The Alphabet (NASDAQ: GOOG) share price jumped yesterday after the company reported its results for the fourth quarter of 2021.
Google’s parent reported revenues of $75.3bn for the three months ending 31 December, up 32% compared to last year, and a profit of $20.6bn. The stock is up 10% after reporting these numbers at the time of writing.
Alphabet has defied expectations by outperforming in an increasingly competitive advertising market. The company’s advertising revenues came in at $61.2bn for the quarter, up from $46.2bn the same time last year. These figures showcase the organisation’s strengths.
Despite increasing competition in the sector and growing regulatory headwinds, the corporation’s international reach and recognition are helping overcome these challenges.
The question is, can this trend continue? And if it can, is it worth buying the stock for my portfolio after its recent performance?
The Alphabet share price opportunity
Shares in the tech company are currently changing hands at a 2022 price-to-earnings (P/E) multiple of 24. That is based on current Wall Street estimates, which may change.
I think this significantly undervalued the business. Indeed, some consumer goods businesses trade at similar multiples, even though they have lower profit margins and lower returns on capital.
What’s more, I think this valuation fails to consider Google’s international brand value. It would be almost impossible for a competitor to build the kind of international recognition this company has achieved over the past two decades.
This brand value is worth a significant valuation premium, in my opinion.
That being said, it would be silly for me to ignore the growing risks and challenges the company faces.
As mentioned above, the online advertising space is becoming increasingly competitive. Although Google is one of the dominant players, it also has to fight off other deep-pocketed competitors such as Amazon and Facebook.
Regulators worldwide are also looking to introduce more stringent rules for online advertising. These rules could increase the cost of doing business for Google and weigh on its profit margins.
Tech sector leader
Even after considering these challenges, I think Alphabet can continue to build on the strengths it has developed over the past two decades.
The world is only becoming more interconnected and more digitised. Alphabet has the size and scale required to offer customers an all-round package of digital services at a relatively low cost.
As this trend continues, I think the company’s position in the market will only grow. As such, I think the Alphabet share price currently presents a fantastic opportunity for a long-term investor like me.
The shares look relatively inexpensive, and it seems as if the firm has a long growth runway ahead of it. Those are the reasons why I would buy the stock for my portfolio. To capitalise on both the company’s growth and the expanding digital universe.
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. Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet (A shares) and Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
