After a long stretch of success, Google parent Alphabet (Alphabet Stock Quote, Chart, News NASDAQ:GOOGL) has run into a rough patch over the past couple of weeks. A sign of trouble for the tech giant?
Nope, says Davis Rea investor Zach Curry, who thinks the company is in amazingly good shape.
Shares of Alphabet slid this week as the market reacted to the company’s fourth quarter earnings delivered on Monday, which saw revenue shoot up to $46.08 billion compared to $39.28 billion a year earlier and profits rise to $15.35 per share versus $12.77 per share in Q4 of 2018. (All figures in US dollars.)
“In 2019 we again delivered strong revenue growth, with revenues of $162 billion, up 18 per cent year over year and up 20 per cent on a constant currency basis,” said Ruth Porat, Chief Financial Officer of Alphabet and Google, in a press release.
And while earnings smashed through the $12.53 per share consensus expectation, revenue came in below the $46.94 billion analysts had on average forecasted. The drop in the stock has been attributed to the miss, along with the lofty heights that GOOGL had reached over the past few months. Between early June 2019 and mid-January 2020,
Alphabet’s share price had climbed 46 per cent from the low $1000.00 range to $1500.00 at its peak.
For the first time, Alphabet also released quarterly numbers for its YouTube and Google Cloud businesses, showing $15.15 billion in YouTube ads for fiscal 2019 compared to $11.16 billion in 2018 and $8.92 billion in revenue for the company’s cloud business compared to $5.84 billion in 2018.
That kind of growth in a company the size of Alphabet shouldn’t be underestimated, said Curry.
“We do hold this name and really like it. In terms of buying it right now, yes, they missed their numbers but I thought the numbers were pretty good,” said Curry, president and portfolio manager at Davis Rea, in conversation with BNN Bloomberg on Wednesday.
“Any company that can grow at 20 per cent over a long period of time is a good thing to me,” he said. “I think the new management team and having the two founders step away will be a positive, and I mean that by way of their other bets, which have been a bit of a black hole but I think you’ll start to see more traction there and potentially some external partners coming in which would be a positive.”
“But YouTube, I read that the amount of revenue that they generated in 2019 was nine times higher than what they paid for it. The payback is enormous,” Curry said. “And it’s the default place to go —name another search engine that people use— and the advertising and all the things they’re doing to help consumers, in my opinion. I think it’s a good growth story and that on pullbacks you can add to it.”
Google co-founders Larry Page and Sergey Brin stepped down in December from their posts as CEO of Alphabet and Google, respectively, a move which at the time seemed questionable as the company was and is facing growing pressure from regulators over anti-trust concerns.
Curry says that more than anything else, a precipitous rise is likely to blame for the recent slide.
“Our concern right now would be the overall markets because the stock has had such a good run so far just this year alone, you might wait for a bit of a market pullback. It’s a good, high-quality company and the valuation is totally within the realm of realistic possibility, for sure,” Curry said.