alphabet (WKN: A14Y6H, 4.24%) (WKN: A14Y6F, 3.72%) is planning a stock split of 1:20 on July 15th. Although stock splits do not affect a company’s intrinsic value, they give some small investors the impression that the stock is cheaper now and that they may be able to invest in its price range. They also make the stock attractive to those investors who do not have a broker offering sub-shares.
Regardless of the news of the stock split, Alphabet was caught in the general market sale in 2022. The technology giant’s share price has fallen about 28% since the peak in November.
The combination of stock splits (which spur investors’ interest in the short term) and the downturn (which are likely to be temporary) provide long-term investors with a great opportunity to gain exposure to this growth stock at a reasonable price. I suppose in five years many investors will either say thank you or kick ass, depending on whether they bought Alphabet shares or missed the opportunity.
Let’s look at why Alphabet shares are a buy at these prices.
Google is the most dominant search engine in the world
For the first quarter, which ended March 31, Alphabet’s Google search division had revenue of $ 39.6 billion. That’s an increase from $ 31.9 billion in the same quarter last year. Google has a market share of 85.5% of global search engine traffic. In addition, many purchasing decisions begin with a search query. You can understand why marketers struggle to rank well in Google search results.
Google services, which include YouTube’s advertising revenue, had total revenue of $ 61.4 billion in the previous quarter, up from $ 51.2 billion the year before. With over 2 billion monthly active users, YouTube is not a blank slate. It is yet another Alphabet company that is catching the attention of many consumers. The best part is that these services are free to the public.
Of course, it is difficult to compete against a free product. That explains why Alphabet has managed to maintain a dominant position in the industry for so long. Sales exploded from $ 46 billion in 2012 to $ 258 billion in 2021. Impressively, despite offering its services to users for free, Alphabet has generated operating revenues over the time that have grown from $ 13.8 billion to $ 78. 7 billion.
ALPHABET SALES (ANNUALLY), DATA FROM YCHARTS
As Alphabet’s supremacy is not under immediate threat, investors can expect the company to sustain its revenue and earnings growth for several years to come. Global advertisers spent $ 763 billion in 2021, an increase of 23% over 2020. Budgets are increasingly shifting to digital channels, making it easier to measure returns. With Alphabet’s sales exploding over the past decade, it’s safe to assume that the company is offering advertisers an excellent return.
Alphabet is an excellent company that is sold at a good price
ALPHABETER PRICE / FREE MONEY FLOW, DATA FROM YCHARTS
Alphabet shares are traded at a price / free cash flow ratio of 21 and a price / earnings ratio of 20. By these standards, Alphabet shares are the cheapest it has been in five years. It can actually be difficult to buy shares during a sale, but investors may regret not adding Alphabet to their portfolios at these prices in the coming years.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fools’ board. This article is written by Parkev Tatevosian and was published on Fool.com on 21/6/2022. It has been translated so that our German readers can participate in the discussion. Parkev Tatevosian owns Alphabet (C shares). The Motley Fool owns shares in and recommends Alphabet (A shares) and Alphabet (C shares).