Contrary to popular belief, the problem with Alphabet Inc’s (NASDAQ:$GOOG) stock is not their business model, but rather it is the fact that we are coming to the end of the current stock market rally.
This should not come as a surprise to investors interested in the technology industry, as all of the warning signs are there. For example, people are driving faster, pushing for the last dollar, and money is being thrown aimlessly at the market. Even more important is that this money is being thrown at what worked during the recovery period.
Hearing this, baby-boomers are probably having a mild case of deja vu. This occurred with oil prices in 1980, with buyout companies at the end of the 1980s, with Internet stocks in the 90s, and in the last decade with real estate. From this, investors have drawn the conclusion that allegorical moves upwards are followed by anxious moves downwards. To provide an example, it is similar to a tornado lifting a barn to the sky, only to drop it a couple of minutes later.
With the price set at more than $1,000 per share, investors are paying 32 times earnings for Alphabet’s stock. If Alphabet Inc., an American multinational conglomerate company, maintains its 20% growth rate forever, it would still take them nearly 20 years to earn all of that investment back.
All in all, Google’s power and growth rate are unfeasible. Currently, there is a $9 billion fine being threatened by the EU, and this would represent 10% of its revenue from 2016. It’s interesting to note that Google is frequently accused of having bad intent, despite doing things that are good (like blocking ads).
To make matters worse, analysts who used to root for this stock are now starting to have doubts.
According to Brent Kenwell of InvestorPlace.com, Alphabet’s Waymo self-driving car unit could be worth $70 billion. That said, some find this hard to believe as General Motors Company (NYSE:$GM) is striving to hold $50 billion. Plus, Waymo has stated that they do not know how to mass-produce motor cars.
Alphabet has yet to prove whether or not it can capitalize on its various projects. Google Home, for instance, is trailing behind Amazon.com, Inc. (NASDAQ:$AMZN) when it comes to home automation. The is also true for services such as Google Shopping.
A funny thing seems to happen at GOOGL within the period of when a new product is considered cool, and when it’s accepted by the market. Alphabet will either obtain market share and no profits, or no market share.
What Does The Future Look Like for GOOGL Stock.
According to Kenwell, most of the trouble Alphabet’s stock is experiencing is due to technical factors. Even though the stock is above its moving averages, it is grossly overbought according to several readings. That said, there are some problems that come down to fundamental issues.
Google and Facebook Inc (NASDAQ:$FB) have both played a defining role in ruining the journalistic business model. This model involves finding prime audiences and charging premium rates in order to reach them. Both companies have refused to take responsibility for this outcome.
As of right now, 35 of the 44 analysts who follow Alphabet’s stock still have it down as a buy. That said, these analysts have predicted that the stock will fall marginally short of 2016’s period of $8.42. At the same time, predictions for $25.6 billion in revenues still portrays 19% growth.
Over the course of the next few years, Google is going to have to spend billions of dollars in an attempt to deal with Internet governance problems.
For investors that have a 5 to 10-year time horizon, you are eligible to wait for Alphabet to follow through on its current promises. With that said, you are better to wait for the market to bring the GOOGL stock down to an acceptable level.
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