It isn’t by coincidence. Google is clearly going to push more advertising that way. 

It may take a bit of time to optimize the ratio of ad revenue between traditional YouTube videos and shorts, but investors should remain confident that Google will figure it out. 

Buying Opportunity for GOOG Stock

Consider this a buying opportunity. Google Cloud revenues reached $5.821 billion, up from $4.047 billion a year earlier. And operating margins held steady at 30%. Despite that fact, share prices have continued to fall. That suggests that broader market sentiment is driving prices down rather than any real, prolonged issues that ought to worry investors. 

Takeaway on GOOG stock

Alphabet remains among the very best stocks that exist on the face of the planet. Yes, the company came up well short of expectations on the YouTube ad revenue front. However, something tells me the company will recover due to its inherent competitive will. 

On the date of publication, Alex Sirois 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.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks.Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.


Article printed from InvestorPlace Media, https://investorplace.com/2022/05/goog-stock-is-fundamentally-sound-despite-ad-revenue-miss/.

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