Google is the most visited website on earth, attracting billions of users who rely on it to carry out their daily searches. However, Google’s parent, Alphabet (NASDAQ:GOOGL), is much more than just a search engine. From Gmail to Google Drive, Google provides a host of tools and apps — many of which reinvented how we access information.
Although the brand name Google is known worldwide, the company’s parent Alphabet has numerous businesses under its umbrella. Another well known division is YouTube but Alphabet has lots of other popular business lines, such as: Nest, Waze, Mandiant, Fitbit, and Looker.
Since the company went public in 2004, shares went from $85 per share to an all-time high of $3,030.93 per share. More recently, they have pulled back closer to the $2,000 level but on July 15, 2022 that will all change. That’s because Alphabet will execute a 20-for-1 stock split then. So, should you buy into GOOGL before it splits?
How Will A Stock Split Affect Alphabet?
Stock Split 101: A stock split occurs when a company issues more shares to shareholders without diluting the value of their shares. The number of shares will change, but the overall market capitalization of the company and the value of each shareholder’s stake in the company will not.
For example, for a 2-for-1 stock split, a company would give you an additional share. However, your two shares would be priced at half the original amount. Some companies doing stock splits include Amazon (AMZN), Tesla (TSLA), and GameStop (GME).
Alphabet has decided to execute a 20-for-1 split. This split will significantly lower Alphabet’s trading price without altering its market capitalization. Because shares will have a lower price tag, this strategy may attract more buyers. Indeed, there is some speculation that Alphabet will eventually be included in the price-weighted Dow Jones Industrial Average at its lower price.
Although tech stocks have plummeted this year, GOOGL remains a great long-term investment. Here are three reasons why.
1. Alphabet’s Untouchable Advertising Business
In the first quarter, approximately 80% of Alphabet’s revenue was generated through the company’s advertising business, including YouTube.
Although there are concerns surrounding advertising-based businesses as we head into an economic downturn (and potentially a recession), Alphabet has survived similar slowdowns in the past. Surviving both the Great Recession and the COVID-19 pandemic, analysts are confident that Alphabet will ride out the macroeconomic headwinds it currently faces.
For evidence of the company’s strength, look no further than its top line. The growth of Alphabet’s annual advertising revenue is extraordinary, particularly given its size. Over the past decade, revenue rose from $36.5 billion to $209.5 billion, representing a compound annual growth rate of 19.1%.
This growth is expected to continue as Alphabet controls over a quarter of the digital ad market within the United States. It is also a leader in most markets outside China, leaving plenty of room for growth.
2. A Growing Cloud Business
When you think of cloud-based businesses, Amazon and Microsoft may come to mind as industry leaders — and they are. But Alphabet now operates the third-largest cloud infrastructure platform globally.
Google Cloud held 8% of the global cloud market in the first quarter, contributing to increased yearly revenue. In 2021, Google Cloud pulled in $19.2 billion, compared to $13.1 billion in 2020 and $8.9 billion in 2019.
As the market expands, Google Cloud has plenty of room to grow exponentially – an attractive growth lever for long-term investors.
3. An Unstoppable Ecosystem
There is a reason why Alphabet’s primary business has grown at such a rapid pace — its ecosystem.
Besides owning the world’s largest search engine, Alphabet owns Android, Chrome, and YouTube, as well as Gmail, the top webmail service, and Google Maps, the leading online mapping service. Not to mention a growing list of services, like Google Photos and Google Workspace. It’s near impossible to be online these days and escape Alphabet’s reach. And once the company is tracking you, you can bet that it will be positively affecting its ad business.
Is GOOGL a Buy?
In the current environment, Alphabet’s share price may suffer further. However, many long-term investors see the short-term speed bumps as minor hurdles that Alphabet will overcome.
Over the next 5-10 years, Alphabet’s businesses will continue to grow, contributing to the tech giant’s success. The upcoming stock split will generate new interest, making this stock a solid buy — even amid the current stock market turmoil.
The bottom line? There are many reasons to buy GOOGL, making it a great buy when aiming to hold long-term. The road ahead will likely be bumpy, but Alphabet is the type of company you want to own when the dust settles.
So, buy now or after the split?
At the current price per share, now may be the time to buy into Alphabet before it begins its upward trajectory once again. That said, time in the market always trumps timing the market. Buy and hold for the next decade will be a hard strategy to beat.