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How to buy Alphabet stock (GOOGL)

·8-min read
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Shares in Alphabet, Google’s parent company, have fallen by as much as 30% this year from their high of $152 (£126) in late 2021. As with other US technology companies, rising interest rates, soaring inflation and fears of an economic recession have taken their toll on valuations.

However, there’s been better news for Alphabet shareholders in the last few weeks. Its share price has climbed by nearly 16% to $118 (£98) after the company announced second quarter results that missed expectations, but not by as much as feared.

Alphabet also completed a 20-for-1 share split in July after its share price topped $2,200 (£1,818). The company hopes that the lower price per share will make the shares more accessible to smaller retail investors.

Mixed second quarter results

Alphabet reported revenue of $69.7 (£57.6) billion for its second quarter, slightly under analysts’ forecasts of $69.9 (£57.8) billion according to Refinitiv. Although the company achieved a 13% growth in revenue from the first quarter, the rate of growth has slowed, principally due to a reduction in advertising spend by companies.

Google continues to dominate the internet search engine market, with a global share of over 80% according to Statista. Google Search provides the foundation for the majority of Alphabet’s advertising revenue, and delivered a 14% quarter-on-quarter increase in revenue.

Cloud services continue to be one of Alphabet’s highest-growth businesses although Statista reports that its current market share of 10% is substantially below that of Amazon (33%) and Apple (21%). The cloud business is currently loss-making due to the substantial investment in infrastructure development, although it achieved quarterly revenue growth of 36%.

There was less positive news for the YouTube division, which delivered only a modest 5% increase in advertising revenue. YouTube continues to face stiff competition from TikTok and Instagram reels in the video market.

Due to an increase in operating costs, partly due to higher headcount, operating profit remained flat quarter-on-quarter. Overall, earnings per share of $1.21 (£1.00) were slightly below the Refinitiv forecast of $1.28 (£1.06) for the quarter.

Bumpy outlook ahead

Looking ahead, Alphabet hopes that cloud services will continue to drive future growth, however the challenging macroeconomic environment will continue to put pressure on advertising budgets.

As a result, the company is looking to control costs by slowing its recruitment program. Shareholders will also be reassured that the company’s substantial cash reserves should enable it to weather an economic downturn.

Despite the fall in share price, Alphabet has delivered annualised returns of 20% for shareholders over the last five years according to Morningstar.

Current analysts’ forecasts also suggest potential upside from its current share price of $118 (£98), with a high of $165 (£136) and low of $113 (£93), based on data from WSJ Markets.

Let’s take a closer look at what you need to know about buying and selling Alphabet shares.

Investing in share-based investments can be a good way to produce higher returns than cash-based investments. However, your investment can go down as well as up, and you may not get your money back. If you are unsure as to the right investment, you should seek financial advice.

How to buy Alphabet shares

Before you decide to open an account, you should set your investment goals, including the amount you wish to invest, the length of time you plan to invest for, whether you are comfortable with the risks involved and whether you can afford to lose the money.

If you are looking to buy Alphabet shares, the following steps will guide you through the process:.

1) Open a trading account

Whether you’re an experienced share trader, or a beginner, you’ll need to open an account with a trading platform.

It’s worth taking the time to review the costs involved - most, but not all, platforms charge a share trading fee and some may also charge an annual platform fee for holding shares.

There are a variety of trading platforms available, from online DIY platforms such as Hargreaves Lansdown, AJ Bell and interactive investor, to app-based platforms such as eToro and Trading212.

2) Where is Alphabet traded?

The ticker symbol for Alphabet is GOOGL. Alphabet is traded on the Nasdaq in the US which is open for trading from 9.30am to 4pm (Eastern time) from Monday to Friday.

Most trading platforms allow you to purchase US shares. You will be charged a foreign exchange fee (typically around 1%, but may range from 0.15% to 1.5% depending on your platform). Many platforms also charge a slightly higher trading fee for buying US shares.

If you plan to trade US shares regularly, it’s worth looking at the different platforms as their fees can vary significantly. A small number of trading platforms, such as IG, allow you to hold your account in US dollars which may reduce the foreign exchange you have to pay.

You will be requested to complete a W-8BEN form which allows you to benefit from a reduction in withholding tax from 30% to 15% for qualifying US dividends and interest.

You will also have a foreign exchange exposure if you hold US shares. If the pound weakens against the dollar, your shares will be worth more in pounds sterling (and vice versa).

As with UK shares, any profit on US shares will be subject to Capital Gains Tax, subject to your annual allowance (currently £12,300). You will not have to pay Capital Gains Tax if you hold the shares in an Individual Savings Account or Self-Invested Personal Pension.

3) Do your research

To find out more about Alphabet, visit the company’s investor relations page.

It’s also worth comparing Alphabet’s valuation to other comparable global software companies. One way is to look at the relative price-earnings ratios - shares trading on a high price-earnings ratio have high expectations of significant growth in the future.

Another useful research tool is brokers’ 12-month share price forecasts, which are available on financial websites. There are currently nearly 50 brokers following Alphabet shares, and their price forecasts give an indication of the upside and downside risk of the Alphabet share price over the next year.

4) Should you invest on a monthly basis or as a lump sum?

People tend to buy shares either as a lump sum purchase, or drip-feed their investment on a monthly basis over time.

Monthly investing is often referred to as a means of ‘pound cost averaging’, whereby making regular contributions helps to smooth out the highs and lows of the stock market. This provides some protection if the share price falls after you have bought shares, as you will effectively invest at the average share price over the whole period.

However, drip-feeding your investment may sacrifice capital growth if the share price is rising and you may also pay more in share trading fees.

5) Place your order

Once you’re ready to buy shares in Alphabet, log in to your trading account. Type in the ticker symbol GOOGL and the number of shares you want to buy, or the amount of money you want to invest.

Many platforms also allow you to add a ‘stop loss’ after you’ve bought the shares, which allows you to limit your losses if the share price falls. For example, if you buy shares at £100, and set a stop loss of £90, your shares would be sold if the share price falls below £90, limiting your potential loss to 10%.

6) Monitor Alphabet’s performance

Whether you hold shares in just a few, or many, companies, you should review how your shares are performing on a regular basis.

Monitoring your portfolio allows you to make any necessary adjustments, whether buying additional shares, or selling part of your holding.

How to sell your Alphabet shares

When you want to sell your Alphabet shares, log in to your trading platform, type in the ticker symbol (GOOGL) and select the number of shares you want to sell.

If you’ve made a profit, you may have to pay Capital Gains Tax (CGT) on the sale of your shares. However, as mentioned earlier, this is not the case for tax-exempt wrappers such as Individual Savings Accounts.

How to invest in Alphabet indirectly

You may make a profit if you invest in Alphabet shares, however, holding shares in an individual company is higher risk than investing in a wide range of shares. A diversified portfolio should also reduce volatility.

One option is to invest indirectly in Alphabet by investing in a fund, investment trust or exchange-traded fund (ETF) that holds Alphabet shares, amongst others. These products provide a ready-made portfolio of shares in a number of different companies.

There is a wide range of options, including global, US and technology funds and investment trusts, together with ETFs that track the Nasdaq index. However, you will pay an annual management fee for holding these products.