Alphabet Inc stock had an indifferent performance in March after almost 7% gains in the first two months of 2017. Has GOOGL stock lost steam?
Shares of Mountain View, California-based Alphabet Inc (NASDAQ:GOOGL) have not yet recovered from the YouTube ad controversy sell-off. GOOGL stock had made a good start to 2017, gaining almost four times the 2016 stock returns in the first two months of 2017. However, GOOGL stock has largely moved sideways since the emergence of YouTube ad controversy and is down by more than 2.5% from the time, the controversy broke out. The YouTube controversy had also earned Alphabet stock few rating downgrades from analysts, which too didn't help the search giant's cause. There were also strong signals from technicals in the late March suggesting a near-term correction was on the cards. Now a major question which intrigues many investors is, has Alphabet Inc (NASDAQ: GOOGL) stock lost the early momentum which it built from the beginning of the year? Will the latest controversy weigh heavy on Alphabet stock forcing it to give up the early gains? Let's take a closer look.Technicals suggest a mixed scenario.
Shares of Alphabet Inc closed marginally lower by almost 0.5% in the last trading session on April 6th. The Alphabet Inc stock technical chart highlights that GOOGL stock has been testing the 20-day simple moving average (SMA) in the last few trading sessions. GOOGL stock price had dropped below the 20-day SMA on March 21st after the YouTube ad controversy got bigger. GOOGL stock price is hovering near the 20-day SMA of late and had managed to close above the 20-day SMA trend line in the beginning of this week on April 3rd but has closed below the 20-day SMA in rest of the following days. GOOGL stock is facing resistance from the 20-day SMA. However, GOOGL stock price has found good support from the 50-day simple moving average. GOOGL stock has consistently closed above the 50-day SMA trend line since going past the 50-day SMA on March 29th, it only dropped marginally below the 50-day SMA price in yesterday's trading session. The search giant's stock needs to break the resistance posed by the 20-day SMA to head higher in near-term. The 50-day SMA support is a positive cue and a better technical indicator than the 20-day SMA.Why some analysts downgraded Alphabet Inc stock.
The YouTube meltdown had led to several advertisers walking away from Google's YouTube platform. This had led to a belief among many that this could slow down the Google's parent company Alphabet Inc's growth. Brian Wieser, a Pivotal Research analyst downgraded GOOGL stock to 'Hold' from 'Buy' due to the YouTube controversies. Recently, BMO Capital’s Internet analyst, Daniel Salmon became the latest to downgrade shares of Alphabet. Salmon is of the view that the Amazon's (NASDAQ:AMZN) new advertising business will become a headwind for Alphabet going ahead. He also cut his GOOGL stock price target to $880 from $1005. However, as we had covered in our previous post on Alphabet, analysts are divided in opinion over the impact of this controversy on the search giant's growth. Morgan Stanley analyst, Brian Nowak in his research note released after the Youtube controversy, reiterated his Overweight rating on GOOGL stock. According to his research estimates, the current YouTube controversy could impact only 1% of the search giant's net revenue.Long-term growth drivers for Alphabet Inc remain intact.
In spite of the YouTube controversy, Alphabet Inc is still expected to be the leader in digital ad space. Coming to the point that some advertisers walked away from Google after YouTube issue, well, this could be just temporary. Advertising and public relations company WPP, CEO Sir Martin Sorrell echoed similar views. Commenting on the YouTube controversy, he says "You're negating or withdrawing from arguably one of the most powerful mediums." Sir Martin Sorrell believes that boycotting Google doesn't make sense considering its large presence in digital advertising space. He also stated that his company, WPP, had spent a little under $5 billion on Google for advertising last year.
Further, YouTube is taking measures to prevent ads by big brands being placed next to questionable content. The online video platform will not allow ads on channels that have less than 10,000 views in total, across their entire platform. This measure, at the least, would help avoid displaying ads on videos that are vague and offensive enough to not find a proper regular audience.
Google is on course for another bumper in year ad revenue. An eMarketer research report released just before the YouTube controversy states it could make, the double of what its nearest competitor Facebook (NASDAQ:FB) will make, in US digital ad revenues in 2017. Alphabet also has several other growth drivers. A recent Morgan Stanley study suggests that public cloud could soon become a utility like electricity and as per their study, all major cloud providers including Google Cloud platform are undervalued. With Google Cloud expected to grow at a faster clip in future, Google stock still has huge long-term growth potential. Further, latest reports suggest Google has developed its own custom chips, the Tensor Processing Unit or TPU, which are supposed to be been 15 to 30 times faster than today’s server-class CPUs and GPUs of Intel (NASDAQ:INTC) and NVIDIA (NASDAQ:NVDA). This bodes well for Google's business as it could help massively reduce its datacentre costs in future. In Waymo, Google's self-driving car subsidiary, we could see Alphabet's next growth cycle much sooner than many think, as self-driving car market is growing at an incredible rate.Summing It Up.
As discussed above, the technicals present a mixed case for GOOGL stock. Further, the Relative Strength Index (RSI) measure of the Alphabet stock is very close to the oversold threshold value of 30. A further weakness in GOOGL stock could push the stock into oversold territory, which could set GOOGL stock for a rebound in the coming days. Taking a long-term view, we believe that shares of Alphabet (NASDAQ:GOOGL) are still headed higher, and we like the stock fundamentally, to the extent that we've added it to our list of top stock picks, which have beaten the NASDAQ by over 132%.
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