Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) owns Google, the global leader in online advertising and one of the most valuable brands in the world. So far in 2019, Alphabet stock is up 30%, slightly exceeding the returns of the S&P 500.
Source: rvlsoft / Shutterstock.com
I think Alphabet has a strong business model and solid competitive strengths. Thus, I expect Alphabet and GOOGL stock to perform well in 2020. But there may be some gray clouds on the horizon for Alphabet stock.
Google’s Advertising Revenue Will Likely Propel Alphabet Stock Higher
Google controls almost 90% of global internet search. And about 80% of Alphabet’s revenue comes from advertising.
Over the next five years, analysts, on average, expect Google’s annual mean earnings growth to be almost 18%. That’s impressive.
It’s also important to remember that there will be a U.S. Presidential election in November 2020.And in this election cycle, digital campaign expenditures by candidates of both parties will likely result in additional gains by Alphabet stock and FB.
Pichaya Winichakul of New York University School of Law concluded that “platforms, like Facebook, Twitter, and Google, have become more prominent players in politics because technological advancements have changed the way people receive information. It is unsurprising that more groups with more money to spend … are spending more on digital media. For reference, digital ads accounted for 1.7% of all political advertisements in 2012. In 2016, digital ads made up 14.4% of all political advertisements.”
Also noteworthy is that Alphabet has a great deal of cash. As of the end of the first half of 2019, it had $121 billion of cash and cash equivalents. Companies that have ample cash on hand are able, in general, to better weather the ebbs and flows of their industries.
New Leadership May Boost Alphabet Stock
In early December, Alphabet announced that Google co-founders Larry Page and Sergey Brin would be stepping down as CEO and president, respectively. Both men will remain on the board of directors.
Sundar Pichai, who was the CEO of Google, has become the head of Alphabet. Over the past few weeks, the Street has been discussing the potential effect of this leadership change on GOOGL stock.
J.P. Morgan analyst Doug Anmuth believes that under the new CEO, Alphabet might be “more amenable to larger share buybacks.” Share buybacks are likely to support Alphabet stock price.
Wall Street is also discussing whether the company may start to work more closely with regulators. as it copes with multiple regulatory challenges. It’s important for the owners of Alphabet stock to stay aware of the company’s regulatory issues.
Alphabet’s Regulatory Challenges
In June, the U.S. Department of Justice indicated that it would investigate several big tech names, including Alphabet, for antitrust violations.
James Alleman of University of Colorado, Boulder stated that, “Facebook, and Google have control over what information and news we receive through “black-box” algorithms; they select what we need. In addition, these platforms have not taken significant measures to address “fake-news”, bots, trolls, or other malicious software on the internet.”
In November, Alphabet announced that it would acquire Fitbit (NASDAQ:FIT), the smartwatch maker. The takeover came around the time when the Department of Health and Human Services also announced that it would investigate Alphabet’s collection of healthcare data from millions of Americans. And now the company faces a new antitrust probe of the Fitbit deal by all 50 state attorneys general.
Google isn’t being targeted by various regulatory bodies only in the U.S. The European Union (EU) has also been looking at its bundling of apps with Android, as well as its advertising strategies and tax payments. As a result of the EU’s General Data Protection Regulation (GDPR) which was introduced in 2018, the EU has far stronger data protections for consumers than most other countries.
So in 2020, Alphabet’s new CEO is likely to oversee the company’s efforts to cope with regulatory probes on both side of the Atlantic.
In the long-run, Google may well be able to defend itself successfully against regulators. But for the owners of Alphabet stock, headlines about these probes will create uncertainty in the short-term.
So Should Investors Buy GOOGL Stock Now?
It would not be an exaggeration to say that Alphabet has mastered the science of collecting and employing data to connect advertisers and consumers.
In 2019, Alphabet impressed investors as its core advertising business continued generating double-digit-percentage revenue growth.
I expect Alphabet stock to be one of the most widely followed companies in the market, and I predict that GOOGL stock price will reach new highs in 2020, too.
However, Google stock may encounter some volatility and profit-taking in the coming weeks, especially prior to the release of its Q4 earnings report in late January.
When Alphabet unveiled its Q3 earnings in October, the results failed to impress analysts. Therefore, many owners of Alphabet stock may become cautious prior to the Q4 results and take some money off the table.
Furthermore, given the recent impressive gains by GOOGL stock, especially in the past few months, its short-term technical indicators have become somewhat overextended. Investors who pay attention to short-term technical charts and oscillators should note that Alphabet stock looks overbought.
Stocks can be viewed as pendulums or rubber bands. They can rise for awhile, but eventually they will return to a more balanced state. Thus, the recent rally of Google stock may pause soon.
I would not advocate buying Alphabet stock on near-term weakness. But I think Alphabet stock would look compelling for long-term investors if its price drops toward $1,300 and $1,250.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
More From InvestorPlace
- 2 Toxic Pot Stocks You Should Avoid
- 10 2019 Losers That Will Be 2020 Winners
- 7 Safe Dividend Stocks for Investors to Buy Right Now
- 5 Artificial Intelligence Stocks to Consider
The post Investors With a Long-Term Horizon Should Consider Buying Alphabet Stock in 2020 appeared first on InvestorPlace.