Google's Earnings Confirm It's a Buy

After the worst Q1 in stock market history, investors have been watching closely to see which companies can recover the quickest and the bounce has been well underway for many since the end of March. With Q1 earnings starting to flow in, Wall Street is finally getting a good look at the real damage from the economic slowdown brought about by Covid-19.

Tech has been one of the stronger performing sectors, with SaaS and cloud-based products paired with subscription-based revenue streams proving to be particularly resilient to a nationwide shutdown and enforced shelter-at-home orders. The likes of Amazon (NASDAQ: AMZN) have already seen their shares jump to fresh all-time highs as a result of the economic shift.

Double-Digit Percentage Growth

And having released Q1 earnings after the bell on Tuesday shares of Alphabet, better known by Google (NASDAQ: GOOGL), look set to continue their recovery into May as well. Even though EPS missed expectations, revenue came in on top and showed growth of 13% year on year. Their Search, YouTube, and Cloud segments all played a significant role in the revenue numbers despite the coronavirus pandemic. Shares are still down about 20% from February’s highs but in reality, this only puts them back at last November’s levels. Investors have been around long enough to know that Google stock can more than make up that kind of gap in a matter of weeks if not days.

The big concern coming into this release was ad revenue, with many analysts thinking the risk had been forgotten about as Google’s stock caught bid after bid this month. And while ad revenue did decline on YouTube by 14% compared to the previous quarter, it was still up 34% year on year.

Sundar Pichai, CEO, said with the release; “given the depth of the challenges so many are facing, it’s a huge privilege to be able to help at this time. People are relying on Google’s services more than ever and we’ve marshalled our resources and product development in this urgent moment.” Ruth Porat, CFO, struck a similar tone when she said “performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues. We are sharpening our focus on executing more efficiently while continuing to invest in our long-term opportunities.”

Getting Involved

All in all there’s little here for investors to be concerned about and at the time of writing, Google stock is up more than 8% in pre-market trading. For those thinking of getting involved, there’s probably no time like the present with much of the risk and uncertainty that drove the stock down 33% dissipating. The boat has definitely been rocked but in the grand scheme of things, this will look like just a hefty, albeit wicked fast, sell-off on the stock chart.

Shares fell more than 16% in two weeks back in February 2018, 18% in four weeks in October of that year, and 20% in four weeks in May of last year. Interestingly, the most recent sell-off ran out of steam around the $1,000 level which is exactly where the bulls stepped in in droves on each of those previous occasions. By the end of last summer, shares had traded largely sideways for about 18 months but had started a strong breakout in the second half of last year. From last June to this past February they rallied almost 50% and were printing fresh high after fresh high.

That’s the kind of momentum investors should be looking for the company to recapture as things gradually return to normal. With the internal numbers still growing by double-digit percentages year on year, investors could do worse than pick up shares of an $850 billion behemoth that is still trading at a significant discount.