Should You Like or Dislike Alphabet Inc. (NASDAQ:GOOG) Stock?
Alphabet (NASDAQ: GOOGL , NASDAQ: GOOG ) reported its 2019 first-quarter earnings April 29 after the close of trading. Since then, GOOGL stock is down almost 14% through May 30.
There’s a lot to like about Alphabet. However, not everything is perfect. With that in mind, here are three things to like and dislike about GOOGL stock.
3 Things to Like About GOOGL Stock
1) Free cash flow: Alphabet finished the first quarter with free cash flow of $7.4 billion , 72% higher than a year earlier. Over the past five years, its grown FCF by 17% , compounded annually. At the same time, Alphabet’s interest expense on its long-term debt increased by just 7%, leaving lots of cash to invest in new or existing businesses, repay debt, make acquisitions or repurchase shares.
2) Share repurchases: I’m not a fan of share repurchases because companies rarely buy their stock near 52-week lows. Alphabet is no exception.
In the past two fiscal years, it repurchased $14 billion of its Class C GOOG stock at an average price of $1,044.78 a share. Over those two years, its high and low share prices were $1.273.89 and $775.80 respectively.
This means that it paid 1.9% more than its midpoint of $1,024.85 .
Usually, I’d describe this effort as mediocre. However, over the same period, it issued 17.6 million shares, 4.2 million more than it repurchased, which means Alphabet’s repurchasing its shares solely to maintain a level share count.
It’s got the free cash flow, so it’s a perfectly logical business decision.
3) Using AI to improve user and advertiser experience: Thanks to the company’s strong cash-flow generation, Alphabet’s able to think bigger-picture than a lot of companies. If an opportunity arises to improve the user and advertiser experience, Google acts sooner rather than later.
“We remain confident about the sizable opportunity ahead to improve the advertiser end-user experience through our ongoing commitment to product innovation, in particular by leveraging machine learning across our ads, products, and properties,” CFO Ruth Porat said during the company’s Q1 2019 conference call.
“[T]he other item is that timing of product changes in ads can impact year-on-year growth rates, and we make changes with the focus on the best interest of users and advertisers. Over the long-term, we do not manage by quarter.”
How many companies can afford to think like this?
3 Things to Dislike About Alphabet
1) Restricting marijuana sales: On the surface, Alphabet’s move to make Google Play more family-friendly seems like a great idea. Who wouldn’t be for this?
The problem is by banning apps on its app store that sell marijuana; it is merely stoking the fires of black-market cannabis sales. Not to mention it’s genuinely inconveniencing some of its developers to appear holier-than-thou in the eye of the public.
“Google’s decision is a disappointing development that only helps the illegal market thrive, but we are confident that Google, Apple and Facebook will eventually do the right thing,” said a spokesperson for Eaze, a marijuana delivery app.
This ban appears to be an act of political correctness rather than a sound business decision.
2) Slowing growth: Google stock wouldn’t have fallen by 14% in May if everything was hunky-dory. Investors didn’t like its slowing growth for a good reason. When you’re a growth stock, you’ve got to keep your foot on the gas – at least, that’s the theory.
“The challenge that Alphabet has is slowing growth. This is an industry that’s maturing. Facebook(NASDAQ: FB ) and Alphabet combined will have revenue of $200 billion in 2019 and make up almost three-fourths of the industry,” said Stifel internet analyst Scott Devitt on CNBC after its Q1 2019 results.
“Online advertising as an industry itself is 40% of total advertising. Growth is more difficult to achieve and, at the same time, you have Amazon (NASDAQ: AMZN ) growing into this industry. At the moment, Alphabet is the odd one out.”
As long as Amazon continues to grow its advertising business, owners of GOOGL stock have reason to be concerned.
3) Better near-term options: As Alphabet continues to work on its user and advertiser experience, which includes cleaning up YouTube, investors have better opportunities elsewhere – stocks that are driving on all cylinders at the moment such as Amazon and Microsoft (NASDAQ: MSFT ).
“We believe nothing has changed about GOOGL’s long-term ability to innovate to drive engagement/monetization across its leading ecosystem,” Morgan Stanley analysts wrote in a May 14 note to clients. “But near-term uncertainty around ’19 Websites growth from GOOGL’s slowdown and clean-up (which we think was largely YouTube and tough YouTube Y/Y comps from the roll-out of TrueView for Reach) is likely to weigh on the stock’s already low multiple and performance.”
With Trump’s trade war looking to add Mexico to the list, now is not the time to be looking to make a fast buck with GOOGL stock.
Overall, the bias in prices is: Downwards.
Note: this chart shows extraordinary price action to the downside.
By the way, prices are vulnerable to a correction towards 1,165.39.
The projected upper bound is: 1,096.41.
The projected lower bound is: 968.24.
The projected closing price is: 1,032.32.
A big black candle occurred. This is bearish, as prices closed significantly lower than they opened. If the candle appears when prices are “high,” it may be the first sign of a top. If it occurs when prices are confronting an overhead resistance area (e.g., a moving average, trendline, or price resistance level), the long black candle adds credibility to the resistance. Similarly, if the candle appears as prices break below a support area, the long black candle confirms the failure of the support area.
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 27 white candles and 23 black candles for a net of 4 white candles.
A falling window occurred (where the bottom of the previous shadow is above the top of the current shadow). This usually implies a continuation of a bearish trend. There have been 5 falling windows in the last 50 candles–this makes the current falling window even more bearish.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 11.0271. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a buy 12 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 24.19. This is where it usually bottoms. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 23 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -273.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a buy 8 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 23 period(s) ago.
Rex Takasugi – TD Profile
ALPHABET INC C closed down -67.400 at 1,036.230. Volume was 239% above average (trending) and Bollinger Bands were 26% wider than normal.
Open High Low Close Volume___
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 1,122.26 1,184.03 1,130.91
Volatility: 37 35 35
Volume: 1,616,518 1,500,822 1,641,440
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
ALPHABET INC C gapped down today (bearish) on heavy volume. Possibility of a Breakaway Gap which usually signifies the beginning of a major market move. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
ALPHABET INC C is currently 8.4% below its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect moderate flows of volume out of GOOG.O (mildly bearish). Our trend forecasting oscillators are currently bearish on GOOG.O and have had this outlook for the last 21 periods. Our momentum oscillator is currently indicating that GOOG.O is currently in an oversold condition.
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