Can Alphabet Employees Be Scrappy? What About the Stock?

To struggle or not to struggle.

That is the question. 

It would be difficult to whine if one were a shareholder of Alphabet GOOGL GOOGL. With 2024 down to its final two trading days, GOOGL is up 38% year to date, significantly outperforming the S&P 500, which has also had a good year at +25.2%. T

The stock's fantastic 2024 performance was largely reliant upon two separate surges in the share price. The stock rallied from early March into early July, propelled by a blowout earnings report in April. Then there was some give-back, and then another run from early September into mid-December.

Despite the joy that the stock's performance may have given shareholders in 2024, Alphabet's year was one of layoffs, product production issues, and regulatory pressure both here in the U.S. and abroad. Supposedly, according to a piece published at the CNBC website on Friday, coming off of the pressures to keep up with the other hyper-scalers and feed resources into the AI capex spending race after stumbling around at first, employees are not on board with where the company is going.

Some employees apparently feel that Alphabet hasn't been on what they consider to be the right side of every political or geopolitical issue. Job eliminations seemed to reflect a clampdown on protests within the company where certain employees disrupted workspaces and made other employees feel unsafe.

There's More...

Also, within the CNBC piece, it was revealed that CEO Sundar Pichai warned Alphabet employees that the coming year could be a challenging one. Pichai commented on the global regulatory scrutiny... "It comes with our size and success. It's part of a broader trend where tech is now impacting society at scale. So more than ever, through this moment, we have to make sure we don't get distracted."

You may recall that back in August, a federal judge ruled that Alphabet holds an illegal monopoly in the online search market. The U.S. Justice Department responded to the ruling by pushing for the divestiture of the firm's web browser, Chrome. All the while startups like Perplexity and OpenAI, which is heavily backed by Microsoft MSFT, have looked to make progress in disrupting the space.

What's more, and I know that I would take this as a challenge, but these folks at Alphabet probably don't think like I do, and they may react to a challenge from leadership a little differently than a kid who shipped off to Parris Island at 17. Pichai urged his workforce to be "scrappy" and said, "I think it's really important we internalize the urgency of this moment and need to move faster as a company. The stakes are high. These are disruptive moments."

Thinking as that 17-year-old kid, or even in block trading/investment banking in my mid-30's, a challenge like that would have fired me up. The tech crowd may or may not react in that way. They are brilliant people, no doubt. That said, they are not trying to make the grade as an underage, undersized recruit trying to earn one of the military's most prestigious titles — and they are probably not as naturally aggressive as Wall Streeters were prior to the advent of high-speed, algorithmic trade.

Earnings

Alphabet is set to report its fourth-quarter 2024 results on January 30, so that's still a month away. Wall Street is looking for GAAP EPS of $2.11 on revenue of $96.7 billion. Of the 38 sell-side analysts who follow the stock, 33 have revised their estimates higher since the start of the quarter. If realized, these numbers would compare to the year-ago comp of $1.64 per share and reflect year over year sales growth of 12%. Growth of 12% would be a deceleration from the year-over-year growth of the prior quarter and the slowest pace of revenue growth for the company since  Q3 2023.

Alphabet pays shareholders $0.80 per share year in cash dividends, yielding just 0.42%. The stock currently trades at just 21 times forward-looking earnings, which is less expensive than fellow hyper-scalers Microsoft (32 times) and Amazon AMZN (35 times). Those companies also face some regulatory hurdles, but not to the degree that Alphabet does and not where such a driver of revenue (search) is under attack.

The Chart

You will see in the chart above that GOOGL put together an inverse head-and-shoulders pattern with a $169 pivot that lasted from July into late October. That probably would have put my price target at roughly $203 if I had been smart enough to be in the name at that time. The stock apexed at $200 in mid-December after leaving an unfilled gap in its wake that would require a print at $176.26 or lower to fill.

Now we know that all gaps do not have to be filled, but we also know that they usually do fill. In the meantime, the stock's Relative Strength has contracted rapidly and the stock's daily moving average convergence/divergence (MACD) is at this moment experiencing a bearish cross-under of the 26-day exponential moving average (EMA) (gold) by the 12-day EMA (black).

Still, the stock will have all three of its key moving averages to rely upon even as it shows some year-end weakness. 

My thoughts are this:

GOOGL may get slapped around in the here and now. I don't think the company will be forced to break up, but the search business is under attack from advanced competition for market share. 

I don't think GOOGL would be the worst investment in the world, but I still like Amazon AMZN, which is up 44.7% year to date, better, and I still think Microsoft (up 12.5% for 2024) will catch up going forward.

At the time of publication, Guiolfoyle was long MSFT equity.