CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Growth Stocks: Alphabet (Google)

11:05 26 July 2022

Shares of Alphabet  (GOOG.US) (GOOGL.US) were dragged down by disappointing results from Snap (SNAP.US) on July 21. Snap sent a shock wave through social media that affected all ad-based tech. But whether Alphabet has the same problems as SNAP won't be known until it gives us its report tonight after the closing bell on Wall Street.

The market estimates that second-quarter revenue will grow 14% year-on-year to $58.14 billion, while profit will rise 6% to $1.39 per share. Gross margin is also forecast to decline considerably in Q2 to 62.25% from 69.98% in Q2 2021, down -10.9% year-on-year.
Google Cloud revenue is forecast to grow 36.9% to $6.3 billion, while YouTube ad revenue is forecast to grow 7.9% to $7.55 billion.
Investors follow an important metric for Alphabet: Traffic Acquisition Costs (TAC) or what is the same, the expenses incurred by the company to obtain quality and real traffic, on its pages, for later monetization. Over the years, Google has been able to reduce its traffic acquisition costs and, in any case, keep it stable. It is estimated that it has increased by 12.65% to $12.3 billion. If the company publishes a higher than expected TAC, the market would view it negatively.

Start investing today or test a free demo

Open account Try demo Download mobile app Download mobile app

Analysts have adjusted their estimates for Google ad revenue downward from $58.3 billion recently. Even though revenue estimates have been lowered, they are still at the higher end of the range from mid-2021, indicating that analysts are not yet expecting a significant slowdown in Alphabet's ad business, setting a bar. high for the company to overcome.


You can read our preview of the Alphabet (Google) results at the following link: HERE

 

source: Bloomberg


Overall revenue and profit estimates haven't been adjusted much either. So if there are external pressures from weakening ad sales, at least for now they haven't been reflected in earnings or revenue estimates, meaning Alphabet has only one option: It has to deliver this quarter and beat those forecasts. elevated.

According to Bloomberg, as of July 17, 34 analysts have submitted their estimates for Google's results. Total sales are estimated between $66.85 billion and $72.06 billion, with a median estimate of $69.95 billion. In particular, if we take the average as a target, sales are estimated to grow 13.03% compared to the same quarter of 2021. While for earnings per share, the target is in the range of $1.05 and $1.54, respectively, with a mean of $1.29.

source: Seeking Alpha


Looking ahead to Alphabet's second quarter results, sentiment is weak. For reference, since early 2022, analysts have consistently revised the company's EPS estimates downward to reflect macroeconomic challenges and likely tougher competition for advertisers cutting ad budgets. As a result, Google shares are down approximately 22% year to date. As we can see in the image above.

source: Bloomberg

Are Google Stocks Cheap or Not?

Still, something seems amiss with stocks currently, as they have fallen in step with the market and look very cheap, trading at just 16.6 times next twelve month earnings estimates and trading at the low end of its historical range. Even when adjusted for its expected long-term growth rate, the PEG ratio is only 0.70x, well below 1x, while the price-to-sales ratio is around 5.5x. Both are at the low end of their historical ranges and look cheap.

This presents investors with two options: either the stock is incredibly cheap, or the market fears that future earnings and income forecasts are too high and need to be adjusted lower. Not even the recent split in its shares from 20 to 1 has been a significant boost, despite the fact that liquidity and trading have increased substantially.

For reference, Netflix's (NFLX.US) second quarter results were not spectacular. In fact, considering the company's high-growth track record, an 8.6% rise in depressed earnings estimates is questionably positive. However, the sentiment around Netflix and the streaming industry was so depressed that the stock appreciated more than 15% in 5 days when the results were simply less bad than what the market expected.

source: Bloomberg

 

Technical view

Investors therefore fear the company will post disappointing results on Tuesday or view growth forecasts as too high. The technical aspect of Alphabet is very weak, with a long-term bearish trend in its relative strength index (RSI). Additionally, stocks have been consolidating sideways since early May, between $100 and $120. This sideways consolidation formed after the stock suffered a significant drop. This creates what appears to be a technical pattern known as a bear flag that could cause the stock to drop significantly. Where the support level to watch on a downside move would be $100. If this level were to be lost, the downside could extend to $90.

source: xStation

Alphabet has had a fantastic growth story in recent years and has a bright long-term future, given its dominant position as a search engine as well as in advertising and its growing dominance in streaming services. However, that doesn't mean the company isn't prone to problems from time to time. The stock may be entering one of those tough times right now.

Looking ahead to Google's second quarter results, sentiment is weak. For reference, since early 2022, analysts have consistently revised the company's EPS estimates downward to reflect macroeconomic challenges and likely tougher competition for advertisers cutting ad budgets. As a result, Google shares are down approximately 22% year to date.
one more argument

On the other hand, Google announced a $70 billion share buyback program in the first quarter of 2022. That is 5% of the company's total market capitalization. On April 20, 2022, Alphabet's Board of Directors authorized the company to repurchase up to an additional $70 billion of its Class A and Class C shares in a manner deemed to be in the best interest of the company and its shareholders, taking taking into account the economic cost and prevailing market conditions, including the relative prices and trading volumes of Class A and Class C shares.

Recall that as of the first quarter of 2022, Google still had more than $134 billion in cash and cash equivalents on the balance sheet and the company is likely to take advantage of the depressed stock price to buy back many more shares in the future. While there's no downside to the company increasing the program in the future, there's a compelling upside if Google does. In any case, a 5% share buyback program should provide significant support to the company's valuation.


Risks and Conclusions

As for the results, there are two main risks: First, there is, of course, the possibility that Snap's results are not isolated, but rather a guide to the entire digital ad space. Second, it could be that even if Google beats expectations, the market remains fearful regarding the company's performance in the second half of 2022. In that case, investors would likely look to take advantage of the current price and sell now. that the results are known.

