Despite staging a small bounce over the last couple of months, the technology-heavy Nasdaq 100 index is still down 24% in 2022. That places it firmly in bear market territory, and while these conditions are difficult for investors to navigate, it has created some enticing opportunities.
Google parent company Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG) just delivered its second-quarter earnings results on July 26. It missed Wall Street’s expectations for the most part, but there were some bright spots, which garnered a positive response from investors who in turn sent the stock 7% higher on the next trading day.
Alphabet is fresh off its 20-for-1 stock split earlier in July, which made it a more affordable proposition for smaller investors. And on the back of its earnings report, now might be a great time to build a position.
Alphabet’s diversity continues to shine
Alphabet’s portfolio of different businesses has created diverse revenue streams for the company, so when some segments are struggling, others will often pick up the slack. That’s a valuable feature to have in the presently difficult economic environment.
Google Search remains Alphabet’s flagship service, but it’s supported by the world-leading video platform YouTube and an expanding hardware segment that is responsible for the Pixel smartphone and the Nest series of home devices. But it was Google Cloud that expanded the fastest in the second quarter, by a wide margin.
While Alphabet’s total revenue grew by just 13% year over year and raked in $69.7 billion for the quarter, Google Cloud delivered a revenue jump of more than 35% over the same period, soaring from $4.6 billion in Q2 2021 revenue to $6.3 million in the second quarter this year. Google Cloud only represented 9% of Alphabet’s revenue base, but since that segment is growing more quickly than the rest of the company, that was also an increase compared to 7.4% in the year-ago quarter.
It probably won’t be the last time Google Cloud outperforms the rest of Alphabet. The cloud industry continues to grow in value, with one estimate by Grandview Research suggesting cloud services could be a $1.5 trillion annual opportunity by 2030. As the corporate sector embraces digital technology at a rapid pace, the need for cloud-based services like data storage and analysis, cybersecurity, or even advanced tools like machine learning will only expand.
Watch YouTube for the rest of 2022 (not literally, of course)
Alphabet (when it was still just Google) purchased video platform YouTube in 2006 for $1.65 billion. It generated $7.3 billion in revenue in the second quarter of 2022 alone, so it’s safe to say that bet paid off. Growth was slow for the quarter coming in at just 4.8%, but it was up against a very strong number in the year-ago quarter.
The future of the platform is exciting. Alphabet just reported that the YouTube “Shorts” format is accessed by over 1.5 billion users every month, with 30 billion daily views. This is important because it’s designed to compete directly with ByteDance’s TikTok, the fastest-growing social media platform in history. Shorts’ user base places it approximately on par with TikTok already, which is an impressive feat given it launched just two years ago.
YouTube also inked a new partnership with e-commerce platform Shopify this month, which will allow creators to tag products in their videos and live streams, so consumers can shop directly from the content they’re watching. This marks a new phase in digital commerce, which makes the entire experience far more engaging.
Alphabet stock looks very attractive right now
Alphabet stock has declined by 22% in 2022 alongside the broader tech sell-off, and it currently trades at a discount to the value of the Nasdaq 100 index.
The company has generated $72 billion in net income over the past four quarters, which translates to $5.37 in earnings per share (adjusted for the recent stock split). That places Alphabet stock at a price-to-earnings multiple of 20.9, which is 18% cheaper than the Nasdaq 100 index’s multiple of 25.7.
The advertising industry will face some headwinds for the rest of 2022. High inflation is hitting the bottom line of the corporate sector, forcing companies to trim their spending on line items like marketing. The consumer may also suffer at the hands of rising interest rates, which means advertisers could face a lower return on their investment.
But some early indicators suggest the worst of these pressures might already be in the rearview mirror. If that’s the case, Alphabet stock is a great buy here, especially for investors with a long-term time horizon.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.