Financial News
GOOG Could Take This Path to Reward Investors
In previous Alphabet (NASDAQ: GOOG) coverage, I’ve taken a pessimistic view of the tech giant’s near-term prospects. As I observed on December 21, existing economic challenges, combined with increased competition, might continue to weigh on the company’s growth, resulting in mediocre returns for GOOG stock in 2023.
However, there is a possible path Alphabet’s management may take that would result in considerably better outcomes for investors. Profitability may increase as a result of this. As such, shares may begin to steadily rise, and the stock may offer strong overall returns for investors in the coming years.
What is the issue? As long as GOOG’s C-suite is focused on getting the FAANG component back into “high-growth mode,” it’s unclear whether the company will pursue this course.
Until more evidence surfaces indicating that the company will take this “alternative path,” the stock may continue to (at best) float.
A Better Way to Extricate GOOG Stock from Its Slump
Alphabet’s primary digital advertising operation is now being impacted by declining demand, but even if the economic situation recovers, this segment may fail to enjoy a substantial re-acceleration in revenue/earnings growth after the current downturn.
That is not to argue that the company’s core operation is doomed to long-term deterioration. However, increased competition, including the potential introduction of search engine alternatives like ChatGPT, as well as other causes, may cause future digital advertising growth (including for YouTube) to slow.
The business’s management has been pushing into new areas to lift the company out of this growth slowdown, well conscious of this fact and its anticipated negative influence on future returns for GOOG stock. Specifically, with its significant expansion into fields such as cloud computing, as well as Alphabet’s enormous “Other Bets” on moonshot enterprises such as self-driving company Waymo.
However, Google Cloud is up against the stiff competition. So far, the “Other Bets” have failed to yield a huge winner. With this in mind, I’m not convinced that Alphabet’s present strategy will get things rolling again. However, if GOOG’s management team began following a different approach, my opinion would most certainly alter.
How This Would Benefit Shareholders
If you read recent comments outlining the bull case for GOOG stock, you’ll notice that a lot of it is focused on potential changes that could benefit shareholders. The adoption of significant cost reductions, the majority of which would flow directly to the bottom line.
Another suggestion made on a recent recommendation of the stock by Barron’s commentator is for the corporation to begin returning earnings to shareholders in the form of a dividend. As previously stated, I believe that opportunities like these would undoubtedly strengthen Alphabet stock’s long-term prospects.
Rather than taking the risk of becoming a fast-growing firm again, electing to take the “safe route” and accept the fact that it is an established, mature corporation may be the best way to maximize shareholder value.
More than just stock market analysts have made these observations. Indeed, an activist investor (TCI Fund Management) has taken a position in the company and has publicly urged Alphabet CEO Sundar Pichai to reduce headcount and compensation per employee, as well as to reduce the company’s “Other Bets” losses.
TCI also wishes for the corporation to expand its share repurchase program.
In conclusion
Unfortunately, despite rumors that Alphabet is intending to lay off 10,000 underperforming staff, there’s little evidence that the corporation will follow TCI’s more harsh recommendations to enhance its operational performance.
It may not be as thrilling as the firm’s current strategy, but it is a more fitting game plan as the company enters the “blue chip” phase. Following this less glamorous road may be a more guaranteed method to boost future rewards.
However, this does not indicate that you should now buy GOOG stock. There’s little need to invest just in case the aforementioned developments occur.
Wait for more evidence that the corporation will take this potentially more profitable option. Meanwhile, the stock could continue to trade sideways or, worst, fall further.
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