Google Stock Forecast & Analysis: Is GOOG a Buy?

Written by Sean GraytokUpdated: 8th May 2022
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This Google stock forecast and analysis will help you decide if it’s still a buy, or if another FAAMG stock might have better return potential. 

Google Stock Forecast: A Brief Background

At its core, Google is a search engine that sells advertisements. Data is the new oil as society shifts online – and Google has a lot of it.

The company was founded in 1998 by two Stanford students and has grown into the 5th largest company in the world by market cap, up to $2 trillion.

While search-related advertisements remain its main revenue source, Google’s startup mentality spawns’ projects and subsidiaries extending far beyond Search, such as Google Cloud for cloud computing, DeepMind for AI research, and Waymo self-driving cars, and the semi-secret “X” R&D organization.

To satisfy these ambitions, the company restructured in 2015 and created “Alphabet”, which serves as the parent company to Google and its other divisions.

Google Stock Forecast: Investment Potential

#1. Search & Digital Advertising

Advertising accounts for the majority of Google’s revenue. The company generated an astonishing $65 billion in ad revenue in the recent quarter. So, why Google so effective at advertising?

Data – advertising is all about data. Google has the world’s largest war chest of data by collecting the search habits of its users.

Google compiles user data and builds advertising profiles of Googlers to deliver personalized ads with higher conversion rates.

Its algorithm gathers information like age, interests, and location to display ads not just for products or services it knows you’re interested in but things it thinks you’re likely to buy.

This begs the question, “are we controlling technology, or is it controlling us?”

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Example: Google Maps realizes that you’ve gotten in your car around 6pm and driven to Chipotle the past few Sundays.

It recommends better routes or hammers you with YouTube ads for Chipotle and Shake Shack as dinner approaches.

On second thought, it decides that you’re enjoying that video and should stay in for the night, so it flashes DoorDash, and UberEats ads on your Instagram — dinner gets delivered tonight.

Google notices that you haven’t moved from your couch in a few hours but doesn’t remember you buying furniture recently — you’re due for an upgrade. An Amazon ad appears on your feed, and the new recliner will be delivered on Tuesday.

All you’ve done is move your thumbs. Google’s gotten paid by Chipotle, Shake Shack, DoorDash, Uber, Facebook, and Amazon – all while improving its ad profile on you for next time.

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Note that Google can use your information without identifying you personally.

Instead of telling an advertiser “Joe, Nancy, and Tom like Ford F-150s,” it might say, “these IP addresses browse trucks all day long.”

#2. Google Cloud

Google Cloud is going head-to-head with the cloud giants Amazon (AWS) and Microsoft (Azure).

Currently, Google is third in the cloud Infrastructure-as-a-Service (IaaS) with its 9% share of the cloud market.

Some cloud experts believe that Google Cloud is “the market’s fiercest challenger” because of the way that customers can access and engage with Google engineers for co-development.

While this may be difficult to scale, this feature is causing more AI- and machine learning-focused companies to choose Google Cloud over AWS and Azure.

However, gaining share of the cloud market is a tough business. While Cloud revenue has grown steadily over recent years, the operation remains unprofitable.

#3. YouTube

Google bought YouTube for $1.65 billion in 2006, and it’s truly one of the best tech deals of all time.

In fact, A Needham analyst recently valued YouTube at $300+ billion if it were a standalone company.

Today, YouTube reaches more 18-49-year-olds than all linear TV networks combined, and 100+ million people stream YouTube from their television sites.

While known for its user-generated content, it officially entered the (paid) streaming wars with the launch of YouTube TV in 2017, which streams live sports, news and shows from 70+ channels.

YouTube TV’s foray into live sports indicates it’s going for the ultimate hybrid-streaming platform.

Google revealed that YouTube’s “direct-response” ads are catching on — a revenue stream that was nonexistent three years ago.

These ads encourage consumers to take immediate action, like downloading a meditation app or buying a shirt from Shopify (SHOP). 

YouTube has a monopoly on video and it’s just getting started.

#4. Recovery Dark Horse

Several Wall Street analysts believe Google is a “recovery dark horse” following the COVID-19 pandemic.

They estimate that 10% to 15% of Google’s “paid search” revenue comes from travel-related businesses. This segment disappeared for much of 2020.

