Key Points
Alphabet’s massive market cap and huge revenue base make it one of the most closely watched businesses.
As a stand-alone company, YouTube might be worth more than Netflix.
The current valuation presents investors with a buying opportunity.
10 stocks we like better than Alphabet ›
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is a $2.3 trillion business that generated a whopping $96 billion in revenue in the latest quarter. This is a massive internet enterprise that has its hands in all areas related to technology. And it should continue to be a dominant force.
As of July 25, shares trade at a very compelling forward price-to-earnings ratio of 20.2. The valuation supports one key reason that investors should consider buying this “Magnificent Seven” stock right now.
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Image source: Alphabet.
Press play on YouTube
This high-quality company deserves a spot in your portfolio because it appears to be undervalued. Looking at different segments paints a clearer picture.
YouTube provides a perfect example. The video streaming service has an estimated 2.5 billion monthly users. It raked in $9.8 billion just in ad revenue in the second quarter, a figure that excludes subscription sales — an important factor. And even better, as a two-sided platform, YouTube possesses a very powerful network effect.
Netflix currently sports a market cap of $502 billion. It’s easy to argue that YouTube is worth at least this much, if not more. The latter commands 12.8% of daily TV viewing time in the U.S., well ahead of Netflix’s 8.3% share.
Other parts of the empire
Alphabet has other operating segments under the hood. There’s Google Search, the company’s crown jewel that represented 56% of total revenue in Q2. Don’t forget about Android and Chrome. And Waymo, the autonomous driving division, could be a major financial contributor if adoption continues to grow.
If regulatory actions force the company to break up, investors might still win out in the end. Of course, these different platforms all work better together, with technological know-how, data, and other resources being shared between them to make the whole business stronger. Nonetheless, Alphabet’s attractive valuation is a top reason to buy shares.
Should you invest $1,000 in Alphabet right now?
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Netflix. The Motley Fool has a disclosure policy.
