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Earnings Season Sell-Off: Is This Tech Giant a Buy?

Cropped shot view of businesswoman using her laptop in cafeteria. — Photo

Key Points

  • Google stock is down nearly 5% after the company announced its quarterly earnings results, but the sell-off has nothing to do with the numbers.
  • Posting growth across the board, the company's segments suggest that the business cycle might be about to close soon.
  • Wall Street analysts boosted the stock's target after the release, and for good reason.
  • 5 stocks we like better than Alphabet.

This quarter’s earnings season has kicked off. Investors are now centering their attention on the technology sector, as the biggest names report how the first half of 2024 has been going for them, giving markets – and investors – a feel for what could come throughout the year's second half. This week, one of the sector’s giants, Alphabet Inc. NASDAQ: GOOGL, came in to give a potential buying opportunity.

Alphabet Today

Alphabet Inc. stock logo
GOOGLGOOGL 90-day performance
Alphabet
$191.41 +2.90 (+1.54%)
(As of 12/20/2024 05:45 PM ET)
52-Week Range
$130.66
$201.42
Dividend Yield
0.42%
P/E Ratio
25.39
Price Target
$206.69

After reporting its second-quarter 2024 earnings, Alphabet (Google) stock is down by over 5%. However, this selloff might not have anything to do with the actual results or the current state of the company’s operations. Instead, some could blame a broader market decline. The S&P 500 is also down by nearly 2% on the day, dragging stocks like Google with it, as technology names are typically more volatile than the market.

Now that the stock has retreated from a new 52-week high, investors should investigate the results that brought about the discount rather than blindly buy into the downward momentum. A few metrics should be considered for this decision, and they can all be found by studying not only Google’s results but also the business cycle.

Google's Earnings Highlight Its Position in the Current Business Cycle

Looking at the main drivers in Google’s business, investors can see how the business cycle might be about to bottom. Revenues for the quarter reached $84.7 billion, which, compared to $74.6 billion a year prior, represents a 14% increase over the past 12 months.

More than that, the company’s operating margins improved, as $27.4 billion in operating income showed investors an operating margin of 32% for the quarter compared to 29% a year ago. Of course, all of this growth and improvement trickled down to what investors – and markets – care about the most: earnings per share (EPS).

Net income of $23.6 billion would translate into $1.89 EPS for the quarter, a significant jump of over 31% for the year. Given this, investors need to understand the story behind the numbers to reasonably project expectations moving forward.

Alphabet Inc. (GOOGL) Price Chart for Sunday, December, 22, 2024

Google’s revenue growth mainly came from Google Advertising. Reaching $64.6 billion made this segment the biggest and fastest growing for the company. This is where investors can start to ask questions about the state of the business cycle.

Advertising revenue is made from businesses, both big and small, buying advertising space on Google to gain exposure for their businesses. However, to make this happen, businesses need to have enough marketing budget to pay Google to sponsor the ads.

Most investors drop the ball here; they cannot see that bigger advertising revenue in Google also means a better state of affairs for businesses, as marketing is typically the last thing to worry about unless business is booming.

Considering that the ISM services PMI index is now below the 50% mark, and anything below 50% meaning contraction, it looks like the bottom – and rebound – might be in soon, or at least that’s what Google’s advertising revenue numbers suggest.

Strong Financials Reinforce a Positive Outlook for Google Stock

With the company’s rise in cash flows, management could only do the right thing this quarter. Among many great decisions, it took as many as 300 million shares off the market by allocating up to $15.6 billion of capital to the company’s repurchase program.

Alphabet MarketRank™ Stock Analysis

Overall MarketRank™
73rd Percentile
Analyst Rating
Moderate Buy
Upside/Downside
8.0% Upside
Short Interest Level
Healthy
Dividend Strength
Weak
Environmental Score
N/A
News Sentiment
1.15mentions of Alphabet in the last 14 days
Insider Trading
Selling Shares
Proj. Earnings Growth
11.24%
See Full Analysis

It is no coincidence that just a day after the quarterly earnings announcement, analysts at Mizuho Financial upgraded Google stock’s price target. This time, these analysts see up to $210 a share potential for Google stock, daring it to rally by as much as 20.6% from the discounted levels it trades at today.

More than that, there are other metrics investors can follow to decrypt how the market feels about Google stock compared to its peers. Through valuation multiples like price-to-book (P/B) ratios, investors can determine whether the stock is a positive or negative outlier from the rest of the pack.

By trading at a 7.9x multiple, Google stock commands a premium of 16.2% from the rest of the computer sector. Now, investors know better why the market might be willing to overpay to access Google’s book value today.

Should you invest $1,000 in Alphabet right now?

Before you consider Alphabet, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Alphabet wasn't on the list.

While Alphabet currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

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Gabriel Osorio-Mazilli
About The Author

Gabriel Osorio-Mazilli

Contributing Author

Value Stocks, Asian Markets, Macro Economics

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Alphabet (GOOGL)
3.6643 of 5 stars
$191.41+1.5%0.42%25.39Moderate Buy$206.69
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