With shares more than doubling this year, Meta Platforms
META,
seems to be a stock that just won’t quit. But given the choice, investors may want to consider digital-advertising competitor Alphabet
GOOGL,
GOOG,
instead.
Sure, Facebook parent Meta Platforms topped earnings expectations and posted bullish guidance. Yet just after celebrating those results, investors were met with a $1.3 billion fine against Meta from the European Union over data privacy.
Google parent Alphabet Inc. shares are up about 40% on the year. Even though earnings weren’t quite as big news on Wall Street, the report offered encouragement. In fact, a closer examination shows why this stock might be a better investment than Meta right now. Here are the important points if you’re weighing these digital advertising giants against each other — and why my bet is on Alphabet.
Google ads dominate, and is closer to transactions: According to Insider Intelligence, Meta’s global digital ad market share is 20.1%, behind Google’s 28.4% of share. But more importantly, Google’s mix is more favorable right now. A recent report in advertising industry publication Digiday, shows that there’s an increasing trend towards “retail media” that targets shoppers at or near their transactions – often to get them to pick Brand A over Brand B. That intuitively makes sense in a tougher spending environment where there’s less dollars to go around, and will benefit Alphabet or even smaller competitor Amazon.com
AMZN,
with 7.5% of the global ad market, more than it will Meta.
Alphabet is more diversified: While advertising is still the big driver of Alphabet, its year-end report showed that in 2022 it generated $59.0 billion from Google ads — then $8.8 billion from “other” Google services including its Play app store and hardware like Fitbit, Nest and Pixel devices. On top of that, it also snagged $7.3 billion from its fast-growing Google Cloud arm.
Meanwhile, Meta’s financials only include a nebulous “non-advertising revenue” category for Oculus VR headsets and developer fees and that line item was less than $3 billion for all of 2022. In other words — if that core ad biz does take a hit, Facebook and Meta will be hit harder.
Meta is late to AI: While CEO Mark Zuckerberg has made great pains lately to play up Meta’s interest in AI, the fact of the matter is that a big reason this stock cratered over the last few years was a boondoggle in a different area of tech — the metaverse, for which the company takes its name.
In fact, Meta shares are down about 30% from their 2021 high because the company was punished so badly for its missteps. Meanwhile, Alphabet has been quietly investing in AI for years. Back in 2022, it acquired a ChatGPT rival named Anthropic before we even knew what ChatGPT was. Then, way back in 2014, it acquired an AI startup named DeepMind — with a string of other acquisitions in between.
In other words, if you want a company that has been thinking seriously about AI for years rather than playing with cartoonish avatars and showing up late to the party, Alphabet is the way to go.
Tiktok/Twitter troubles doesn’t equal FB/Insta growth: With Meta’s dependence on social advertising, it’s clear the company lives and dies on this business. But just for the record, if you think that’s ultimately a good thing because a Tiktok ban (even if such a thing is possible) means a ton of refugees move to Facebook and Instagram, you should think again. Same for older folks upset with some of the changes on Twitter Inc. lately. If users get turned off, it seems more likely some upstart alternative will benefit — much like Tiktok or Snapchat did in prior years — rather than the exodus resulting in a return to Facebook.
Alphabet has momentum, too: As previously mentioned, Meta has been on an absolute tear lately. But a closer look reveals Alphabet may be the stock that really hits its stride this summer. Though investors didn’t see the instant pop after earnings, Alphabet has gone on to gain amore than 20% in the past 30 days — even amid serious headline risk around the U.S. debt ceiling and other macro issues. Meta, meanwhile, is basically flat over that period, hinting that new money may not be as happy as investors who bought in several weeks or months ago. As for valuation, Alphabet is trading for a slightly lower price-to-sales ratio and price-to-earnings ratio right now — hinting there’s more room to run.
You should always do your own research, as your outlook on both Alphabet and Meta Platforms may differ based on your personal investing goals and risk tolerance. But generally, if you’re looking to buy one or the other right now, my money is on Alphabet.
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