Shares of Facebook (NASDAQ:FB) have been clobbered as more companies pull back on advertising during the month of July. They are boycotting the company’s platforms, a movement that is now hurting Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). While a market-wide selloff isn’t helping GOOG stock, the impact from Facebook is clearly weighing.
Why would actions against Facebook impact Alphabet? That’s a great question, but it’s clear that corporations are looking to distance themselves from certain social media advertising platforms at the moment.
While many are protesting just Facebook (and its various platforms, like Instagram), others are boycotting all social media. Some are also stepping away from Twitter (NYSE:TWTR) for the month of July, in addition to Facebook.
The movement comes at a time where political division and social issues continue to gain momentum. It also comes as the novel coronavirus continues to impact the economy. This likely makes it easier for companies to pull in the reins a bit on ad spending.
Facebook, Google and Social Media
Google stock sank 5.5% on Friday, as Facebook fell more than 8% and as Twitter was hit hard too. If the exodus out of advertising continues, it’s going to continue weighing on these stocks.
And why shouldn’t it? With Covid-19 already weighing on advertising revenue, any further hit to sales will negatively impact these stocks. Alphabet is a bit different, though.
While it depends heavily on advertising revenue, the company also has various other businesses — like its Cloud segment — to drive sales. It’s also not the target of the boycott. Even though some companies are broadening the social media boycott to other platforms, Alphabet still isn’t on the list for many.
In a way, the boycott could actually benefit Alphabet, as some companies may spread their advertising dollars to YouTube and Google search.
In any regard, it’s a good excuse for investors to take some money off the table in the short term. This action becomes even more prudent with the broader market coming under more pressure lately, as coronavirus cases begin to spike.
Buy the Dip in GOOG Stock
There’s no telling if Alphabet will get caught up in the advertising boycott. It seems safe for now, but there’s no way to know with a high degree of certainty that that will remain the case.
What we do know is that analysts already expect 2020 to take a big hit vs. the prior year. Consensus expectations call for revenue growth of just 4.3% this year, while earnings estimates call for a 15% decline to $41.44 per share.
Of course, this isn’t reason enough to buy the dip in GOOG stock, although it helps that the company should have positive sales growth. Instead, investors are increasingly turning their attention to 2021. That’s when consensus estimates call for a 20.6% rebound in revenue and a 32% rebound in earnings.
It’s hard to bank on in-line results for the next six fiscal quarters, given how much uncertainty the world faces. However, if GOOG stock does just that, shares trade at 25 times 2021 earnings estimates. This really isn’t an overvalued proposition, in my opinion.
However, the bullish thesis on Alphabet goes beyond simply top- and bottom-line growth figures.
To even see positive growth estimates for this year is one catalyst. Beyond that, Alphabet is a balance sheet titan. The company carries just $3.9 billion in long-term debt, despite commanding a market cap close to $1 trillion.
Further, Google stock boasts cash of $117.2 billion. Current assets outweigh current liabilities $147 billion to $40.1 billion. This is one of the sturdiest companies out there from a financial perspective.
Despite being its lowest free cash flow (FCF) figure in the past eight quarters, Alphabet still managed to clear almost $5.5 billion in FCF last quarter. Talk about impressive.
Bottom Line on Alphabet
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Parts of Alphabet’s business is under pressure. However, many of its other businesses are doing quite well. Additionally, the company’s long-term bets should help create value as time goes on.
That includes inroads into streaming — although it could use more help in this regard — autonomous driving with Waymo, and gaming, among other units. That has me buying the dips in Google stock.
I’m not sure if we’ll see the $1,200 to $1,250 area any time soon, but it would be a good buying opportunity for long-term investors.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
