Whose opinion do you trust when deciding to invest in a company’s stock? It shouldn’t be your friend who keeps boasting about their big wins in the market nor the financial news outlets that have vested interests. It should ideally be the analysts, the financial experts who constantly track the markets and know everything there is to know about investing. So, if Wall Street analysts believe you should buy Alphabet stock, wouldn’t it be smart to actually do that?
But, then again, you should not blindly believe anybody when it comes to money decisions. Instead, you can do a few strategic things to know for yourself if Alphabet stock is a winner and deserves a place in your investment portfolio.
- Look at Alphabet’s financial performance
Everybody knows that before you decide to invest in any company, you need to take a look at its core financial fundamentals to make a strategic decision. But what are the important financial metrics to look at to truly gauge the financial health of the company? Essentially, they are:
- Revenue
- Revenue growth year over year
- Operating profit margin
Here’s a look at these three key metrics for Alphabet over the last three fiscal years:
| Years/Metrics | Revenue ($) | Revenue Growth | Operating Income |
| 2022 | 282.83 billion | 9.78% | $74,842,000 |
| 2021 | 257.64 billion | 41.15% | $78,714,000 |
| 2020 | 182.53 billion | 12.77% | $41,224,000 |
It’s essential to look at the revenue growth instead of just looking at the revenue of one isolated year because a company that’s doing well will consistently increase its revenue.
As for the operating profit, it is a key profitability ratio that investors look at because it tells you how effectively the company is managing its expenses. This is important because it determines how much of the revenue earned is being converted into profit after accounting for the operating expenses.
It’s also helpful to look at the latest quarterly data. Here are the highlights from Q1 results:
| Year/Metrics | 2023 Q1 Revenue ($) | Earnings per share |
| Actual | 69.79 billion | $1.17 |
| Expected (Refinitiv) | 68.9 billion | $1.07 |
- Understand the revenue break-up between different business units
In the first quarter of 2023, Alphabet earned $69.79 billion in revenue. Alphabet’s financials are structured in three parts – Google Services, Google Cloud, and ‘other bets’. Other bets include all other subsidiaries of Alphabet ranging across sectors from self-driving cars (Waymo) to biotech research (Calico).
The majority of Alphabet’s revenue is derived from Google ads. In the first quarter, Google’s advertising revenue, which includes Google Search, YouTube ads, and Google Network, amounted to $54.5 billion, slightly lower than the $54.6 billion recorded in the same period last year. This represents a second consecutive decline in advertising revenue for Google during the quarter.
Google Cloud Platform, which is Google’s cloud-computing division, competes with Amazon Web Services and Microsoft Azure. In the first quarter, the cloud-computing unit achieved a profit of $191 million, a significant improvement from the loss of $706 million in the previous year. Moreover, the unit’s revenue increased by 28% to reach $7.4 billion, compared to $5.8 billion in the previous year.
- Consider the stock price performance over the years
Once you have looked at the financial performance of the company, the next thing to consider is its stock performance. It’s good to look at the performance over different periods for accurate understanding.
3-year performance:
| Year | Average stock price ($) | Year high ($) | Year low ($) | Annual change (%) |
| 2022 | 114.7604 | 148.0000 | 83.4300 | -39.09 |
| 2021 | 124.2249 | 149.8385 | 86.1440 | 65.30 |
| 2020 | 73.9497 | 91.2485 | 52.7065 | 30.85 |
- Look into the largest investors
An aspect that most investors forget to look at is who the major shareholders of the company are. This is usually broken down into two categories – corporate insiders, such as directors and employees, and institutional investors.
It pays to know who the largest shareholders are because by keeping a track on their trading activity you can get a better insight into the stock’s prospects. As for Alphabet, the top institutional investors include:
- Vanguard Group Inc. – 7.14%
- Blackrock Inc.- 6.23%
- State Street Corporation – 3.27%
- Price (T.Rowe) Associates Inc.- 2.07%
- FMR LLC – 1.80%
- Geode Capital Management LLC – 1.66%
- Capital International Investors – 1.46%
- Jp Morgan Chase & Company – 1.22%
- Morgan Stanley – 1.18%
- Northern Trust Corporation – 1.02%
- The verdict
As you can tell by now, Alphabet has consistently outperformed the market significantly and has a history of strong growth. But the most important factor is its expansion plans to continuously increase market share in various industries. So, yes, it would be smart to go ahead and buy its stock.
You can look at investing in Alphabet either through tech Exchange Traded Funds (ETFs) or through fractional investing that allows you to buy a fraction of one share. Both these ways make stocks of tech giants like Alphabet accessible and more affordable. Whichever way you choose, Appreciate offers you easy, one-click, low-cost investing through our app. Check it out today to begin building your portfolio in a way that ensures wealth creation.
