Google and YouTube parent company Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is a member of the elite “Magnificent Seven” group of technology giants. However, the company isn’t perfect in every way. After an earnings-event disappointment, the market furiously sold GOOG stock. This doesn’t mean Alphabet is a hopeless company, though, and there may be investment opportunities to consider.
Prabhakar Raghavan, a Google senior vice president, recently expressed concern that Google could become “the next roadkill.” TikTok is a threat in the social media space, but Google still has a nearly 90% share of the search engine market. Let’s delve further into the discussion and see if we can uncover some investment strategies.
Why Did GOOG Stock Plummet?
Raghavan’s “roadkill” comment certainly didn’t bolster the market’s confidence in Google and Alphabet. Yet that comment isn’t what prompted a 9.5% GOOG stock price drop, which was the worst single-day decline in the Alphabet share price since March 2020.
Instead, the culprit was Alphabet’s third-quarter 2023 earnings results. Interestingly, Alphabet actually posted top- and bottom-line beats for the quarter.
To be more specific, Alphabet generated revenue of $76.69 billion, up 11% year over year and ahead of the analysts’ consensus estimate of $76 billion. Alphabet’s quarterly EPS came in at $1.55, exceeding Wall Street’s forecast of $1.46.
So far, so good – right? Not so fast, as the market will sometimes focus on a particular set of data in a company’s earnings report. Here, the market was disappointed with Alphabet’s cloud-computing market results.
For Q3 of 2023, Alphabet’s Google Cloud revenue grew 22% year over year to $8.4 billion. However, this result was down 28% quarter over quarter, and it fell short of analysts’ forecast of $8.6 billion.
Max Willens, an analyst with Insider Intelligence, noted Alphabet’s challenges in the field of cloud computing. “Cloud computing is a much lumpier business than advertising, and one where Google is facing stiff competition,” Willens observed.
It’s Not All Bad News for Alphabet
Clearly, the market didn’t like Alphabet’s performance in its cloud computing segment. However, Wedbush analyst Scott Devitt pointed out that Google Cloud only comprises around 11% of Alphabet’s revenue and roughly 1% of the company’s operating income.
In contrast, Alphabet’s main advertising business comprises 78% of Alphabet’s revenue and is, according to Devitt, “accelerating into 4Q, and beat 3Q expectations by more than enough to offset slower cloud growth.” This certainly puts Alphabet’s cloud segment letdown into perspective.
Moreover, the data shows that Alphabet beat the Street with strong quarterly advertising business. During 2023’s third quarter, Alphabet posted $59.7 billion in advertising revenue, above the Wall Street consensus forecast of $58.9 billion.
GOOG Stock: Possible Strategies for the Fourth Quarter
Apparently, the market dumped Alphabet shares even though the company’s bread-and-butter advertising business is doing well. This could present opportunities for enterprising investors.
Value-focused investors might want to wait for the Alphabet share price to drop another 5% to 10% before taking a position. Momentum-focused traders, in contrast, could wait until the stock recovers most or all of its drawdown before buying some Alphabet shares.
Long-term investors, meanwhile, can simply buy GOOG stock but maintain a small position size. This leaves room to add a few more shares if the stock goes lower.
Just be careful with the “averaging down” strategy and don’t overdo it. Even if you believe in Alphabet’s long-term prospects, remember that chasing stocks at low prices can be just as hazardous as chasing them at high prices.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
