Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) shares are down just over 32% in the last year, with a slight rebound of close to 3% over the last month.
I bought Alphabet stock at the end of last year in the hope that the price had hit the bottom. Here’s why I’m going to increase my investment throughout 2023.
The last couple of months have been rough for companies in the technology sector. Nearly every major tech corporation has been cutting jobs and finding other ways to reduce expenditure.
Microsoft just cut 10,000 jobs, Meta laid off 11,000 workers in November, and Amazon increased its layoffs to 18,000, up from an initial 10,000.
So far, workers at Google have been spared from this kind of mass forced exodus. Instead, the company has been cutting costs in other ways. One cost-cutting measure was to kill off its cloud gaming service, Google Stadia.
Support for it ended on 18 January, after three years of thoroughly underwhelming performance. It’s unclear exactly how much money the closure of Stadia will save Alphabet. Still, it has been reported that the company spent up to $20m per game for developers to put their titles on the service.
Alphabet dropping Stadia is unfortunate, but it’s positive that the company won’t be bogged down in the expensive gaming market. The company would have needed to invest billions more into Stadia to be competitive with the likes of Sony and Microsoft. That wouldn’t have been a reasonable proposition in this challenging economic climate.
Short or long term
In the short term, Alphabet cutting costs will help to minimize the revenue damage that could stem from companies reducing their advertising budgets.
During a recession, advertising budgets are among the first to be slashed. Over 80% of Alphabet’s revenue comes from its Google ads business. That could put the company in quite a predicament.
However, the company has had massive revenue growth over the last few years. For example, revenue in 2021 ($257bn) was nearly double that of 2018 ($136bn). That increase led to the company’s net profit more than doubling at the same time from $30bn in 2018 to $76bn in 2021.
To me, that looks like a lot of room for Alphabet to withstand a prolonged reduction in advertising expenditure. Reducing costs, as the company has been, is one way of doing that.
If next month’s earnings report beats expectations, there could be a short-term gain to my buying Alphabet shares now. That’s why I will add to my current Alphabet position before the earnings report is released. I plan to hold onto the shares until retirement, but if I can maximize my monthly investments now, I will.
Should the earnings report disappoint and the share price drops further, I will be buying more shares then too. For the long term, I don’t think there has been a better time for me to buy Alphabet than over the last few months. I want to take advantage of the low price-to-earnings ratio of 18-19 that the company has maintained recently, one of its lowest points in the last decade.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Matt Cook has positions in Alphabet. The Motley Fool UK has recommended Alphabet, Meta Platforms, and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2023