People are booking trips as the economy reopens, and Google will be there to suggest, facilitate, and profit from every vacation decision.

#5. Index Fund for the Future

The company’s Alphabet restructuring allows it to explore the things that make Google, Google – while remaining focused on its breadwinner (Search).

Google’s hundred-billion-dollar ad business subsidizes these efforts to an even larger degree than Amazon leverages AWS.

These ambitious side projects, or “Other Bets”, essentially serve as startups within the walls of Google.

This leaves everything on the table for Google and makes it unlike any other company on Earth. It’s why we believe Google is arguably the best AI stock on the market. 

Google uses its trillion-dollar capabilities to play the long game on projects that no one else is willing or capable to pursue.

While these subsidiaries are often criticized by shareholders, it’s narrow-minded to view them as financial successes or failures in a vacuum.

Google’s collaborative culture breaks down the walls of the organization; a comment that was made in the Calico biotech department might help a Gmail engineer later that day.

Google’s war chest of capital and genuine thirst for innovation (beyond its core offering) makes the company an index fund for the future.

Google Stock Forecast: Optimistic Moat

Google’s differentiator is its ability to behave like an agile startup while having billions in capital to deploy. Some credit Google’s “hive mind” or collective consciousness as its key to success.

Google might be the most collaborative company globally – so much so that new executives are often caught off-guard by the transparency.

The company’s internal communication tools let employees hop on Google Docs or Slides from any department, which creates a culture of feedback that accelerates progress and innovation.

It’s normal for companies to become more hierarchical as they grow, but Google encourages the free flow of ideas up, down, and across the organizational ladder.

Google Stock Forecast: Pessimistic Moat

Google was the first Silicon Valley company to reach verb status – “Google it” – revealing its dominance amongst search engines.

Corporations pay Google exorbitant amounts of money to appear high up in search results; Google’s page one is some of the world’s most expensive real estate.

Today, Google controls 92% of the worldwide search engine market share. It is the toll collector of the internet, and there isn’t another booth in town.

Regulators may come for Google if they believe its monopoly is hurting the consumer. 

Google Stock Forecast & Analysis: Q4 Earnings

Here’s a look into Alphabet’s recent earnings:

  • Earnings: $30.69 vs $27.34 expected
  • Revenue: $75.33 billion vs $72.17 billion expected, up 32% year-over-year
  • Google Cloud: $5.54 billion vs $5.47 billion expected, up 45% year-over-year
  • YouTube Ads: $8.63 billion vs $8.87 billion expected
  • Traffic acquisition costs (TAC): $13.43 billion vs $12.84 billion expected

In addition to beating top and bottom-line estimates, Alphabet announced a 20-for-1 stock split that will go into effect in July.  

If the split were to happen at the time of the announcement, the cost of one share of GOOG would go from $2,752 to $137.

There are some phycological effects at play here even if the split doesn’t change the fundamental of the business.

Companies split their stock for a number of reasons, one being unit bias. A share price of $137 is more accessible than $2,752 for the retail investor who may not have the ability to buy a fraction of a share.

The likes of Apple and Tesla are other tech giants who have recently split their stock to make it appear more “affordable”.

The market reacted favorably to Alphabet’s stock split. Shares jumped +9% after the call, adding a cool $120 billion in market cap. 

Google Stock Forecast: Analyzing Bear Cases

#1. Regulation

On July 29, 2020, the CEOs of Amazon, Apple. Facebook and Google testified before Congress on topics from antitrust to censorship.

A few months later, the Justice Department sued Google for violating antitrust laws, attempting to “stop Google from unlawfully maintaining monopolies through anticompetitive and exclusionary practices in the search and search advertising markets.”

Then there’s the controversial Section 230, which is a law that provides liability protection for websites and platforms (like YouTube) that host user-generated content and allows sites to monitor that content – i.e. “We aren’t responsible for what’s said on our platform the same way Verizon isn’t liable for what’s said in phone calls.”

Section 230 is interesting because politicians on both sides of the aisle agree that the law needs to be changed, but for different reasons.

Democrats argue that it allows extremist content to spread, and Republicans claim that it permits Big Tech to censor conservative voices.