That said, Google's guidance will be important. But the inverse must also be taken into account: that despite Google offering weak results, investors will take the opportunity to buy the pessimism in the share price simply because it is Google.

Google shares are trading at a 12-month P/E of around 19.5x. This is too low for a high-growth FAAMNG stock like Alphabet (Google).
 
Dario Garcia, EFA
XTB Spain

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

Back
Xtb logo

Join over 1 Million investors from around the world

We use cookies

By clicking “Accept All”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

This group contains cookies that are necessary for our websites to work. They take part in functionalities like language preferences, traffic distribution or keeping user session. They cannot be disabled.

Cookie name
Description
SERVERID
userBranchSymbol cc 17 October 2024
adobe_unique_id cc 16 October 2025
test_cookie cc 1 March 2024
SESSID cc 9 September 2022
__hssc cc 16 October 2024
__cf_bm cc 16 October 2024
intercom-id-iojaybix cc 13 July 2025
intercom-session-iojaybix cc 23 October 2024
xtbCookiesSettings cc 16 October 2025
xtbLanguageSettings cc 16 October 2025
TS5b68a4e1027
countryIsoCode
userPreviousBranchSymbol cc 16 October 2025
TS5b68a4e1027
_cfuvid
intercom-device-id-iojaybix cc 13 July 2025
__cfruid
__cf_bm cc 16 October 2024
__cf_bm cc 16 October 2024
_cfuvid
adobe_unique_id cc 16 October 2025
TS5b68a4e1027
_cfuvid
xtbCookiesSettings cc 16 October 2025
SERVERID
TS5b68a4e1027
__hssc cc 16 October 2024
test_cookie cc 1 March 2024
intercom-id-iojaybix cc 13 July 2025
intercom-session-iojaybix cc 23 October 2024
intercom-device-id-iojaybix cc 13 July 2025
UserMatchHistory cc 31 March 2024
__cf_bm cc 16 October 2024
__cf_bm cc 16 October 2024
__cf_bm cc 16 October 2024

We use tools that let us analyze the usage of our page. Such data lets us improve the user experience of our web service.

Cookie name
Description
_gid cc 9 September 2022
_gat_UA-22576382-1 cc 8 September 2022
_gat_UA-121192761-1 cc 8 September 2022
_ga_CBPL72L2EC cc 16 October 2026
_ga cc 16 October 2026
AnalyticsSyncHistory cc 8 October 2022
af_id cc 31 March 2025
afUserId cc 1 March 2026
af_id cc 1 March 2026
AF_SYNC cc 8 March 2024
__hstc cc 14 April 2025
__hssrc
_vwo_uuid_v2 cc 17 October 2025
_ga_TC79BEJ20L cc 16 October 2026
_vwo_uuid cc 16 October 2025
_vwo_ds cc 15 November 2024
_vwo_sn cc 16 October 2024
_vis_opt_s cc 24 January 2025
_vis_opt_test_cookie
_ga cc 16 October 2026
_ga_CBPL72L2EC cc 16 October 2026
__hstc cc 14 April 2025
__hssrc
_ga_TC79BEJ20L cc 16 October 2026
af_id cc 31 March 2025
afUserId cc 1 March 2026
af_id cc 1 March 2026
AF_SYNC cc 8 March 2024
_gcl_au cc 14 January 2025
AnalyticsSyncHistory cc 31 March 2024
_gcl_au cc 14 January 2025

This group of cookies is used to show you ads of topics that you are interested in. It also lets us monitor our marketing activities, it helps to measure the performance of our ads.

Cookie name
Description
MUID cc 10 November 2025
_omappvp cc 28 September 2035
_omappvs cc 16 October 2024
_uetsid cc 17 October 2024
_uetvid cc 10 November 2025
_fbp cc 14 January 2025
fr cc 7 December 2022
muc_ads cc 16 October 2026
lang
_ttp cc 10 November 2025
_tt_enable_cookie cc 10 November 2025
_ttp cc 10 November 2025
hubspotutk cc 14 April 2025
YSC
VISITOR_INFO1_LIVE cc 14 April 2025
hubspotutk cc 14 April 2025
_uetsid cc 17 October 2024
_uetvid cc 10 November 2025
_ttp cc 10 November 2025
MUID cc 10 November 2025
_fbp cc 14 January 2025
_tt_enable_cookie cc 10 November 2025
_ttp cc 10 November 2025
li_sugr cc 30 May 2024
guest_id_marketing cc 16 October 2026
guest_id_ads cc 16 October 2026
guest_id cc 16 October 2026
MSPTC cc 10 November 2025
IDE cc 10 November 2025
VISITOR_PRIVACY_METADATA cc 14 April 2025
guest_id_marketing cc 16 October 2026
guest_id_ads cc 16 October 2026
guest_id cc 16 October 2026
muc_ads cc 16 October 2026
MSPTC cc 10 November 2025
IDE cc 10 November 2025

Cookies from this group store your preferences you gave while using the site, so that they will already be here when you visit the page after some time.

Cookie name
Description
personalization_id cc 16 October 2026
UserMatchHistory cc 8 October 2022
bcookie cc 16 October 2025
lidc cc 17 October 2024
lang
bscookie cc 8 September 2023
li_gc cc 14 April 2025
bcookie cc 16 October 2025
lidc cc 17 October 2024
bscookie cc 1 March 2025
li_gc cc 14 April 2025
personalization_id cc 16 October 2026

This page uses cookies. Cookies are files stored in your browser and are used by most websites to help personalise your web experience. For more information see our Privacy Policy You can manage cookies by clicking "Settings". If you agree to our use of cookies, click "Accept all".

Change region and language
Country of residence
Language