$GOOGL – Alphabet Inc. – 2020 Research

Current Price: $1,487.04

 

Company Description

Alphabet is a global technology company focused around the following key areas: advertising, operating systems and platforms, enterprise and hardware products. Alphabet generates revenue primarily by delivering online advertising and by selling apps and contents on Google. The Company provides its products and services in more than 100 languages and in 190 countries, regions, and territories.

 

Investment Rationale

Alphabet is well positioned long-term with leading search technology, Android and YouTube. Alphabet is also an advertising industry leader and the company should generate incremental revenue growth from increasing mobile usage, video usage, Google Play activity, and connected device activity (including autos). We believe Google should trade at a premium to its peer group given shareholder friendly actions (buy backs and disclosures) and new product catalysts

 

Outlook on Google:

  • Alphabet’s focus lately has been on ad revenue growth and cloud computing services.
  • Alphabet reported total revenue of $41.2 billion, up 13% year over year, helped by growth in advertising (10%) and cloud (52%).
  • The company reported $29.95 billion in advertising revenue in 2019, a 26.1% increase from the previous year.
  • Youtube Ad revenue growth came into light in the 2nd quarter, while cloud computing revenue growth has slowed compared to the previous quarter due to not being able to gain market share from key players like Amazon and Microsoft.
  • The company has applied machine learning to its Google App (speech recognition), Gmail (Smart Reply), Google Photos, Maps, and many other products, including its cloud offerings.

 

 

Price Target:

We believe Google has a way up to go and has a fair value of around $1,700. Since Alphabet dominates the online search market with Google’s global share above 80%, we believe their cloud services will continue to grow through that and that they are an attractive buy.

 

Technical Analysis

As of September 17, 2020 GOOGL, as retracted back to our Fibonacci support level of $1,493 after hitting an all time high of $1,726.1.

In our view this pull back is not alarming, but rather a healthy pull back that was bound to happen in the overall market especially with the tech sector being such a dominant force the past 3 months.

We are currently watching the 14-day and 30-day simple moving average curve downward, indicating more potential downside lurks on the horizon. We are anticipating a pull back towards $1,439, which will present to be buying opportunity if support levels hold.

 

We will be looking to be buying around this price level, but if support does not hold we will be short selling and targeting $1386.

 

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