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Proprietary Data Insights Financial Pros’ Top Online Advertising Stock Searches in the Last Month
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META Dethroned – [New] Top 5 Online Advertising Stocks
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Move over, Mark, there’s a new king in town. While financial pros made Meta (META) their top online advertising search in 2023, Google parent Alphabet (GOOG) has taken over at #1 this month. This surprised us, considering Meta’s blowout earnings compared to Alphabet’s tepid outlook. But looking at the financials, it becomes clear that search engine behemoth is no slouch and could be setting up for an attractive long-term investment. Alphabet’s Business Who remembers Lycos…or the search engine Mama? Yes, there was a time before Google pushed out nearly every other player in search. Despite decent challenges from Yahoo and Microsoft, Google has reigned as the search king for over two decades. It’s become so synonymous with search that it was added to the Miriam Webster Dictionary as a term to mean ‘search.’ But did you know that search only accounts for just over half of Alphabet’s revenues? The company expanded through the years, with its segments breaking down as follows:
While Alphabet’s search and YouTube revenues increased ~8%-10% YoY, its cloud business exploded by almost 30%. However, the real focus is on AI. Alphabet is one of the large-language-model pioneers. And after its botched rollout of Bard, its latest Gemini model has gotten a lot of praise. While it competes directly with Microsoft, Amazon, and others, Alphabet’s openness, publishing its work, and even giving programmers access help it win over many users. Financials
Source: Stock Analysis Although revenue growth has slowed to below 10% in recent years, it’s still amazing to see Alphabet keep expanding, given its size. Notably, the company saw cloud profitability improve in the 4th quarter. This may just be the start, as the company has begun to use its own chips for deep integration. You may not realize that Alphabet carries little debt, has over $110 billion in cash on hand, and generates over $100 million in cash from operations and almost $60 billion in free cash flow annually. That’s why the company’s rather generous with its $61.5 billion annual stock buyback program, yielding roughly 3.4%. Valuation
Source: Seeking Alpha Side by side, Alphabet and Meta hold somewhat similar valuations, with Meta being a touch more expensive. Even when you look at the tangible book value per share, Alphabet’s comes in at 14% of its current stock price, while Meta’s is at 10%. Growth
Source: Seeking Alpha Meta’s higher valuation comes thanks to its better revenue and profit growth in recent years. However, the average revenue growth rates are fairly similar in three and five years. Looking forward, analysts expect a bit better performance from Meta in 2024 compared to Alphabet, both on revenue and earnings growth. Profitability
Source: Seeking Alpha At the moment, Meta claims the top spot for profitability, though not total cash generated. Interestingly, Alphabet edges them out on returns on assets and total capital, though not equity. Our Opinion 10/10 We believe Alphabet has far more runway and opportunity than a company like Meta. Google’s search is the backbone of the internet. While Meta is a fantastic company, its products are discretionary. We’re also concerned about a general shift towards other social media platforms like TikTok amongst Gen Z. We look forward to seeing what Alphabet can achieve with AI and expect that to be a huge revenue generator in the near future. |
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