Shares of the internet giant Alphabet (NASDAQ: GOOGL), like most big tech stocks, have dipped in value due to the selling in the market. GOOGL stock has corrected nearly 26% from its 52-week high. Moreover, it has dropped about 23% this year.
Tough comparisons, the suspension of most of its commercial activities in Russia, and a reduction in spending by brand advertisers in Europe led to a slowdown in YouTube’s advertising revenues in Q1 and weighed on GOOGL stock.
Now What?
While GOOGL stock has witnessed a pullback, the fear of a slowdown in the economy and its impact on the advertising revenues of internet companies could continue to limit the recovery.
During the Q1 conference call, Alphabet’s CFO, Ruth Porat, stated that tough comparisons and the suspension of most of its commercial activities in Russia could impact the Q2 advertising revenues. Further, the adverse currency movement could play spoilsport.
Despite near-term headwinds, Wall Street is bullish on Alphabet. Among them is William Blair analyst Ralph Schackart, who has a Buy recommendation on Alphabet’s Class C shares.
Schackart stated, “We believe cloud may prove to be the most resilient against potential stiffening macroeconomic headwinds in the near term, followed by search. We also believe video and broader digital advertising may hold up better in the current environment when compared to other forms of advertising.”
The analyst added that Alphabet is primed for success in the cloud computing sector despite the consolidation across the industry. Schackart also highlighted the short-form video as an emerging growth catalyst for the company.
During the Q1 conference call, Alphabet’s management stated that YouTube Shorts is averaging over 30 billion daily views, which is encouraging.
Bottom Line
While the ongoing challenges could restrict the upside in Alphabet stock in the short-term, its long-term prospects remain strong with opportunities in the cloud and advertising business. Its continued investments in AI, Cloud, Search, and YouTube bode well for long-term growth. Moreover, high engagement in short-form videos presents a solid growth opportunity.
Alphabet stock received 30 Buy recommendations for a Strong Buy consensus rating on TipRanks. Moreover, the average Alphabet price target of $3,163 indicates 40.9% upside potential over the next 12 months. GOOGL stock also has positive indicators from retail investors, hedge funds, and bloggers. Overall, it has an Outperform Smart Score of 9 out of 10.
