- Alphabet (NASDAQ:GOOGL, GOOG) faces headwinds in the form of persistent antitrust lawsuits.
- But the GOOGL stock remains a state-of-the-art technological security.
- Diversified industry sectors and a huge cash stack make stocks an attractive long-term buy.
With its 20-for-1 stock split on the horizon, now is a good time for investors to take a stand in Google’s parent company Alphabet (NASDAQ:GOOGL)?
That’s a good question to ask. Especially with GOOGL stock crashing lately. After outperforming in 2021, shares are down 10% year-to-date at just over $2,600.
The slide has accelerated recently, with GOOGL stock falling 8% in the past two weeks alone. While much of the decline can be attributed to broad-based weakness in the technology sector, a few internal issues seem to be worrying analysts and investors.
Antitrust fines weigh on GOOGL shares
One of the biggest problems for GOOGL stock investors is the company’s ongoing political battles, many of which result in antitrust fines. Alphabet has encountered particular problems in Europe, where regulators have fined the company billions of dollars for what they claim is anti-competitive behavior.
In 2017, Alphabet was fined $2.8 billion, followed by a $1.7 billion fine in 2019 and a $5 billion fine that was only recently imposed. by the European Commission. Most of the fines stem from accusations of anti-competitive activity by Alphabet with respect to the company’s Android search engine and mobile operating system.
While Alphabet has deep pockets and is able to pay the record judgments against it, the legal troubles, which don’t seem to have an end in sight, are irritating some investors. And the legal troubles extend to Alphabet’s homeland, where the U.S. Department of Justice in 2020 teamed up with 38 state attorneys general to file an antitrust lawsuit against internet search advertising activity. from Google. This case is expected to go to trial in September 2023.
Constant threats from regulators to break up the company are perhaps more worrisome to investors than the hefty fines Alphabet has had to pay in recent years. While much of the discussion could be seen as political posturing, the idea of a forced corporate breakup creates an unwelcome climate of uncertainty around Alphabet.
Alphabet still a profit machine
Despite some hesitation among investors and analysts, antitrust lawsuits and fines did nothing to slow down Alphabet. It remains a leading technology company and a profit machine. Its 2021 operating profit was $78.7 billion, giving the company an operating margin of 30.6%. Annual revenue was $257.6 billion, up 41% from 2020.
Alphabet is famous for investing the money generated primarily from its online advertising business into a series of new ventures that currently include a digital payment system, Pixel smartphones and tablets, and smart home devices. These new ventures helped diversify Alphabet’s business and make the company more than just its Google search engine.
Increasingly, Alphabet is also focusing on Google Cloud, which is currently the #3 public cloud provider after Microsoft (NASDAQ:MSFT) Azure and Amazon (NASDAQ:AMZN) Web Services (AWS). While Google Cloud remains unprofitable, it continues to grow and gain market share at a steady pace. Google Cloud’s revenue grew 45% year over year in the fourth quarter of last year.
Alphabet also has a huge treasure trove of cash. In fact, the company currently has the largest net cash and short-term investments (net of debt) of any public company in the United States. At the end of 2021, cash and short-term investments at Alphabet totaled $140 billion, while the company’s debt stood at less than $15 billion. This huge pile of cash should help shareholders rest easy at night.
GOOGL stock shows low valuation
In addition to the aforementioned positives, Alphabet’s Google is a market leader in all aspects of internet search, including its Chrome and Gmail browser. The company’s Android mobile operating system holds nearly 70% of the global mobile device market.
When it comes to online advertising, no other company comes close to Alphabet. The company’s share of total Internet advertising dollars was 63% in 2021. It is expected to reach 72% by 2025, reaching $785.1 billion per year.
While GOOGL shares have struggled this year, shares have gained more than 200% over the past five years and around 760% over the past decade, beating the S&P500 gain of 214% over the same 10-year period.
Additionally, Alphabet shares are currently trading at 22x forward earnings, making it the second-cheapest mega-cap tech stock after Metaplatforms (NASDAQ:Facebook).
Buy GOOGL shares
This has been a tough year for most tech stocks. Alphabet was no exception. But despite the short-term drop in its share price, Alphabet remains a cutting-edge tech stock that makes a smart long-term investment.
The company remains a leader in most of the segments in which it competes, generates an unparalleled amount of advertising revenue and has an enviable cash flow. These factors, along with its growing diversification, make Alphabet an attractive addition to any portfolio. GOOGL stock is a buy.
Disclosure: As of the date of publication, Joel Baglole held long positions in GOOGL and MSFT. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.