Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG) might seem like a recession-resistant business. After all, its Google search engine would still get plenty of traffic in tough times. But keep in mind that this is an advertising business at its core. In this Fool Live clip, recorded on Dec. 6, Fool.com contributors Matt Frankel and Danny Vena discuss how they think the tech giant would hold up during difficult economic times.
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Danny Vena: If you look at Alphabet, if you look at what Google does, of course, whenever there is a market downturn, one of the phenomena that we see happen historically is, companies will very quickly pull back on their marketing spending. When that happens, of course, one of the biggest digital advertisers in the world is Google, bar none. This is a company that's going to take a hit in the short term, but it's also one of the first places that, once the economy stabilizes when you're in a downturn, that people want to get back out there and get their marketing spending back up so they can get the revenue going again. While I think that Google is a good place to put your money, I ranked it actually low out of the ones that we have because of that initial hit that it's going to take.
Matt Frankel: That's fair. Past downturns suggest that you're right that we'll see companies pump their brakes on advertising. We saw that during the first half of 2020.
Danny Vena: We did.
Matt Frankel: Not just Google. I invest in a company called Outfront Media (NYSE: OUT), that is a billboard and outdoor advertising company. And one of their big revenue streams is advertising in subway systems like mass transit systems. Companies weren't spending on that because no one was going anywhere. The same thing happens in downturns, when in a general downturn when people just don't have money to spend, you'll see a lot of advertisers pump their brakes on spending.
I didn't agree completely on this one. I ranked this more toward the middle of the pack just because I think their business will hold up pretty well as far as advertising value for the dollar goes. A lot of companies view Google ads as one of the best places to spend their money. So, I would think it's one of the latter forms of advertising to get cut. I mentioned outdoor advertising would probably get cut first before any type of internet advertising. But I definitely agree that it's going to be more volatile than some of the other names on the list.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Daniel Vena owns Alphabet (A shares). Matthew Frankel, CFP® owns Outfront Media. The Motley Fool owns and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool recommends Outfront Media. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
