Alphabet Inc. (GOOG, GOOGL) Analysis

[kaylafaith77]

@retsepile This is true, but doesn’t apply to Cloud. Like another commenter added, the reason it’s running a loss is because the leaders are heavily investing in it to make up market share ground.

Cloud could turn a profit today. It’s loss is caused by steeply discounted prices as well as heavy reinvestment because they are focused in growth at the moment.

 

[annaliseh]

@tinaman My guess is that Microsoft has several advantages:

• It already has a robust sales infrastructure to deal with Enterprise clients.
• It has many products such as Office, cyber security, productivity tools, etc that brings in potential customers for servers. And the network keeps getting bigger.
• It is more stable to become a Microsoft expert than a Google expert.

 

[tinaman]

@annaliseh This makes sense. Thanks!

 

[18hope]

@annaliseh Yeah, it's the suite of solutions that sales focuses on plus the legacy preference when it was the only solution. Kids all grow up using Google now though so I'd expect to see larger shifts to Workspace in the next 10-15yrs especially amongst smaller companies.

 

[jabrenica]

@bea1271 Great analysis.

I would point out another risk: alphabet has three classes of share, which, in my point of view, could represent an agency risk.

 

[helendate]

@jabrenica What do you mean by agency risk?

 

[jabrenica]

@helendate It's basically when principals or major shareholders act in their own interests.

In Alphabet case, there are a share class not listed that own 10 times more vote rights than the others classes listed. It allows major shareholders keep in their control the company decisions.

Of course that it can be considered good, if the company is performing well because that means theirs decisions are in the right way, but it is important to have in mind that they can act in their own interests and the minor shareholders will not be able to stop that because their class is much more powerful.

Here you can read a full article about it.

 

[delton]

@bea1271 My google valuation: YouTube ad rev > netflix rev. Buy.

 

[zooplankton]

@delton Perhaps revenue is greater, but not profits.

They’re two different business models, that’s not a good comparison

 

[cosmictraveller]

@delton How are you projecting Netflix ad revenue?

 

[dustwake]

@bea1271 The discount rate is the most important assumption. 8% was fair a year ago, how do you conclude its fair today? Risk free rate is climbing, why take infintely more risk for significantly less return?

 

[uziel]

@dustwake I'd say 8% is about right at the market level. If you're going to go by Damodaran's methodology of multiplying the market risk premium by the company's beta (Google beta is 1.06), then 8% DR is perfectly fine. One could argue for 9% probably, but you're splitting hairs at that point.

 

[dustwake]

@uziel At best, using an 8% discount rate instead 9% discount would result in OP's fair value being 13% greater than actual.

That is not splitting hair-- its materially different. Deciding between 8.05% and 8.10% is more akin to hair splitting.

 

[uziel]

@dustwake That's fair.

But if it's undervalued by 13% with an 8% COE and fairly valued using 9%, you're really not going to notice a difference in returns in the long run.

It's all guess work anyways. I'd focus more on improving revenue and margin forecasts before I started fretting about whether I should discount at 8% or 9%. Because I could make a good argument for both.

 

[hanzohamamura]

@dustwake Especially that he did it for a 15 years timeframe, which is huge (imo going over 5 years it's getting exponentially more and more similar to a crystal ball).

 

[godlover12345132]

@bea1271 Is Googly the best FAANG stock?

 

[masteroftheart]

@godlover12345132 I'd put it at #1 or #2, but I don't know the future

 

[rami999]

@godlover12345132 It’s #1 ay

 

[shizo211]

@godlover12345132 Personally it's Apple for me. I keep betting against them(no shorts just choosing to buy other FAANGS) and losing.

 

[richarshills]

@godlover12345132 imo, Apple > Microsoft = Google