YouTube’s been accused of algorithmically addicting the youth and targeting children with advertisements.

The Google subsidiary recently paid a record fine of $170 million to settle with the FCC and New York Attorney General about collecting children’s personal information without their consent.

Ok, so what does this mean for Google stock? We believe that regulators might cause short-term turmoil for Big Tech, but nothing substantial will be enforced that would negatively affect the companies in the long term.

It appears that regulators use these hearings to score political points with their base and aren’t concerned with implementing any actionable change.

When the politicians agree that something needs changed (Section 230), they politicize why it needs changing, which ironically leaves the law unchanged.

A fine might be issued, the company will pretend to be affected, and business will resume as usual.

#2. Internal Dissent

The same collective consciousness that produces innovation has sparked dissent at Google. In 2018, more than 20,000 Google employees worldwide organized a walkout in protest over the company’s handling of sexual harassment.

These employees used Google’s internal communication tools to coordinate the walkout across offices in Japan, Singapore, Europe, New York, and California – all in a few days.

This revealed some tradeoffs to encouraging a transparent, open culture of ideas and feedback at an organization with 100,000+ employees.

Google’s open culture can lead to the next great product of the future, like Waymo, but it can also lead to internal dissent and global walkouts that are well documented. 

Google Stock Forecast: The Competition

There isn’t any competition when it comes to Search, but Google is much more than a search engine.

It competes with every technology company under the sun — here are its top competitors:

Search

  • Amazon (AMZN)
  • Yahoo! (AABA)
  • Bing (MSFT)

Cloud Computing

  • AWS (AMZN)
  • Azure (MSFT)
  • Alibaba Cloud (BABA)
  • IBM Cloud (IBM)
  • Salesforce (CRM)
  • Tencent Cloud (TCEHY)
  • Oracle Cloud (ORCL)

Streaming

  • Netflix (NFLX)
  • Disney+ (DIS)
  • ESPN+ (DIS)
  • Hulu (DIS)
  • HBO Max (T)
  • Paramount+ (VIAC)

Mobile Devices

  • Apple (AAPL)
  • Microsoft (MSFT)

Autonomous Vehicles

  • Tesla (TSLA)
  • Apple (AAPL)
  • All Other Automakers

Google is up against great companies, but regulation is the only thing that can slow it down.

Google Stock Allocation in Your Portfolio

Your allocation to Google is unique to your investing situation; factors such as time horizon, risk tolerance, and overall goals will vary from person to person.

However, these questions might help you gauge your conviction on Google stock:

  • Will regulation affect Google’s long-term trajectory?
  • Will Google successfully adapt to the future of search?
  • Is there more upside in other FAAMG stocks?
  • Is Google well-differentiated against competitors?
  • Can Google Cloud compete with AWS and Azure?
  • Will YouTube TV be the future of live sports?
  • Is the Invesco QQQ ETF or ARKK a better investment in the future of technology?

Google Stock Forecast: FAQs

Is it better to buy GOOG or GOOGL?

There’s little difference between GOOG and GOOGL when it comes to price appreciation.

However, GOOGL stock shareholders have voting rights at shareholder meetings, and GOOG shareholders do not.

This is why GOOGL trades at a premium (often less than 1%) to GOOG stock.

Does Google pay a dividend?

Like most high-growth technology stocks, Alphabet (GOOG, GOOGL) has never paid a dividend to shareholders. Instead, it reinvests its earnings into the company to stimulate more growth.

Is Alphabet stock a buy?

Alphabet (GOOG, GOOGL) is one of the best companies in the world. While Amazon, Apple, and Microsoft’s stocks have outperformed it in recent years, Google is off to a great start in 2022.

Bottom Line: Google Stock Forecast

Google stock has trailed its FAAMG counterparts for the last ten years, but it was the best Big Tech performer over the last year. This could be the decade of Google.

This article is for informational purposes only, and it is not intended to be investment advice. Read our editorialguidelines and public equities research methodology to learn more about how we researched Google (GOOG, GOOGL) stock. 

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and is a recognized expert in investing, cryptocurrency, and financial management. His work has been cited in leading industry publications, such as InvestorsPlace and Business Insider. Sean is interested in the people and companies who are driving financial innovation.