July Stock Split: Alphabet Stocks Before Stock Split: Should Investors Still Invest in the Google Group? | news

• Alphabet announces the July stock split
• YouTube ad revenue disappoints analysts
• Short-term challenges?

Stock split from 1 to 20

As part of its budget presentation for the financial year 2021, internet giant Alphabet announced that it would split the high-priced A, B and C class shares at a ratio of 1 to 20. This share split is expected to on July 15 after close of trading, giving each shareholder who holds shares on the key date of July 1, 19 additional shares. Not only could this make it easier for small investors to get into an alphabetical investment, according to “CNBC” the Google parent could also make the leap into the Dow Jones. So far, the search engine giant’s share price is too high to be included in the index.

But what does the upcoming share reallocation mean for interested investors? Should the shares be purchased before the split or might it be worth waiting until after the event?

Alphabet stock under pressure

The high share price could speak against a buy before the split. For example, Alphabet’s Class A shares were last traded at $ 2,134.31 per share (closing price on June 14, 2022). However, the stock price has been under pressure since the beginning of the year: A stock had already fallen by 26.33 percent in early January, after a 65 percent increase in 2021. The price performance of B and C shares is similar.

A and C shares are freely traded on the NASDAQ technology exchange. However, the B shares, which give shareholders ten times the voting right of the A shares, cannot be purchased publicly and are reserved for the founding shareholders and professionals. Conversely, C shareholders have no voting rights.

Although the stock market is currently in a panic amid the war in Ukraine, high inflation rates and fears of a rapid tightening of monetary policy, the decline in the price of Alphabet stocks is also likely to be linked to the latest quarterly results of the Internet group.

Alphabet falls short of expectations in the first quarter of 2022

Although the Google Group was still able to show significant growth in Corona’s past two years, the company’s pace of expansion slowed significantly in the first quarter of 2022. Although sales increased 23% year-on-year. at around US $ 68 billion, as Alphabet announced in April, analysts had expected a significantly larger increase. This also has statistical reasons, as CFO Ruth Porat explained. After the collapse of Corona in the spring of 2020, sales initially plummeted dramatically, but quickly recovered. Therefore, the first quarter of 2021 was also relatively strong. Of course, this pace can no longer be maintained.

Earnings per share for the first quarter of 2022 was $ 24.62 per share, compared to $ 25.75 per share forecast by experts. In the same quarter last year, the value was $ 26.29.

Amazon and Microsoft may contest Alphabet’s share in the business cloud

A closer look at individual areas reveals that the cloud business benefited from increased demand in the last quarter. The division’s sales grew nearly 44% to US $ 5.8 billion, while the operating loss shrank from US $ 974 million to US $ 931 million. This has reduced the disadvantage of the cloud segment, but there is still a long way to go before profitability is reached. According to Investor’s Business Daily, the fact that the internet giant wants to tighten the price screw for some products in October should help.

But even the competition does not sleep: Alphabet must assert itself against the top dogs Amazon and Microsoft. This could be successful with the help of former Oracle manager Thomas Kurian, whom the group recently hired. Additionally, according to IBD, Alphabet could expand its position in the cloud market through further acquisitions. Data analytics provider Looker, which offers tools for business intelligence and data visualization, migrated to Google’s portfolio as early as 2019. Cybersecurity provider Mandiant followed in March. According to the portal, further acquisitions are possible, which will allow Google to advance its cloud platform with a focus on security, open source software and data analytics – a combination that may appeal to some bullish Alphabet shareholders. According to UBS analysts, Google Workplace’s office tools should lead the cloud division as well.

YouTube Ad Revenue Analysts Disappointed

But Alphabet’s advertising activity should not be ignored in regards to the future development of the group. The tech group’s advertising sales increased approximately 22% to $ 54.66 billion in the last quarter. But even here, the competitor Amazon is dangerous for the Mountain View, California-based company. Especially in the area of ​​Internet search engine advertising, mail order company Google disputes the shares, IBD further reports. To counter this, Alphabet would have made changes in relation to the ecommerce offerings and made it easier to connect to the online store provider Shopify. Support for third-party cookies in the Chrome browser has also been postponed to the end of 2023.

The video platform and Alphabet subsidiary YouTube also saw an increase in advertising revenue in the last quarter. Here the increase in the first quarter was 14 percent to US $ 6.9 billion. However, analysts had expected $ 7.21 billion. And here, too, the competitive pressure is growing: as before with Facebook, now the Chinese social media app TikTok also challenges YouTube shares. According to the IBD, Google keeps to itself whether the platform is profitable. Bank of America analysts predict that YouTube’s subscription business will generate $ 18 billion in revenue by 2025. For comparison: in 2020, it was $ 5 billion.

Growth also foreseen in the investment budget

Additionally, Google’s capital expenditures are likely to increase significantly this year, as predicted by IBD. For example, data centers, artificial intelligence, YouTube and consumer products are among the main cost items of the Internet group. Alphabet management has also approved share repurchases worth $ 70 billion. Alphabet repurchased $ 13 billion worth of shares in the first quarter. “After exhausting most of its previous approval, Google stepped up its buyback program in April with the board approving an additional $ 70 billion in buybacks,” Deutsche Bank analysts said citing Investor’s. Business Daily. “The new and additional $ 70 billion authorization surpasses the previous $ 50 billion authorization announced in April 2021 and therefore represents a larger portion of the company’s current market capitalization when considering the current decline considered in the technology sector.” . Although the current schedule equates to just under five percent of Alphabet’s market value, the share could rise to seven percent of market capitalization for the remainder of the year and into 2023. This could be an indication of future buybacks.

Goldman Sachs and Morgan Stanley see upside potential

So is it still worth getting into the paper right now or should investors be patient until after the stock split? Experts from US investment bank Goldman Sachs are already recommending the purchase of Alphabet shares. Analyst Eric Sheridan recently lowered his forecast for the US tech sector due to expectations of a weaker economic environment, but the market watcher didn’t shake the $ 3,000 price target for Google’s parent company. . His industry colleague Brian Nowak of competitor Morgan Stanley also sees the paper at US $ 3,000 long-term, online magazines “” and “Pulse 2.0” report, citing a study by the financial house. This would correspond to an increase of more than 40 per cent from the current price level. Previously, the strategist thought a price of $ 3,270.00 likely, but now he maintains his “overweight” rating. However, Nowak’s downgrade also came as part of an industry re-rating that generally underperformed the internet industry. “Given the heightened uncertainty, we are taking a more pragmatic approach to our online advertising and e-commerce estimates. We now model growth of ~ 13% / 16% yoy for online advertising and ~ 8% / 10% yoy. – on-year for e-commerce in ’22 / ’23, “the Morgan Stanley expert said, according to

Although the share price could stumble in the coming months due to a weak economic environment and disappointing ad sales on the YouTube video portal, tech expert Leo Sun of the market portal “The Motley Fool” also believes, but it is likely that are only short-term challenges. Sun expects strong growth for the group within the next ten years. As for the upcoming stock reallocation, the specialist gives the green light: He expects the Alphabet stock price to benefit from the event, as the notes could increasingly become the focus of private investors and options traders. “Put simply, this tech titan remains a rock solid investment in a turbulent market,” said Sun.

However, it remains to be seen whether the shares of the search engine group will be able to maintain their position in the currently weaker market environment over the long term and what consequences the stock split will have on the stock price. editorial staff

This text is for information purposes only and does not constitute an investment recommendation. GmbH excludes any claim for recourse.

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