Right now, one can tell with certainty whether the economic downturn will go away in 3 years or not. But one particular segment of Alphabet is expected to grow for the next 3 years.
After receiving negative GDP results in 2 quarters, it is clear now that the US economy is slowing down. Although there is still some disagreement about the recession, everyone agrees about the slowdown of the economy.
This negative GDP for a sustained period of time is not good for businesses such as Alphabet (Google), which relies heavily on advertising revenue. If you think about it, why would businesses spend big on advertising if the economy is slowing down?
Shrinking Of Advertising Budget
The first expense that is usually cut by businesses is the advertising budget during an economic slowdown. That's why smart investors have already put this fact in their trading strategy & have started to move away from stocks which drive their earnings from advertising.
If you keep this fact in mind, it becomes clear why the Alphabet (GOOG) stock saw a price decline during 2022. In fact, the stock is already down almost 21% from its high point.
Lower Growth Rate For The Short Term
Ad revenue will most definitely decrease over the next few years. In fact, the advertising revenue of Alphabet was only $56 billion, which only registered an increase of 11.6%.
This growth may appear big to many, but these numbers are almost equal to the numbers seen during the 2020 pandemic.
Overall, the final revenue numbers were around $69.7 billion. However, the operating margin fell from 31% to only 28%, which is a not indication. As a result of this, the EPS of Alphabet also fell from $1.36 to only $1.21.
These numbers tell us that although the advertising revenue is still showing double-digit growth, the company may face some problems going forward.
But if the US economy picks up face and gets out of this slow growth, the advertising revenue of Google may jump once again!