California, Mountain View based tech giant Alphabet Inc (NSDQ:GOOGL) seems to be having a rough time lately. Google’s parent company reported impressive numbers for Q3, with double digit earnings growth still intact. But Trump's impending arrival at the White house has negatively impacted Google stock. GOOGL stock is still down by more than 3% since the election results were out. To add to Google's woes, the issue of "Popular vote" related fake news showing up in Google searches, hasn't helped matters. But is Trump really all that bad for Alphabet Inc? We think not. Here's why.Trump’s Tax Policies To Benefit Alphabet Inc
Alphabet Inc, like all other businesses, will benefit from President-elect Trump’s proposed move to cut corporation taxes from 35% to as low as 15%. If this happens, it would be a momentous occasion for everyone doing business in the US. The most impactful decision would be President-elect Donald Trump’s campaign proposal to slash repatriation taxes on overseas cash of U.S. companies. In a recent report, Moody’s estimated that the amount of cash held overseas by US companies will reach about $1.3 trillion, 74% of their total cash in 2016. Google's parent Alphabet Inc is one of the top 5 cash holding companies in the non-financial sector. Trump has proposed slashing the repatriation rate to 10%, which would be payable over 10 years.
Alphabet presently holds cash and marketable securities of $83 billion as per its balance sheet at the end of Q3 2016. On the Alphabet Q3 earnings call, Ruth Porat, CFO, Alphabet, stated that 60% of this, or $50B, is held overseas. A lot of money is at stake. A tax break in repatriation tax combined with cuts in corporation tax could benefit Alphabet Inc as well as GOOGL stock in a big way.(See Also: GOOGL Stock: Why Alphabet Inc (GOOGL) Looks Poised For Solid Growth )Reported Selection of Google Ally In Trump Transition Team May Be Good News
According to reports, George Mason University law professor Joshua Wright, former U.S. Federal Trade Commissioner (FTC), has been appointed to the transition team of President-elect Donald Trump. Wright has received funding from Google for at least four academic papers, “all of which supported Google’s position that it did not violate antitrust laws when it favored its own sites in search engine requests and restricted advertisers from running ads on competitors.” Said to be “a staunch opponent of anti-trust actions”, during his role at the FTC, Wright abstained from the decisions affecting Google.
Wright will reportedly head Trump's FTC transition team. If these reports are true, this could be good news for Alphabet Inc as well as Google which is already reeling under the fake news issue lately.What Could Go Wrong?
With Trump being President-elect, Google’s video ambitions may be hit if Trump curtails Net Neutrality. A move that might embolden internet service providers to hike prices for consumers and content companies. Net neutrality laws ban internet providers from blocking or slowing down traffic as well as from engaging in “paid prioritization” schemes that give preference to content providers who pay for the privilege. Google’s fast growing businesses like YouTube, and those focused on mobile devices may take a hit. So far, Trump has not said much on the issue, but in a November 2014 tweet, he called President Obama’s push for net neutrality “an attack on the internet” and called it a “top-down power grab.”
Given Google’s sizable US market share, the company could only be impacted by a more hawkish Trump administration. There are reports of Google planning to re-enter the Chinese market after closing its operations in 2010 over cyberattack and censorship issues. And China is one market that cannot be ignored, given Google's plans to launch the Google play store (subject to government approval), the new Google Pixel Phones and “Google Home” products. However, if Donald Trump does not work constructively on the U.S. relationship with China, Google stock could take a hit.(See Also: Can New Product Launches Drive Alphabet Inc. (GOOGL) Stock Above $1000? )Recent Developments
Google has had an eventful last few days. Firstly,Google's search engine highlighted an inaccurate story claiming that President-elect Donald Trump won the popular vote in the recently concluded presidential elections. This raises questions over Alphabet Inc’s 'crown jewel’, Google search. But Google has come out strongly against fake news in its search results with new Ad policies and other strict measures to have the most accurate search results. To make things worse for Alphabet, the company’s drone delivery deal with Starbucks Corporation (NSDQ: SBUX) fell through last week.
However, one bright spot comes in the form of reports that Alphabet Inc's venture arm — CapitalG, previously known as Google Capital - has invested in Snap Inc, the company which owns popular messaging app Snapchat.With reports of Snapchat filing for an IPO,it may be really good news for Alphabet given it has a successful listing.Snapchat reportedly is targeting for a valuation of $20 billion to $25 billion.
With advertising revenues soaring, growing video and mobile segments momentum with YouTube and mobile search traffic, Alphabet Inc is poised for solid growth ahead. With the ‘Other Bets’ yet to come good, there can be a few surprises which may go either way for GOOGL stock like Pixel phone, Google Home. Alphabet stock looks set for a good run, with a consensus price target of $966 a share, which is reasonable in our opinion given its growth prospects. In fact, some analysts are even more bullish on GOOGL. Take for instance, Oppenheimer analyst Jason Helfstein, who recently raised his price target to $1000 a share from $970. The Trump factor may not hurt Alphabet Inc as speculated, which makes GOOGL stock an opportunity worth considering.
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