IBD Stock Analysis
- Stock now forming three-weeks-tight pattern with entry around 2,145
- Shares have found support at 21-day line, holding on to recent gains
- Relative Strength Rating at 69; investors should seek those with 80
Industry Group Ranking
Emerging Pattern
Three Weeks Tight
* Not real-time data. All data shown was captured at
12:39PM EST on
03/05/2021.
The IBD Stock of the Day, Alphabet (GOOGL), stands out amid market turbulence as the Relative Strength Rating of Google stock tops that of other FANG stocks — Facebook (FB), Amazon.com (AMZN) and Netflix (NFLX) — as well as Apple (AAPL).
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Google stock holds a Relative Strength Rating of 69 out of a best-possible 99, with its relative strength line at a new high. Facebook comes in with a Relative Strength Rating of 31, Amazon at 41 and Netflix at 47. Apple’s is a bit better at 61.
Truth be told, investors should look for a Relative Strength Rating of at least 80. But GOOGL stock has been doing a great job of holding onto its recent gap-up following its fourth quarter earnings report, despite the tech sell-off.
Google stock has found support at its 21-day line. From a weekly chart perspective, GOOGL stock has forged a three-weeks-tight pattern. That provides a new entry point around 2,145. Shares were up in afternoon trading Friday by 0.8% to 2,050.43.
Google stock bulls trumpet a rebound in digital advertising as Covid-19 vaccinations expand, boosting global economies as industries normalize. Internet search advertising and YouTube advertising revenue topped analyst estimates in the December quarter, sparking a rally in GOOGL stock.
Google Stock: Buybacks A Bright Spot
Meanwhile, an ongoing stock repurchase program has boosted earnings for GOOGL stock. In the fourth quarter, Google bought $7.9 billion of its own shares. It also purchased $7.9 billion in the September quarter and $6.9 billion in the June quarter.
Google has about $15.4 billion remaining in a stock buyback authorization.
On the other hand, Google stock bears point to tougher regulation ahead for the search engine giant.
The U.S. Justice Department on Oct. 20 filed an antitrust lawsuit against Google. Justice officials charged Google harmed competition and consumers by monopolizing internet search and search-related advertising.
Due to its huge cash holdings, GOOGL stock has shrugged off three fines totaling $9.3 billion levied by the European Union on antitrust grounds.
The Justice Department, though, could force Google to restructure if it wins in court. A legal battle likely will drag on for years.
GOOGL Stock Worth More Broken Up?
Some analysts, though, aren’t fretting even if Google eventually loses an antitrust battle. With a fast-growing cloud computing business, YouTube, the Waymo-branded autonomous vehicle business, Verily Life Sciences unit and other assets, Google might well be worth more broken up.
At Morgan Stanley, Google stock analyst Brian Nowak in a Jan. 24 report called out the company’s mobile search business.
“We estimate Google’s mobile search business operates at a 40% EDITDA (earnings before interest, taxes, depreciation and amortization) margin as a percent of gross revenue and expect it to grow EDITBA at a 15% annual compound growth rate between 2021 and 2024,” Nowak said in a report to clients.
According to Nowak, Google doesn’t yet trade on a “sum of the parts methodology,” unlike Amazon, Microsoft (MSFT), Apple and Tesla (TSLA).
Google is battling Apple in smartphones and Amazon in smart-home appliances.
Comparing ‘Mature’ Google Stock To Apple
With the Android mobile operating system built into devices sold worldwide, revenue growth from the Play Store continues to be a bright spot. However, the app service fees that Apple and Google collect face more regulatory scrutiny.
Google stock analyst Colin Sebastian from Baird questioned in a recent note how investors should value a “mature” Google versus Apple.
“From a valuation standpoint, we analyzed embedded expectations for Apple and Google by hardware and services contributions,” he said in a December report. “It appears that Apple’s services business trades at roughly 19 times revenues, well above Alphabet’s 5.2 times revenue. While we do not expect investors to award Apple’s multiples to other large technology enterprises, we think it’s instructive as a framework to evaluate Alphabet as another mature, high-quality platform company.”
Google’s December-quarter earnings rose 45% from a year earlier to $22.30 an adjusted share, including an investment gain on equities of $3.05 billion. Gross revenue rose 23% to $56.9 billion.
Google Cloud Computing Business Unprofitable
Cloud computing revenue climbed 47% to $3.83 billion vs. analyst estimates of $3.8 billion. Still, Google’s 47% cloud revenue growth lagged Microsoft’s 50% in the December quarter.
Further, Google said the cloud-computing business lost $1.24 billion in the December quarter and $5.6 billion overall in 2020. Google has increased spending on cloud sales staff for the enterprise market and data center infrastructure.
Additionally, YouTube advertising revenue rose 23% to $6.88 billion vs. estimates of $6.15 billion. Big brand advertisers upped spending on YouTube content.
Also figuring into Google stock: Overall advertising revenue rose 22% to $46.2 billion vs. estimates of $42.1 billion.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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