Shares of $1.8-trillion tech titan Alphabet (GOOGL) are back on the retreat following renewed weakness aimed at the tech sector.
As GOOGL stock looks to retest its January 2022 lows, investors may have a shot at scooping up the stock much lower than where it was trading before it clocked in its phenomenal fourth-quarter earnings results.
Arguably, Alphabet reported one of the strongest Q4 earnings results of the FAANG cohort. Still, broader market forces have sent the behemoth lower, opening up what could be an intriguing entry point for patient investors.
There’s no question that rates, which recently eclipsed 2%, are bad news for growth stocks, especially high-multiple ones with no earnings. Alphabet is incredibly profitable with a very modest 23.9 times trailing earnings multiple, making it a top candidate to hold up in this kind of viciously volatile market environment.
With promising momentum across the board (public cloud, YouTube, and search all flexed their muscles in Q4), it’s hard to not be bullish on the company here.
Google’s search dominance is nothing new. It’s a huge needle-mover for GOOG stock. That said, one can’t ignore the growth potential behind Alphabet’s other growth levers, most notably YouTube, which could evolve to become a high-growth diversifier over the coming years as viewers gravitate towards more engaging experiences.
YouTube
The strength over at YouTube was robust, with the video-sharing platform experiencing 25% growth. In an era where custom experiences are becoming increasingly important, YouTube could be in a spot to take significant share away from passive video viewing. Indeed, cable television has been on its way out for many years now.
With recent weakness over at video-streaming kingpin Netflix (NFLX), though, it’s clear that competition in video is starting to get that much more fierce.
The amount of entertainment offerings are growing at an incredible pace, all while user time stays the same. People only have so much time in their day to spend on entertainment offerings.
With so much engaging content across popular social-media firms like TikTok and video-game kingpins like Microsoft (MSFT) — which is experiencing robust growth with its Xbox Game Pass subscription — it’s clear that the trend is moving away from passive viewing and towards engaging experiences.
This trend could really take it to the next level once the “metaverse” takes the world by storm.
YouTube’s Wide Moat
Video gaming and video-based social-media content are clearly doing a great job keeping users engaged. Perhaps they’re so engaged that they no longer have the time to go through their Netflix watchlists?
In any case, YouTube seems to be one of the most engaging ways of viewing video content. Intriguing algorithms serving up user-tailored content make the app tough to put down.
Indeed, a series of videos served up by algorithms on YouTube may be more binge-worthy than a hit Netflix show like Squid Game.
While Netflix and video will always be incredibly popular with consumers, I think that a gradual shift towards more interactive, engaging entertainment experiences could take a step out of the stride of traditional streamers.
With intriguing social-media features and a growing lineup of quality user-generated content, YouTube is starting to be in the sweet spot of user engagement.
Recently, YouTube axed its original content group to double down on tools to help its creators — a smart move that keeps the platform on the right side of the shift towards more-engaging content.
Wall Street’s Take
According to TipRanks’ consensus analyst rating, GOOGL stock comes in as a Strong Buy. Out of 31 analyst ratings, there are 31 Buy recommendations.
The average Alphabet price target is $3,498.71, implying an upside of 28.6%. Analyst price targets range from a low of $3,000 per share to a high of $3,900 per share.
Bottom Line on GOOG Stock
Alphabet is a magnificent tech stock to own in almost any environment. Google Search remains the firm’s bread and butter.
That said, one shouldn’t ignore YouTube’s recent strength. YouTube is becoming more influential and could be critical to next-level growth over the next decade. The platform is on the right side of change and could evolve to become the envy of the entertainment industry, given its nearly impenetrable moat.
YouTube saw 25% growth in Q4, even in the face of tough year-over-year comparables. As Alphabet continues improving the incredibly engaging platform, expect YouTube to evolve in a way that would start worrying rivals in parallel industries.
Unlike traditional video streamers, YouTube has a wide moat in the form of its massive network of creators. As the company doubles down on its creators, giving them new ways to monetize, expect YouTube to continue flexing its muscles.
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