Whatever you are searching for, one of your first stops online may be Google. Lately I have been searching for a great investment opportunity – and one of my first stops was Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), which I have added to my portfolio. I feel upbeat on its outlook — but if I had invested £10,000 in Alphabet stock a year ago, how would I have fared?
Weak performance
In a word: badly. Over the past 12 months, the Alphabet share price has tumbled 25%.
The company does not pay any dividends, so my total return would be purely based on the price movements of Alphabet stock.
But wait – it gets worse! The share price has declined 25% in a year. But it is priced in dollars. So if I had put in $10,000 a year ago, I would now have shares worth around $7,500. But if I had invested £10,000 a year ago, it would have been converted to dollars to buy Alphabet stock.
If I wanted to sell the stock today, the proceeds would likely be changed back into pounds (if my share-dealing account is denominated in sterling). So I would be hit with a double whammy – a 25% share price decline and 8% currency conversion loss over the course of the past 12 months. That means my £10,000 investment would now be worth less than £7,000.
Alphabet stock woes
Yet Alphabet is supposedly a growth stock. A loss like that in just one year is not the sort of growth that I am looking for when investing!
What has happened?
There has been a shift in investor sentiment towards growth stocks in general. Fears about declining digital advertising revenues have hurt Alphabet and I see this as an ongoing risk for the shares. On top of that, the risk that ChatGPT and other AI tools will dramatically hurt the search market have added to Alphabet’s woes. Its own AI product has not reassured investors (so far) and made them believe that it can succeed in the AI market as it has done with search.
Looking forward not back
But while those risks are very real, I continue to see Alphabet as an outstanding business with excellent long-term prospects. Revenue growth last year slowed considerably but still came in at an annual rate of 10% (albeit in the fourth quarter it was just 1%). Annual revenues of $283bn demonstrate what a huge enterprise Alphabet has become.
Net income fell 21% compared to the prior year, but it still came in at over $1bn per week on average. I think the firm’s huge user base, technical know how, proven business model and vast reach could help profits grow in coming years.
So although the stock has been unrewarding for investors over the past year, that has pushed it down to what I regard as an attractive price. I have been taking advantage of that in the hope that this tech giant has better years ahead.
