Google parent company Alphabet (NASDAQ 🙂 is proving to be a winning bet this year after lagging behind in 2020. At a time when investors shun growth names, their stocks hold the selling pressure far better than their technology rivals.
Google stock is up more than 17% this year, while the benchmark index has gained just over 1%. This resilience of the search engine colossus is surprising, especially during the COVID-19 pandemic, which strained digital advertising activity as travel, restaurant and tourism sales fell.
Weekly chart of the alphabet (GOOGL).
But after lagging behind for most of the past year compared to other FAANG stocks – Facebook (NASDAQ :), Apple (NASDAQ :), Amazon (NASDAQ 🙂 and Netflix (NASDAQ 🙂 – Google that so far, the top performing mega-tech stock.
What is attracting investors to buy Google stock is a clear sign that it is emerging from the pandemic-induced downturn much stronger, with a faster recovery than expected. In the, Alphabet posted record sales of $ 56.9 billion, with sales of 22% in ad units from a year earlier.
With that turnaround, it is also encouraging for investors to see the company's efforts to diversify its sales beyond its search engine businesses are paying off. For example, YouTube revenues were up 46% in the quarter as the video platform reached more users between the ages of 25 and 49 than all cable networks combined.
Most Undervalued
Some bulls advise investors to buy Google stock because there is more room to grow.
Morgan Stanley analyst Brian Nowak believes YouTube is "the most underrated ad platform" in the Internet industry. With a strong rebound in the branded and direct response ad market, YouTube is well positioned to deliver revenue growth of more than 40% by 2021, he wrote in a recent note, as he raised its one-year price target from $ 2050 to $ 2200
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JP Morgan analyst Doug Anmuth also raised his Google one-year price target from $ 2,050 from $ 2,050 to $ 2,390, saying in a recent note that Alphabet's rally has "legs" as travel ads have yet to recover . Anmuth also noted that the company's cloud computing margins should improve in the future after years of heavy investment.
Another factor restoring investor confidence is the California-based company's improved disclosure policy. In the latest earnings, Google for the first time revealed details about the cost of its cloud division.
Although that unit lost $ 1.2 billion in the fourth quarter, investors are now in a better position to judge its performance against Amazon and Microsoft's cloud computing units (NASDAQ :), the two leading players in the industry . Additionally, bullish forecasters don't see much of a threat to Google's business for now from the multiple lawsuits filed by many states and the U.S. Department of Justice. In these lawsuits, Google is accused of illegally monopolizing Internet searches and search ads through a series of anti-competitive contracts and behaviors, harming consumers and advertisers
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One reason analysts fail to consider the potential negative impact of these legal challenges is that these investigations take years to complete and it is nearly impossible to predict the outcome. Microsoft, which faced an antitrust case in the 1990s, is an example to support that argument.
Bottom Line
With its traditional growth engines remaining undisputed and the company positioning itself to grow faster in the post-pandemic world, Google's stock is catching up after falling behind in 2020. It could see more benefits if the economy moves quickly reopening and small businesses back their digital advertising business.
