$MEITUAN-W (03690.HK)$ Alphabet's stock has reached a once-i...
$MEITUAN-W (03690.HK)$ Alphabet's stock has reached a once-in-a-decade buying opportunity.
Trading prices of technology stocks are lower than market prices.
The stock market may fluctuate, but the opportunities it brings to investors can lead to lifelong returns. Taking Alphabet (GOOG 2.80%) (GOOGL 2.86%) as an example. The stock has experienced a decline of over 35% from its historical highs, but its business is going through a recurring cycle.
Investors need to be willing to seize these huge opportunities, as the recovery of stocks can have a significant impact on investment portfolios. The market is full of opportunities, and Alphabet is one of the top stocks.
Normal business cycle
Companies making money from advertising naturally are affected by broader business cycles. When the economy slows down and businesses tighten spending, advertising budgets are one of the first areas to be cut, mainly because reducing expenses is easier than canceling projects or layoffs. Alphabet generates nearly 80% of its revenue from advertising, thus being significantly impacted by this cycle.
This trend was reflected in Alphabet's third-quarter earnings report: its advertising revenue only grew by 2.5%. YouTube took a step back in the advertising sector, with revenue declining by 1.9% year-on-year. However, Google Search's ad sales increased by 4.3%.
Even though these ad revenue growth levels are not as strong as investors would hope to see, they are still better than many of Alphabet's advertising peers. However, Alphabet's PE ratio is 18.7 times, lower than the S&P 500's average PE ratio of 20.6 times.
Investors anticipate further softening of the US economy, which will lead to a further decrease in advertising spending. However, Wall Street analysts generally disagree with this assessment: their consensus forecast is that Alphabet will grow sales by 8% in 2023. But its EPS is expected to decline to $4.72 in 2023. This gives Alphabet a projected PE ratio of 19.9 times, still lower than the large cap.
No one can predict what will happen after 2023, but after experiencing the previous economic downturn, Alphabet's revenue has seen a significant recovery.
Therefore, if Alphabet's revenue growth recovers in the next few years, its profit may rise, either lowering its already very low valuation or causing the stock price to rise.
However, revenue growth does not always translate into profit. If Alphabet does not change its hiring habits soon, it may find itself in trouble.
Alphabet's number of employees has surged.
In the past year, Alphabet's recruitment speed has been astonishing—compared to a year ago, the number of employees working at Alphabet has increased by nearly 37,000. For reference, as of the end of the third quarter of 2021, Alphabet employed 150,028 people. By the end of the third quarter of 2022, the company employed 186,779 employees, a 25% increase. However, it is unknown how many of these employees actually added value.
During Alphabet's recent earnings conference call, an analyst asked the management if there were any performance indicators or analysis to prove the rationality of this hiring frenzy. The management did not indicate whether they had done so; instead, they evaded the question by saying "talent is the most valuable resource." While I agree that talent is an important resource, I believe that no company needs so many employees to improve a product, especially if it only brings in an overall 11% revenue growth.
The management also pointed out that in the fourth quarter, they plan to slow down the recruitment pace to about half of the third quarter, indicating an addition of about 6,500 new employees. Controlling wage expenses is crucial because Alphabet's operating margin has been developing in the wrong direction over the past year.
But I don't think this is a good reason not to buy stocks. Due to its market dominance in the search advertising field, Alphabet is still the largest investment. In addition, its Google Cloud infrastructure business continues to deliver robust performance, with a 38% year-on-year revenue growth in the third quarter.
The management understands the need to slow down the recruitment pace. By doing so, Alphabet's operating margin should improve. However, as the economy begins to recover, Alphabet's revenue stream should experience significant growth, bringing in more profits. This should create a huge positive catalyst for the stock.
Because of this, investors should buy Alphabet's stocks now, as its trading price is lower than the large cap. Do not miss the opportunity. $BABA-W (09988.HK)$ $KUAISHOU-W (01024.HK)$
Trading prices of technology stocks are lower than market prices.
The stock market may fluctuate, but the opportunities it brings to investors can lead to lifelong returns. Taking Alphabet (GOOG 2.80%) (GOOGL 2.86%) as an example. The stock has experienced a decline of over 35% from its historical highs, but its business is going through a recurring cycle.
Investors need to be willing to seize these huge opportunities, as the recovery of stocks can have a significant impact on investment portfolios. The market is full of opportunities, and Alphabet is one of the top stocks.
Normal business cycle
Companies making money from advertising naturally are affected by broader business cycles. When the economy slows down and businesses tighten spending, advertising budgets are one of the first areas to be cut, mainly because reducing expenses is easier than canceling projects or layoffs. Alphabet generates nearly 80% of its revenue from advertising, thus being significantly impacted by this cycle.
This trend was reflected in Alphabet's third-quarter earnings report: its advertising revenue only grew by 2.5%. YouTube took a step back in the advertising sector, with revenue declining by 1.9% year-on-year. However, Google Search's ad sales increased by 4.3%.
Even though these ad revenue growth levels are not as strong as investors would hope to see, they are still better than many of Alphabet's advertising peers. However, Alphabet's PE ratio is 18.7 times, lower than the S&P 500's average PE ratio of 20.6 times.
Investors anticipate further softening of the US economy, which will lead to a further decrease in advertising spending. However, Wall Street analysts generally disagree with this assessment: their consensus forecast is that Alphabet will grow sales by 8% in 2023. But its EPS is expected to decline to $4.72 in 2023. This gives Alphabet a projected PE ratio of 19.9 times, still lower than the large cap.
No one can predict what will happen after 2023, but after experiencing the previous economic downturn, Alphabet's revenue has seen a significant recovery.
Therefore, if Alphabet's revenue growth recovers in the next few years, its profit may rise, either lowering its already very low valuation or causing the stock price to rise.
However, revenue growth does not always translate into profit. If Alphabet does not change its hiring habits soon, it may find itself in trouble.
Alphabet's number of employees has surged.
In the past year, Alphabet's recruitment speed has been astonishing—compared to a year ago, the number of employees working at Alphabet has increased by nearly 37,000. For reference, as of the end of the third quarter of 2021, Alphabet employed 150,028 people. By the end of the third quarter of 2022, the company employed 186,779 employees, a 25% increase. However, it is unknown how many of these employees actually added value.
During Alphabet's recent earnings conference call, an analyst asked the management if there were any performance indicators or analysis to prove the rationality of this hiring frenzy. The management did not indicate whether they had done so; instead, they evaded the question by saying "talent is the most valuable resource." While I agree that talent is an important resource, I believe that no company needs so many employees to improve a product, especially if it only brings in an overall 11% revenue growth.
The management also pointed out that in the fourth quarter, they plan to slow down the recruitment pace to about half of the third quarter, indicating an addition of about 6,500 new employees. Controlling wage expenses is crucial because Alphabet's operating margin has been developing in the wrong direction over the past year.
But I don't think this is a good reason not to buy stocks. Due to its market dominance in the search advertising field, Alphabet is still the largest investment. In addition, its Google Cloud infrastructure business continues to deliver robust performance, with a 38% year-on-year revenue growth in the third quarter.
The management understands the need to slow down the recruitment pace. By doing so, Alphabet's operating margin should improve. However, as the economy begins to recover, Alphabet's revenue stream should experience significant growth, bringing in more profits. This should create a huge positive catalyst for the stock.
Because of this, investors should buy Alphabet's stocks now, as its trading price is lower than the large cap. Do not miss the opportunity. $BABA-W (09988.HK)$ $KUAISHOU-W (01024.HK)$
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