Alphabet share price forecast: what are investors searching for?

The Alphabet share price forecast has been affected by the collapse in demand for online advertising… but it’s also important to take the long-term outlook into account

Read our new forecast Alphabet share price forecast: Google impresses with remarkable recovery

The Alphabet share price forecast has been affected by some rather grim milestones over recent months. Whereas other tech giants are managing to enhance profitability in the face of Covid-19, Google’s parent company hasn’t had such luck. The reason why is quite simple… advertising.

To illustrate the startling nature of Alphabet stock news, consider this: for the first time ever in the company’s history, quarterly revenue declined year on year in Q2. Even though the dip only came in at 2 per cent, and Alphabet managed to beat analysts’ expectations, it was a revelation that left Wall Street reeling.

The Google stock forecast now hinges on when, and if, advertisers will return. Restaurants and shops remaining closed – and consumers heading out far less frequently than they used to – will be nothing short of a disaster for the search engine supremo. Although Alphabet has fingers in a lot of pies (it owns YouTube, a smartphone range and provides cloud services), advertising remains its bread and butter, representing the bulk of its money-making prowess.

Alphabet Inc
Daily change
Low: 122.52
High: 123.32

Alphabet’s stock market performance year-to-date shows that there has been some recovery in its share price. The company’s Class A stock is up 16.7 per cent on where it was at the start of the year. At the time of writing, the share price also stands 58.5 per cent from the lows of $1,008 that were seen following mega sell-offs worldwide.

However, some of those making Alphabet stock price forecasts have been left scratching their heads. Shares are currently trading at about $1,600, but there are analysts who believe that the company is worth much, much more than its current market capitalisation of $1.09tn. They include JPMorgan’s Doug Anmuth, who believes the stock is undervalued by about 23 per cent. Towards the end of July, he said a fair price for Alphabet would be $2,074 based on a “sum of the parts” valuation factoring in its search business, YouTube and Google Cloud. Interestingly, Anmuth thinks the video-sharing site is even worth more than streaming giant Netflix, and the entertainment heavyweight Disney.

There’s just one thing this analyst wants Alphabet to do: deliver greater transparency on how its famous “Other Bets” are performing – the wild investments that often attract little-to-no chance of a quick payday. Ventures in this category include the autonomous driving brand Waymo. It seems unlikely that Anmuth will get his wish, though. The company may want to keep these financials under wraps, either because they’re commercially sensitive or Alphabet fears a backlash on the extent of the losses.

Alphabet stock news

By and large, Alphabet has hit the pause button on investments during the coronavirus pandemic. But there was one notable acquisition that caused a big splash recently: its $2.1bn purchase of the wearables giant Fitbit. Although there’s broad consensus that this takeover could help Fitbit’s technology come along leaps and bounds – not least because of Alphabet’s deep pockets – regulators have concerns. Early in August, the European Commission announced that it will be investigating the purchase, and the outcome of its enquiries could end up derailing the partnership altogether. Although Google has made a promise that it won’t use the health data generated by Fitbit devices to further personalise advertising, Brussels doesn’t appear to be satisfied.

Most Alphabet share price forecasts will also take into account how other antitrust investigations are looming. Back in May, reports began swirling that the US Justice Department was planning to file charges against Google, in what was described as one of the biggest antirust actions taken by the country since the dotcom boom of the 1990s. Unsurprisingly, the current investigation has centred on the company’s dominance in online advertising – and there have been allegations that Alphabet has used its strong position to harm rivals. 

Google and Apple are also facing scrutiny over the treatment of developers on their respective app stores. Epic Games, the producer of the beloved title Fortnite, is going through the courts after its game was delisted – a drastic move that came after the brand added its own payment mechanism within its software, meaning both tech giants would be deprived of lucrative commission.

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Google stock forecast: what’s next?

Although the short-term decline in online advertising is worrisome, you could argue that some Alphabet stock forecasts don’t take the long-term picture into account.

Demand will inevitably bounce back – the question is, how slowly this will happen. Google’s Q2 results were always going to be a challenge because of how this period covered the very worst of the Covid-19 pandemic worldwide. We’re already starting to see spending tentatively recover, if not at the pace enjoyed by the likes of Facebook. But the bigger factor is that coronavirus will have a permanent impact on the world of business. Many bricks-and-mortar stores have closed for good, and eCommerce is booming. Online shopping habits picked up in 2020 will likely be here to stay. All of this means that Alphabet executives should be rubbing their hands with glee. How are all these eCommerce websites going to reach new audiences? Yep, you guessed it, online advertising.

You should also expect Google’s cloud computing arm to continue drawing in impressive numbers. Many companies have been taken by surprise at the success that they’ve had with employees working from home, and some will make this permanent. This means an uptick in demand for Alphabet’s offering – not to mention complementary (and currently free) tools such as Google Docs and Google Sheets.  

Let’s wrap up by taking a look at the current Alphabet stock forecast. According to CNN Business, the highest estimate for where share prices will be 12 months from now stands at $2,000 – that’s a 24.3 per cent boost from current levels. The lowest estimate warns of a 23.1 per cent fall to $1,237. When it comes to the median forecast, the consensus appears to be that there will be an 8.8 per cent rise to $1,750.

It’s instructive to see that 34 of 42 analysts rate Alphabet a buy, with an additional four predicting that it’ll outperform the rest of the market. The final four analysts recommend holding the stock, and none currently have a sell rating in force.

FURTHER READING: Tesla share price forecast: is the stock running out of road?

FURTHER READING: Stock market forecast for the next five years

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