Alphabet’s Earnings Rise Amid Stock Price Decline: What Lies Ahead?
Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) has recently released robust quarterly earnings for the start of 2025. However, its share price has struggled, currently down about 18% for the year.
One potential strategy to improve share performance is a stock split. This has been a common tactic among major tech firms, some of which have seen significant returns post-split. Could Alphabet consider this route to enhance its performance? Let’s delve into this possibility and assess whether investing in the company makes sense regardless of a split.
Recent Stock Split Overview
Companies typically resort to stock splits to make shares more affordable by increasing the number of outstanding shares. While a stock split does not change the company’s overall value, it can render shares more enticing to investors.
Alphabet executed a 20-for-1 stock split on July 15, 2022. This action meant that shareholders received 20 shares for every one they owned, dropping the pre-split trading price of $2,255 to an adjusted price of around $113. This made investing in Alphabet much more accessible.
Since the split, Alphabet has seen a return of 38%, which trails the S&P 500 during the same timeframe. Given the current share price, a stock split now may not be beneficial, as shares are not priced excessively high enough to dissuade investors.
Predicting when a company will opt for a stock split is challenging, and Alphabet is unlikely to pursue this avenue shortly. However, there are compelling reasons to consider adding Alphabet to your investment portfolio.
Why Alphabet Stands Out Among Tech Stocks
Alphabet is a dominant player in various tech sectors. Google’s search engine commands nearly 90% of market share, according to StatCounter. Android operates as the leading mobile OS with a 72% market share, and Chrome holds the title for the most-used browser with a 66% share.
Additionally, Alphabet owns YouTube, which led media distribution in March, capturing 12% of total TV viewing, surpassing competitors like Disney+ and Netflix, based on Nielsen data.
With its diverse product portfolio, including Google Cloud, Alphabet generated $90.2 billion in revenue for the first quarter, marking a 12% year-over-year increase. Furthermore, the company’s commitment to investing in emerging technologies, particularly artificial intelligence (AI) through initiatives like its Gemini chatbot, makes it an intriguing investment option.
Currently, Alphabet’s shares are trading at their lowest since 2023, suggesting this could be a favorable time to invest in the company.
GOOGL PE Ratio (Forward) data by YCharts
Challenges Facing Alphabet
Alphabet’s stock decline can be attributed to multiple factors. A federal judge ruled last year that Google possesses illegal monopoly power in its search business. While penalties are yet to be determined, the U.S. Department of Justice is pushing for Alphabet to divest its Chrome browser and advertising operations.
This lengthy legal process introduces uncertainty for Alphabet. While potential penalties might affect the business, the exact impact remains unclear, and the company may still contest any decisions in an appeals process.
Additionally, Alphabet’s heavy reliance on advertising revenue—74% of reported revenue in Q1 2025—raises concerns. This sector tends to be among the first for businesses to cut during economic downturns. However, the company has diversified its revenue streams significantly since 2010, during which it relied almost entirely on advertising.
Alphabet is also poised to continue expanding through investments in AI, cloud services (such as its recent acquisition of cloud security platform Wiz), and self-driving technologies.
A Quality Tech Investment, Regardless of a Potential Split
As noted earlier, the likelihood of a stock split in the near future is low. However, the probability of Alphabet outperforming the market in the next five years holds much greater promise.
The tech giant benefits from a blend of leading products and exciting innovations. Alongside recent revenue growth, the company reported $74.9 billion in free cash flow over the past 12 months, providing ample funds for future investments. Notably, Alphabet offers the lowest price-to-earnings ratio among the “Magnificent Seven” tech companies. Hence, for those seeking reasonably valued tech stocks, Alphabet merits consideration.
Is Now the Time to Invest $1,000 in Alphabet?
Before investing in Alphabet, keep this in mind:
Currently, the Motley Fool Stock Advisor analyst team has highlighted what they consider the 10 best stocks to invest in right now, excluding Alphabet. These selected stocks may offer substantial returns in the coming years.
For context, if you had invested $1,000 in Netflix when it made this list on December 17, 2004, you’d have $614,911 today!
Also, if you had invested $1,000 in Nvidia on April 15, 2005, that investment would be valued at around $714,958 now!
Overall, it’s worth mentioning that Stock Advisor has achieved an average return of 907%, significantly higher than the S&P 500’s 163%.
*Stock Advisor returns as of May 5, 2025
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool recommends Alphabet and Netflix and has a disclosure policy.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.
