Google is one of the most widely known and powerful companies in the world. With its search engine dominating the market and its many other products and services, Google is often seen as a great investment opportunity, but is it really a good stock to buy?
Today, we will analyze the financial performance of Google, its outlook for the future, and the risks associated with investing in the company to help you decide if it is a good stock to buy. Let’s get started!
Is Google a Good Stock to Buy?
Google is an established company that will continue to dominate in long-form video as well as in the advertising space. Currently, they seem to be attempting innovation across platforms and are seeking new methods of revenue via things like hardware and cloud computing. Google has remained relatively unchallenged in its domain, but competition is on the rise. Still, Google, if it can continue to innovate and put the right money in the right place, should be a safe investment for the future.
Let’s talk more about it.
Google’s Core Business and Competition
Google is a multinational technology company that specializes in internet-related services and products. The company’s core business is advertising, which is facilitated by its online search engine. In fact, Google makes over 80% of its revenue from advertising alone, making it the primary measuring stick for company success (and an important metric for investors to watch).
Google’s search engine is the most widely used in the world, and it generates the majority of the company’s revenue through the sale of advertising space on the search engine results pages. The company also offers a range of other services and products, including cloud computing, hardware, and software.
In addition to its core advertising business, Google also owns and operates the popular video-sharing platform, YouTube. YouTube allows users to upload, share, and view videos, and it has become a major source of entertainment and information for people around the world. Like Google’s search engine, YouTube generates revenue through the sale of advertising space on the platform (about 11.2% of the total company revenue).
Despite being one of the largest tech companies in the world, Google is still under pressure from competitors in the space, particularly when it comes to revenue. At the end of the day, advertisers want eyes, and if someone else provides eyeballs for longer periods of time, they will shift money accordingly.
One of Google’s long-time competitors is Meta (formerly Facebook), although both companies have been experiencing a slowdown in ad revenue over the past few years. As these two giants compete for advertiser dollars, a third company has jumped into the mix with a more addicting platform and incredible growth potential: TikTok.
TikTok is a social media platform that has gained significant popularity in recent years. The platform allows users to create and share short-form videos, and it has become especially popular among young people. While TikTok is not directly comparable to Google’s products and services, the platform’s rapid growth has attracted the attention of both users and advertisers, and it presents a potential threat to Google’s dominance in the online advertising space, particularly in relation to YouTube.
Google’s Stock Performance Over the Past Year
The past year has been a really tough one for the U.S. markets, the global markets, and tech stocks, particularly. Google is one of the largest tech companies in the world and, despite its size, hasn’t been immune to the economic downturn.
As the COVID crisis began and continued for well over two years, companies like Google, Amazon, and Nvidia all came out with record profits and overall valuations. In fact, for most of these companies, the record numbers ended up leading to a lot of hype. Where there’s hype, there’s eventually a correction.
During the economic peak of this past cycle, around November 2021, Google reached a stock price of over $150 (in class A shares), putting its total valuation just under a whopping $2 trillion. The good times weren’t to last, however, and like almost every other large tech company, December 2021 signaled the long turn downward. In the past year, Google has lost nearly 40% of its value, ending up around the current $90 share price that it’s currently trading at.
The reason? For many investors, the tech “crisis” seems to be a mixture of macro trends like hype correction, a strong U.S. dollar, inflation, and consumer fear. For Google, this is probably the case as well, but there is certainly something else going on.
Advertising Woes and the Future Outlook
Although the macro trends of the global market apply to Google, there is also something else of importance that probably applies to Google and other advertisers specifically: ad revenue is down, and competition is up.
Globally, companies have pulled back ad budgets and spending, likely as a result of consumers’ spending habits and fear, coupled with inflation. For Google, whose revenue is almost entirely dependent on ad revenue, this season could be a bit scary. Additionally, competitors like TikTok are essentially rising stars in the world of social media, and while not in direct competition with Google, it will impact where ad money is being spent by advertisers. YouTube reported a 2% decrease in ad revenue Y/Y, for reference.
On the bright side of things, Google has some options. Investment into AI, continued cloud computing growth, and a total monopoly on search still means that Google is going to be just fine, and with a lot of runway before anything drastic would need to be done. Other companies like Meta and Snap probably have a lot more to worry about.
In short, Google is suffering a bit from larger-scale economic problems and will eventually recover as the market turns bullish. Still, the decision to innovate versus sitting on past success will determine the long-term viability of the company in the ever-changing technology sector.
Overall, Google has to weather the current economic storm, while also prepping to keep from falling into irrelevancy in the coming decade. With some of the best engineers, coders, and innovators on the planet, it’s likely Google will be able to keep up. There is still a LOT of short-term volatility, but as soon as it settles out, Google is probably a good long-term investment.
Here are some key things to remember:
- Google is in the tech sector, the hardest hit sector in the post-COVID economy so far.
- Competition is on the rise, and advertising revenue is on the decline, both things Google needs to address.
- As long as Google innovates and addresses the immediate problem of advertising revenue, the company will likely continue to dominate in the tech world.
The image featured at the top of this post is ©Grisha Bruev/Shutterstock.com.