There's no question thatAlphabet(GOOG 0.78%) (GOOGL 0.77%) has had a disappointing 2022.
With just days left in the year, shares of the Google parent are down 40%, and trading just above their 52-week lows.
The stock has been hit by a combination of slowing growth, falling profits, and compressing valuations in the tech sector as investors prepare for a recession. But the decline has investors wondering if Alphabet will recover next year.
So, will Alphabet stock bounce back in 2023? Let's take a closer look.
Image source: Getty Images.
Follow the economy
Alphabet makes nearly all of its money from advertising, and advertising tends to be a cyclical industry. Businesses ramp up spending when consumers are flush and the return on investment justifies it, and they pull back on advertising when they fear a slowdown in consumer spending and want to cut their budgets. That's especially true with digital advertising, as businesses can often instantly adjust their spending on platforms like Google.
Alphabet's revenue growth has slowed sharply this year as the stock has fallen, with revenue growth going from north of 32% at the end of 2021 to just 6% in the third quarter.
GOOGL data by YCharts
That slide has tracked with a broader pullback in digital ad spending that has hammered social media companies likeMeta Platforms, which reported negative revenue growth in the third quarter, and even streaming services such as Rokuforecast negative revenue growth for the current quarter as well.
Given that relationship, the best predictor of Alphabet's performance next year is likely to be the overall economy. Ad revenue and the stock market have fallen this year because most economists expect a recession next year. Companies in a broad range of industries from tech to transportation to retail have complained of macroeconomic uncertainty, and high inflation has led the Federal Reserve to ramp up interest rates, with the Fed funds rate now at 4.25%-4.5%. The Fed expects to raise rates by another 75 basis points next year. However, if the central bank eases off on rate increases sooner than expected, Alphabet is likely to benefit. Investors seem to be pricing in greater economic headwinds next year, so if the economy can avoid a deep recession, Alphabet stock should bounce back.
The good news
After profits fell in its most recent quarter, Alphabet management said it was taking steps to rein costs next year. CFO Ruth Porat said on the recent earnings call that headcount in the fourth quarter would grow by less than half of what it did in the third quarter, when Alphabet's number of employees jumped 24% to 187,000.
Porat said the effects of the slowdown in hiring would become more noticeable in 2023. Unlike other big tech peers, includingAmazon and Meta, Alphabet hasn't announced plans for layoffs, but pressure from investors to rein in costs seems to be building, and layoffs are a possibility. In November, activist investor TCI called on Alphabet to cut costs by reducing headcount and scaling back on its other bets, like its Waymo self-driving unit.
Alphabet stock looks cheap right now, at a price-to-earnings ratio of just 17, or closer to 15 when backing out net cash of $102 billion. That's cheaper than the P/E ratio of the S&P 500, which is currently 20. Alphabet is also buying back stock after announcing a $70 billion repurchase authorization, which will give earnings per share a boost.
Alphabet will need an economic recovery for its revenue growth to reaccelerate, but the company had demonstrated twice before, during the pandemic and the 2008-09 financial crisis, that its business can rebound quickly from a recession.
While the timing of a recovery is uncertain, given Alphabet's valuation, its sensitivity to the economic cycle, and its dominance in internet search, the stock will almost certainly bounce back once the economy turns.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Amazon.com, Meta Platforms, and Roku. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Meta Platforms, and Roku. The Motley Fool has a disclosure policy.
FAQs
While the timing of a recovery is uncertain, given Alphabet's valuation, its sensitivity to the economic cycle, and its dominance in internet search, the stock will almost certainly bounce back once the economy turns.
Will Alphabet stock recover? ›
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Is Alphabet a good stock to buy 2023? ›
As far as recent earnings are concerned, Q4 2023 looked impressive for the advertising giant Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). The company reported strong 13% revenue growth, with advertising revenues expected to climb further in 2024, driven by events like the Olympics and Elections.
What is the stock market forecast for Alphabet in 2024? ›
Michael Hodel, a director of Morningstar, currently has a fair value estimate of $171 on the stock, according to his most recent Alphabet stock forecast in early March 2024.
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The Motley Fool has positions in and recommends Alphabet, Amazon, Chewy, Fiverr International, Fortinet, Nvidia, PayPal, Salesforce, and Uber Technologies. The Motley Fool recommends the following options: short March 2024 $67.50 calls on PayPal.
Is now a good time to invest in the Alphabet? ›
Good news, investors! Alphabet is still a bargain right now. Our valuation model shows that the intrinsic value for the stock is $214.59, but it is currently trading at US$158 on the share market, meaning that there is still an opportunity to buy now. Although, there may be another chance to buy again in the future.
Is Google stock going to bounce back? ›
After sliding following its latest earnings release, Google parent Alphabet (GOOG,GOOGL) has rapidly been bouncing back. Clearly, the market is catching onto the promising GOOG stock forecast. While for now selling at a discount to its “Magnificent Seven” peers, GOOG could bridge this gap before year's end.
Is Alphabet a buy, hold, or sell? ›
Alphabet stock has received a consensus rating of buy. The average rating score is and is based on 89 buy ratings, 10 hold ratings, and 0 sell ratings.
Is Alphabet a buy Motley? ›
The Motley Fool has positions in and recommends Alphabet.
What is the future prediction for Alphabet? ›
Future Growth
Alphabet is forecast to grow earnings and revenue by 11.8% and 9% per annum respectively. EPS is expected to grow by 13.4% per annum. Return on equity is forecast to be 22.8% in 3 years.
Analysts expect it to grow its revenue at a modest compound annual growth rate (CAGR) of 10% from $283 billion in 2022 to $378 billion in 2025. If it's still trading at 5 times sales by 2025, its market cap would rise to $1.9 trillion.
What is the fair price for Alphabet stock? ›
As of 2024-04-24, the Fair Value of Alphabet Inc (GOOGL) is 142.13 USD. This value is based on the Peter Lynch's Fair Value formula. With the current market price of 158.26 USD, the upside of Alphabet Inc is -10.2%.
What is the Alphabet stock price prediction for 2025? ›
The Alphabet Inc. stock prediction for 2025 is currently $ 186.27, assuming that Alphabet Inc. shares will continue growing at the average yearly rate as they did in the last 10 years. This would represent a 19.62% increase in the GOOG stock price.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Neil Rozenbaum has positions in Alphabet, Amazon, and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, and Palantir Technologies.
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The Motley Fool has positions in and recommends Alphabet, Alteryx, Amazon, DocuSign, Microsoft, Netflix, and Nvidia.
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The average price target for Alphabet Class C is $168.64. This is based on 11 Wall Streets Analysts 12-month price targets, issued in the past 3 months. The highest analyst price target is $185.00 ,the lowest forecast is $160.00. The average price target represents 7.43% Increase from the current price of $156.97.
What is the stock prediction for Alphabet? ›
Alphabet Stock Forecast
The 35 analysts with 12-month price forecasts for Alphabet stock have an average target of 154.74, with a low estimate of 121 and a high estimate of 185. The average target predicts a decrease of -0.08% from the current stock price of 154.86.
Is Alphabet a buy hold or sell? ›
Is Alphabet stock a Buy, Sell or Hold? Alphabet stock has received a consensus rating of buy. The average rating score is and is based on 89 buy ratings, 10 hold ratings, and 0 sell ratings.
