Alphabet: Can the FAANG Performer Repeat in 2022?

Shares of tech top-performing tech titan Alphabet (GOOG) (GOOGL) led the broader basket of FAANG stocks higher in 2021, with an outstanding gain of around 65%. Indeed, the solid year will be tough to top, especially with rates likely to continue going on the ascent.

Year to date, GOOG stock is off just shy of 3.5% amid the broader pullback in technology stocks. Still, GOOG stock isn’t necessarily one of the growth stocks that deserve to be in the sights of this latest sell-off.

The company may be a fast grower, but it’s wildly profitable, and its valuation is still quite modest relative to the broader Nasdaq 100 name. At around 27 times trailing earnings, Alphabet stock could be seen as a relative bargain, and if it can keep its earnings growth streak alive (I think it will), it may prove difficult to keep shares down.

Undoubtedly, Alphabet is a top candidate that can get cheaper, even as shares rise considerably. The company is on a hot streak, beating on the bottom line for six consecutive quarters.

Indeed, the COVID-19 pandemic has not taken as significant a step out of the software giant’s stride these past two years. With fourth-quarter 2021 earnings on tap for January 31, 2022, investors should expect more of the same out of the perennial outperformer.

Moving forward, there are a few catalysts beyond solid earnings results for investors to get excited about. As a growth stock, investors want a story they can get behind. Of course, it’s nice to have the backdrop of incredible earnings results to support the share price. In any case, it’s hard to be anything but bullish on GOOG stock following its latest correction.

In Search of Continued Growth

It’s tough to top Google Search, which continues to hold around 80% of the incredibly profitable market. Indeed, Google’s search capabilities are ever-improving, and there is a pathway towards taking further share, even though the search space has grown a bit more crowded over the years, with certain consumers focused on maintaining their privacy with rival offerings like DuckDuckGo.

iPhone maker Apple (AAPL) has previously shown its desire to get into the search business. A recent lawsuit alleged Google was essentially paying Apple to stay out of the search space with its agreement to be the default search in Apple’s Safari web browser. Undoubtedly, an Apple-built search engine would have been viewed as a top threat to Google’s bread-and-butter business.

The real question is, what happens if U.S. anti-trust regulators were to step in and prevent future “non-compete agreements” in search?

Even if Apple were to build its own search engine, we mustn’t forget that Google has had a multi-decade headstart to build a moat around its search business. Such a moat would have been tough to take down, even if Apple entered its market with a privacy focus.

For now, I think it’s safe to say that Google’s massive slice of economic profits has a fairly wide moat surrounding it. As Search continues generating ample amounts of cash flow, Google will have a nearly unmatched ability to spend on various initiatives to take its growth to the next level. However, implications from future anti-trust lawsuits or regulatory hurdles are worth keeping tabs on.

YouTube Continues Its Growth

YouTube is really pulling in the ad revenue of late, with many users taking to the platform amid the pandemic. While YouTube is quite an old part of Google, it’s notable that the platform is becoming more influential to Alphabet’s overall revenues.

Indeed, the platform has adopted many intriguing features over the years, including Shorts, a popular social-media feature similar to Stories that, in form or another, is embedded in many social apps today.

New innovations tacked onto YouTube could give a jolt to premium subscriptions, further diversifying away from ad revenues and providing a bit more user clarity and stickiness.

What about Growth beyond Google?

Undoubtedly, Alphabet now finds itself with an enviable line-up of cash-flow-generative software services. Such cash flows are likely to be funneled into innovative endeavors, including YouTube, the cloud, and even secretive projects behind the scenes.

It’s hard to tell what Alphabet’s innovation pipeline will yield over the next decade. Indeed, the self-driving car unit Waymo is nothing short of compelling, with much focus on the next frontier in connected vehicles. Waymo is just one of many exciting projects with the potential to give Alphabet’s revenue a sizeable and unforeseen jolt.

Wall Street’s Take

Turning to Wall Street, Alphabet stock comes in as a Strong Buy. Out of seven analyst ratings, there are seven Buy recommendations.

The average Alphabet price target is $3287.14, implying 17.5% upside potential. Analyst price targets range from a low of $3,000.00 per share to a high of $3,500.00 per share.

The Bottom Line

For now, Alphabet represents profitable growth at its finest. The stock seems way too cheap at this juncture after a correction that was likely no fault of its own.

Can GOOG stock repeat as top FAANG performer in 2022? There’s no way of knowing for sure, but I would not be surprised if GOOG comes out on top once again.

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