For investors in Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), it’s been a trying year. Yes, there have been some flurries of hope for this mega-cap online tech player. However, GOOG stock has underperformed the expectations of many investors, now down more than 25% on a year-to-date basis.
Today, GOOG stock is down another 7% as investors price in a flurry of catalysts.
The first is a lackluster earnings report from social media company Snap (NASDAQ:SNAP). The parent company of Snapchat reported some rather dismal numbers, missing estimates and posting a wider-than-expected free cash flow loss. Accordingly, concerns around digital ad spending are growing. This is a pertinent issue for companies such as Alphabet, whose Google division provides the lion’s share of revenues and cash flows.
Other key drivers that appear to be in play today are concerns around compensation for fraud victims in the U.K., as well as the potential that post-stock split, GOOG stock doesn’t really have much in the way of positive catalysts to take this stock higher.
Let’s dive into what to make of today’s impressive move in Alphabet.
Is GOOG Stock a Buy on Today’s Impressive Decline?
Seeing a mega-cap stock like Alphabet lose more than 7% of its value in a single day is indeed a big move. With billions of dollars of valuation wiped out, investors may consider this stock a great buy. After all, the company now trades around 18 times earnings following this decline.
However, there are plenty of headwinds investors are factoring in right now. Earnings for other digital ad-oriented companies are getting hit hard. And while Google’s underlying business model is fundamentally different from Snap’s, it’s clear that investors are taking a cautious approach to this sector right now.
Accordingly, while it is interesting to see GOOG stock trade around the $107 mark (at the time of writing), the fact that this stock split has officially happened takes away one of the key non-fundamental drivers Alphabet had. In the absence of other catalysts, investors appear to have lost interest. In this market, that can mean significant near-term downside pressure, such as what we’re seeing today.
While I think GOOG stock is a great long-term bet, it may be a bumpy few months ahead. Until we get an indication of where this economy is heading, it’s likely going to be turbulent for all stocks. Indeed, seeing Alphabet drop as it has today should be an indication of this for investors.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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