When you look at search engine market share worldwide, no other comes close to Google (GOOGL)(GOOG). Over the past year, Google held a 92.% global market share, followed by Microsoft Bing with just 3.42%.
In spite of its dominance, Alphabet Inc., Google and YouTube’s parent company, did not escape the massive tech sell-off in 2022. But billionaires have spotted an opportunity. Is this FAANG stock on sale?
Soros Fund Management Is All In
George Soros, a notable billionaire, has long been a fan of Alphabet. His investment fund, Soros Fund Management, held over 53,000 shares of Alphabet as of mid-2022.
Months later, Soros made headlines after increasing his stake by more than 1,800% — and it’s easy to understand why. Soros now holds over one million shares, valued at close to $100 million. He also heavily invested in Salesforce and Amazon. All three of these tech giants rank in Soros’ top ten holdings.
Soros initially invested in Alphabet back in 2017. Since then, shares have approximately tripled in value — they have also yielded more than double the return of the S&P 500.
Although Alphabet isn’t the high-growth stock it once was, it remains highly profitable and is reasonably valued. Soros saw the recent opportunity, taking advantage of Alphabet’s second-quarter results.
By our estimates he made the right choice, with Alphabet’s fair value sitting at $131.45 per share, a significant upside potential to where shares currently sit. And still, there’s much more to like.
5 Reasons to Invest in Alphabet Now
From an investor’s point of view, there’s a lot to like about Alphabet. Although it may not fit everyone’s portfolio, you can’t deny the following five reasons to buy — especially at current share prices.
Alphabet has massive profit margins
Over the years, Alphabet’s operating profit margins have oscillated between 25% and 35%. While the company’s overall profit margin was just 25% in its most recent quarter (compared to 32% in Q3 2021), Google Services came in at 32%.
These services include Google Play, YouTube subscriptions, its advertising business, and hardware products. Based on Alphabet’s strong moat, healthy margins are expected well into the future.
Some analysts believe sellers are underestimating how much Alphabet’s margins could still grow in the years ahead.
Current share prices
Year to date, shares of Alphabet are down nearly 31%. The company has fallen victim to the recent tech sell-off. However, growth is expected to rebound once the economy improves.
After all, Alphabet remains one of the world’s largest and most powerful companies. Fears surrounding a recession and the slowdown in the ad market will subside. When they do, Alphabet’s share price will better reflect the company’s value as ad revenue re-ignites.
Google Cloud offers a significant growth opportunity
Alphabet is far from a one-trick pony, and while most people know Google as a search engine, its cloud infrastructure business is rapidly growing.
In the company’s most recent quarter, Google Cloud pulled in revenue of $6.9 billion — up 38% compared to Q3 2021. This division is just one component of Alphabet’s portfolio, aiding the company’s diversification. However, Google Cloud is just one reason enough to invest in Alphabet long-term.
Don’t forget about YouTube
In Q3 2022, YouTube’s advertising revenue dropped for the first time since 2019, when Alphabet began reporting its earnings separately. These weak results have contributed to the drop in Alphabet’s stock price. It’s true that YouTube revenue fell by 2%, but this division still pulled in $7.07 billion this year.
Looking to the future, YouTube is starting to generate revenue from its subscription service. Indeed, YouTube Music Premium and YouTube TV are driving growth as non-advertising revenues.
The search giant generates a ton of cash
Last quarter, Alphabet generated $16 billion in free cash flow, which is nothing new. For years, Alphabet has been a cash-generating machine, allowing it to invest in new initiatives, including self-driving cars. Over the last twelve months, Alphabet has generated around $62.5 billion.
Management has been using excess cash to repurchase shares, including $15.3 billion worth last quarter. Year-to-date, stock repurchases reached over $48.8 billion — up from $36.8 billion the prior year.
The consensus? Buy
Alphabet’s stock is beaten-down, and its current price is tough to pass up. This tech leader holds dominant positions in several markets, such as web search and video streaming. It is also now heavily invested in fast-growing markets, like AI and cloud computing.
Near-term, Alphabet’s investors may experience a bumpy ride. But the economy will rebound, and when it does, Alphabet is well-positioned to profit from trillion-dollar markets. For example, by 2030, the global cloud computing market is expected to reach $1.55 trillion, and the digital advertising market is forecast to reach over $1 trillion by 2027.
The current downturn is temporary. This window provides an excellent entry point for those who have yet to invest in Alphabet and allows existing shareholders to add shares at a discounted price.