gparent oogle Alphabetit is (NASDAQ:GOOGL) (NASDAQ:GOOG) The 20-to-1 stock split is finally over, which means we can move on and refocus on finances. And from that perspective, Alphabet is one of the strongest organizations on the planet. It continues to grow rapidly, be highly profitable and reward its shareholders.
Shares are down 24% from all-time highs reached in late 2021 as the market as a whole was punished. But at this point, this tech giant looks like a lob pass of a buy. Here’s why.
Part of the very fabric of the global economy
Google’s core business, Internet search, isn’t going anywhere anytime soon. However, the way it monetizes this activity – advertising – is undergoing great changes. Online data privacy is finally getting some attention, and Google is slowly updating its model to give users some control over their information and provide some transparency to the user data marketers are accessing.
These changes in the digital advertising industry could be a slight drag on Google’s growth for a while. But on top of that, another headwind could hit Google: a recession. Marketing activity is cyclical, and a growing number of economic indicators point to a recession later this year or in 2023. If that happens, Google’s core advertising revenue could dip briefly.
Emphasis on “briefly”, however. As Google demonstrated through two economic recessions (2008-2009 and then early 2020), digital advertising is a resilient spend category. Businesses won’t stop marketing for long during a recession, and ads can be turned off and back on very quickly. Digital advertising will remain a growth industry for the foreseeable future, so any slump will likely only be a brief moment in Alphabet’s gradual revenue surge.
Of course, ads are only part of the story here. There is also YouTube and Google Cloud, also in growth mode. And under the Alphabet umbrella are cutting-edge technology subsidiaries like self-driving car leader Waymo. Self-driving vehicles could be just as disruptive to the world as the internet, giving Google another future secular growth trend in the making.
Buy it now for free cash flow performance and stock buybacks
The best part about owning Alphabet, however, is that it’s also a very profitable business. It generated $69 billion in free movement of capital over the past 12 months, a free cash flow profit margin of nearly 26%. The stock trades for just 19 times enterprise value to free cash flow (based on Alphabet figures enterprise value of $1.32 trillion at the time of this writing). Talk about a value.
For investors looking for dividend income, the internet search giant doesn’t tick the box – it doesn’t pay a dividend. However, what it lacks in cash payment, it more than makes up for in share buybacks. In the past year alone, Alphabet has repurchased more than $52 billion of its own stock, returning much of its free cash flow to shareholders.
The tech giant’s pockets are also incredibly deep, with nearly $125 billion in cash and short-term investments net of debt. He has room to buy back many more shares for years to come.
Alphabet is already a titan, so it won’t be the fastest growing stock. But this company has all the ingredients to be an investment that will beat the market over the next decade. If you’re looking for a stock to start building a portfolio, Alphabet is a great buy right now.
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Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Nicholas Rossolillo and his clients have positions in Alphabet (C shares). The Motley Fool has positions in and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.
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