Is Alphabet (GOOG) Recession Proof?

Media hysteria about the worsening economic situation has many people wondering what stocks are recession-proof? In particular, many people wonder how recession could affect Silicon Valley behemoths such as Alphabet (GOOGL).

Mr. Market thinks Alphabet (GOOG) is not recession proof. For example, Alphabet’s share price fell from $859.43 on 4 April 2022 to $2,234.03 on 29 June 2022. However, I think Mr. Market asks the wrong question?

The question to ask is not whether Alphabet is recession-proof, but whether Alphabet is recession-resistant. To explain, recession-proof means an economic slowdown will not affect a company. In contrast, recession-resistant means a company can survive a recession and still make money.

I think no company, even Alphabet, is recession-proof. However, I believe many companies, including Alphabet, can be recession-resistant.

Alphabet is Recession-Resistant

I consider Alphabet (NASDAQ: GOOG) recession-resistant because it makes enormous amounts of money.

For example, Alphabet reported quarterly revenues of $67.733 billion, a quarterly gross profit of $38.134 billion, and a quarterly operating income of $20.094 billion on 31 March 2022. Those numbers fell from 31 December 2021, but they are still enormous.

To elaborate, Google’s owner reported quarterly revenues of $75.122 billion, a quarterly gross profit of $42.134 billion, and a quarterly operating income of $21.885 billion on 31 December 2021. Importantly, Alphabet’s numbers grew from March 2021.

Alphabet reported quarterly revenues of $55.423 billion, a quarterly gross profit of $31.32 billion, and a $16.437 billion quarterly operating income on 31 March 2021. Impressively, Stockrow estimates Alphabet’s revenues grew by 22.21% in the quarter ending on 31 March 2022.

I think Alphabet is recession-resistant because it experiences impressive revenue growth even in the worst of times.

How Much Cash Can Alphabet (GOOG) generate?

I consider Alphabet (NASDAQ: GOOGL) recession resistant because itt can generate enormous amounts of cash.

For example, Alphabet had $133.97 billion in cash and short-term investments on 31 March 2022. The cash and short-term investments fell from $139.649 billion on 31 December 2021 and $135.104 billion on 31 March 2021.

Impressively, Alphabet reported a quarterly operating cash flow of $25.106 billion on 31 March 2022. The quarterly operating cash flow grew from $24.934 billion on 31 December 2021 and $19.289 billion on 31 March 2021.

Plus, Alphabet reported a quarterly ending cash flow of $20.886 billion on 31 March 2022. The quarterly ending cash flow grew from -$2.774 billion on 31 December 2021 and fell from $26.622 billion on 31 March 2021.

One reason I consider Alphabet recession press is its ability to accumulate enormous amounts of cash and debt at the same time. For example, Alphabet reported a quarterly financing cash flow of -$16.214 billion on 31 March 2022. The quarterly financing cash flow rose from -$16.511 billion on 31 December 2021 but rose from -$13.606 billion on 31 March 2021.

Alphabet’s Total Debts grew slightly from $28.247 billion on 31 March 2021 to $28.508 billion on 31 December 2021 to $28.602 billion on 31 March 2022. Hence, Alphabet’s debts are small when compared to its cash. Moreover, Alphabet can easily pay off its debts with its cash on hand.

What Value Does Alphabet Have?

I think Alphabet has enormous value because of the size of its platforms. For example, Google is the world’s most popular search engine. Statista estimates Google generated 79.8% of US desktop search traffic in January 2022.

Google had an 85.55% share of the world desktop search engine market in January 2022, Statista estimates. Notably, Google’s biggest competitor Microsoft’s (MSFT) Bing had a 7.61% share of the global search engine market.

Additionally, Google generated advertising revenues of $209.4 billion in 2021, Statista estimates. Plus, Google websites generated $177.79 billion in advertising revenues in 2021. Meanwhile, Google network websites generated $31.7 billion in 2021.

In contrast, Alphabet’s YouTube generated $6.9 billion in advertising revenue in the first quarter of 2022, Statista estimates. YouTube was the world’s second largest social media network with 2.562 billion monthly active users in January 2022. Notably, Statista estimates YouTube’s audience grew by 11.9% between January 2021 and January 2022.

Is Alphabet (GOOG) a Value Investment?

Hence, Alphabet is valuable because it owns one of the world’s valuable social media platforms and the most successful search engine. Moreover, YouTube makes Alphabet (GOOGL) a major player in entertainment and television.

Thus, Alphabet has some value characteristics. For example, Alphabet had $357.096 billion in Total Assets on 31 March 2022. Moreover, cash comprises over one third of those assets. To elaborate, my calculator states 33% of $357.096 billion is $117.84 billion.

Therefore, Alphabet can make acquisitions during a recession because it has cash. Hence, Alphabet, like Berkshire Hathaway (BRK.B) can grow in a recession.

Can Alphabet Grow in a Recession?

Interesting companies Alphabet could buy include hardware makers, in particular Roku (ROKU), news outlets, blockchain companies, finance companies, and others. Conversely, the current anti-corporate sentiment in American politics could make Alphabet management leery of acquisitions.

My guess is that Alphabet’s management will confine their recession shopping to obscure startups and smaller privately held companies with impressive technologies. Alphabet will acquire but management will keep the acquisitions as quiet as possible.

Hence, I think Alphabet will make the most of its acquisitions in the software, blockchain, social media, gaming, cryptocurrency, Fintech, artificial intelligence (AI), and other spheres. I think there are many blockchain and metaverse bargains out there.

Will Alphabet enter Cryptocurrency and DeFi?

I believe Alphabet could buy decentralized autonomous organizations (DAOs) and decentralized finance (DeFi) solutions. For example, Bancor (BNT), CoinBase (NASDAQ: COIN), Block.One the owner of EOS (EOS), MakerDao, DAO Maker, and the Adadao (ADAO). In other words, Alphabet could sneak into cryptocurrency and finance, and nobody will notice.

Alphabet is already a major player in finance through Google Pay. For example, Queryspot estimates that Google Pay processed 20% of all mobile digital payment transactions in 2022. Impressively, Queryspot estimates 790,000 US websites accept Google Pay for payments processing.

However, Google Pay is a minor player in some payments categories. Queryspot estimates Google Pay processed just 2.68% of food and drink purchases in 2022.

Why Alphabet could Enter Crypto and Blockchain?

I think Alphabet could enter crypto and blockchain to expand its share of the payments and fintech markets. In particular, I think Alphabet could use DeFi to become a major player in finance. For example, by building a decentralized exchange (DEX), or offering stablecoins.

Cryptocurrency is an enormous market. Even with the recent crypto crash, the Total Global Market Cap was $900.20 billion on 29 June 2022, CoinMarketCap estimates. I think that market and all the data it can generate will interest Alphabet’s management.

In the final analysis, I think Alphabet (GOOGL) could become a value investment because it is a growing cash-rich company. Plus, Alphabet could enter lucrative new markets such as cryptocurrency. Alphabet could become a value investment because it is a recession-resistant company.