Alphabet (GOOG) (GOOGL), the parent company of Google, will execute a 20-for-1 stock split on July 15. That split will lower Alphabet’s trading price from about $2,300 to $115, but it won’t actually change its market capitalization or valuations.
Nonetheless, Alphabet might attract some extra attention from retail investors due to its lower price tag. It could also generate more liquidity through options trading, since a single options contract represents 100 shares. And its lower share price could eventually lead to its inclusion in the price-weighted Dow Jones Industrial Average.
Alphabet might seem like a wobbly investment after its first-quarter revenue and earnings miss, but I believe it’s still a great stock to buy ahead of its split for four simple reasons.
1. An unbeatable advertising business
In the first quarter, Alphabet generated 80% of its revenue from Google’s advertising business (including YouTube). Its ad business certainly isn’t immune to macro headwinds — it suffered temporary slowdowns during both the Great Recession and the COVID-19 pandemic — but it has always bounced back from such downturns.
Between 2011 and 2021, Google’s annual advertising revenue rose from $36.5 billion to $209.5 billion, a compound annual growth rate of 19.1%. This year, eMarketer estimates Google will control 27.7% of the digital ad market in the U.S. — putting it in first place ahead of Meta Platforms (META 0.51%) (24.2%) and Amazon (AMZN -0.34%) (13.3%) — and remain the market leader in most markets outside of China.
Therefore, if you expect Google to ride out the current macroeconomic headwinds, then this is still a great time to invest in its market-leading digital advertising business.
2. An expanding and inescapable ecosystem
Google’s core business has grown so rapidly because its ecosystem is practically inescapable. It owns the world’s largest online search engine, the most widely used mobile operating system (Android), the most popular web browser (Chrome), the top webmail service (Gmail), the leading online mapping service (Google Maps), and the largest free streaming video platform (YouTube). It also operates a growing list of adjacent services like YouTube Music, Google Workspace, Google Pay, and Google Photos.
Those digital tentacles consistently gather personal data from its users, which it uses to better target ads across its ecosystem. That approach is controversial, especially among privacy advocates and antitrust regulators, but it’s remarkably effective for advertisers.
3. A rapidly growing cloud business
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