Alphabet's (GOOG 1.82%) (GOOGL 1.79%) stock was battered in 2022, with macroeconomic headwinds leading it to tumble 38.7% throughout the year. Steep rises in inflation led to reduced spending in digital advertising as businesses slashed their budgets, with Alphabet's related segments hit hard by the declines.
Despite the challenging year, Alphabet shares have risen almost 58% over the last five years and 227% over the last decade. The increase has come as annual revenue has climbed 106.7% to $282.84 billion since 2019, and operating income has grown 129.6% to $74.84 billion.
Alphabet has grown into a dominating force in tech, but as with most things, there are pros and cons for investing in its stock. Let's take a look at both arguments.
Bear: Alphabet has a long list of defunct businesses
While Alphabet is best known for potent brands such as YouTube, Android, Fitbit, and the many services under Google, the company also has a reputation for prematurely shuttering businesses. Platforms like Google Hangouts, YouTube Gaming, and, more recently, Google Stadia are just a few of the many services that did not survive past a few years.
Launched in November 2019, Google Stadia was a cloud gaming service with a primary selling point that users didn't have to buy expensive hardware like consoles to play top-tier games. The service would let players stream games from almost any device through a monthly subscription. However, the model had a crucial flaw in that most people interested in console-level gaming either don't mind buying hardware like Sony's PlayStation 5 or Microsoft's Xbox Series X|S or already own it, making Stadia incredibly niche.
The fact that the Stadia subscription also didn't include any games, with those being separate purchases and the service only granting access to streaming, didn't sit well with many prospective users.
Moreover, Stadia might have been doomed from the start because of Alphabet's reputation for sunsetting services after only a few years. Arguments have been made that customers hesitated to invest in the service and build up a Stadia game library when the platform could be gone soon. As a result, the low adoption rate meant Stadia was shut down within about three years of launching.
Despite the fumble with Stadia, Alphabet's decision to refund players for every game they purchased on the platform may have earned the company some goodwill on future projects.
Bull: Alphabet has solid future in high-growth markets
Alphabet may have a history of abandoning services, but its willingness to try and fail has also given it strong positions in two lucrative markets: Digital advertising and cloud computing.
Economic declines caused a downturn in ad spending in 2022. However, the market continues to have an excellent long-term outlook. According to GlobeNewswire, the digital advertising market is projected to reach $786.2 billion by 2026, expanding at a compound annual growth rate (CAGR) of 13.9%. Meanwhile, Alphabet's leading 27.5% market share in the industry will likely see it profit significantly from the market's growth.
The dominance of brands like YouTube and Android gives the company a massive audience to display ads, strengthening its long-term prospects. In fact, YouTube alone has over 2.6 billion active users, with about 52% of internet users accessing the site at least once a month.
Additionally, one service that doesn't look to be going anywhere any time soon is Google Cloud. It has the third-largest market share in cloud computing at 11%. The cloud market was valued at $483.98 billion in 2022 and is expected to grow at a CAGR of 14.1% through 2030. Meanwhile, Google Cloud revenue soared 36.8% to $26.1 billion in fiscal 2022 as the company benefited from the growth of the booming industry.
Like most companies, Alphabet has had its ups and downs over the years, but it continues to be a powerful force in the tech world and will likely retain its solid position for years. Its forward price-to-earnings ratio of 18 has decreased over 36% in the last year, making Alphabet's stock a screaming buy right now.
