Google has dropped ~30% YTD, Is Google Attractive enough to Buy now? Frank explains why he is liking Google
Hey everybody frank finance here hope you’re having a wonderful day in today’s video i’m gonna be sharing my price target for google q2 earnings as well as highlights we’re gonna look at my dcf model and lastly i’ll give my final thoughts on google as an investment if you like this type of content please consider subscribing hit that like button now back to your
Content all right jump into my price target for google as a reminder google completed their 20 for one stock split on july 15th so this price target reflects it so i have the price target 125 dollars in the next 12 indicating about a 14 upside from where they’re currently trading post market around 110 dollars a share now my dcf model gives them about 121 dollars
A share i’ll go over the assumptions later in the video and my ability to multiple at 140 same thing there on the wrist side there’s several points here the first one is is over 20 21 they had extreme growth overall for the size of their company and it attracted a lot of investors which again previously in my opinion were overlooked and that sharp run up over the
Last two years you have seen about a 20 25 percent drop off over the last year not nearly comparable to some of the other names losing but still they have really high margins they’ve been doing really well i think on the downside risk here it’s about a hundred dollars a share and i think if they sloop if they slow down to a hundred dollars a share i’m definitely
Going to be thinking about entering and adding to my position now the last point here is they gave little to no guidance for the remainder of 22 and i’ll talk a little bit more of that in the earnings section all right so jumping into earnings reported today on july 26th they reported 1.21 earnings per share compared to analysts expectations of a dollar 29. they
Missed by about 6 or 8 cents on the revenue side they reported 69.68 billion dollars of revenue um and they missed by less than one percent or about 270 million dollars compared to analysts expectations of 69.95 billion jumping into earnings highlights growth for q1 as a reminder was 22.95 q2 dropped down to 13 i think with constant currency of somewhere around 15
Or 16 now the cost increased year over year by 18 so again we’re seeing increasing cost over what we’re seeing in revenue so negative there and what i when i dug a little bit deeper into it looks like the employee expense is probably making that up employees increased about 20 percent head count increased about 20 year-over-year so it’s probably what’s accounting
For that buybacks made up 15 billion dollars in q2 for a total of 28.5 year-to-date or about 2 percent roughly 2 percent of the shares outstanding that they’ve been able to buy back to date stock split has been a 20 for one that happened on july 15th so that’s if you had 20 you know one share now you have 20 and you can do the math multiply basically by 20 and
You’ll get whatever whatever you’re supposed to have on the cloud side which is another high focus part of the business it’s not the obviously not even nearly the largest segment of their business but it’s something that folks like to look at they increase the revenues by 35 year-over-year from 4.6 to 6.2 but they saw wider losses from negative 501 million up to
Down to 858 million so about a 41 inch 41 percent increase there in the amount of loss mostly in my opinion it’s probably going to be towards employee expenses that’s probably what i would guess on the guidance side again they gave no revenue forecast for q2 or sorry for q3 of 2022 and um as they were pressed during so the press briefing it didn’t really sound
Like they really they really wanted to leave it to people for speculation they really didn’t want to give any guy sort of guidance for why comps or what’s going to happen for q2 in terms of ad revenue whether it’s youtube or whatever it was they really didn’t give much guidance so that was reoccurring throughout the the press briefing now on the last note here is
They did say and this was the only real guidance that they did give was that they would be slowing hiring over the course of the remainder of 2022. they didn’t say a hiring freeze they just said they’re going to be a lot basically they said that they’re going to be a lot more strict on who they hire moving through the rest of the year and the last thing on guidance
Is they did say and this i thought this was kind of funny is they’ll say we’ll know what it looks like when we get to 2023 well everyone will so um that that doesn’t that’s not guidance that’s just you know saying hey we’ll tell you when we know all right jumping into my dcf model for google so the first thing i’ll go ahead and draw your attention to is the dcf
Value and ebitda multiple in the price target section i i quoted off by a little bit and that’s because i didn’t necessarily check my current shares outstanding they had some share buybacks and i hadn’t factored that in so that actually bumped it up by a couple bucks from around 121 141 up to 123 143 respectively for my dcf and evident multiple valuations so now
Let’s go over some of the assumptions into the model so for the remainder of the year looking at 15 and i’m estimating them going to 15 throughout the remainder of the year the discount rate for google is at 10 percent with a long-term growth rate of 5 percent give it a multiple of 6 and a net debt of 60 billion so it’s basically 60 billion dollars on their books
Um and last thing i’ll say i really want to go through is my immediate ratio free cash flow ratio and revenue growth so looking at revenue growth starting there you see that they’ve been above 20 20 or really close to 20 percent for for quite a while it’s all slump in 2020 and back in 2015 they are below 20 as well so i think estimating them at 15 moving forward is
Probably conservative this year is probably going to be the down year so moving forward you could probably safely assume that these i would say safely assume this that always some comes back to bite people in the butt but but historically they’ve they’ve been able to grow at least to 15 in majority of years um so i think it’s fair to assume 50 on average is going to
Be a good good conservative estimate looking at free cash flow ratio you can see that their free cash flow over the last few years four years has been increasing up to 26 percent i think we’re going to see those margins dip so i’ve estimated them at 20 percent moving forward and i think that’s pretty good we’ve seen them go up and down up and down so i think we’re
Probably going back down on the cycle and we’re going to see it go back up so i think putting it 20 is conservative there and on the ibido ratio i have that going from 32 all the way down to 30 percent we look at the the numbers over the last few years i think um you could again you could argue this one a little bit higher honestly but you know they’ve only been
Below 30 percent one year um and i would say majority years before that it just looks like they’ve been able to i would say if anywhere the trend has been going down that i think that’s fair to say is the trend has been on the on the downside so 30 is in my opinion respectable for for the for the terminal period in 2026. um it could be a little bit lower than
That as as margins get pressed a little bit more and competition ramps up it could actually be lower than that but i still think these these these numbers the thirty percent twenty percent and fifty percent for ebitda free cash flow and revenue or conservative now for my final thoughts on google as an investment so the first thing i’ll say is globally we’re seeing
Folks across the board kind of not commit to q3 and q4 earnings the rest of 22 we’re trying to wait and see what’s going to happen economically are we going to see a downturn are we going to see a decrease in revenues across the board for these companies definitely hints towards that as people are ramping up or preparing themselves for a possible recession a lot
Of companies are freezing hiring et cetera et cetera so as we see companies do that it may cause the stock to go a little bit lower however i do think from here the max is probably 10 to 15 percent down at least my that’s my gut as the market across the board google specifically i think they are attractive at a hundred dollars a set share i’ve said that multiple
Times and for me personally i’ll consider adding to my position since they’ve been able to drop 25 25 or 30 percent this year something like that i really do think that google presents a really strong value the dcf calculation in my opinion is conservative i believe google has several several more years left of of revenue growth in them and they’re continuing to
Innovate and have lots of excitement in my opinion i really love their products i really like what they’re doing and i like their leadership in my opinion google’s a solid investment especially in times of uncertainty if you like this type of content please consider subscribing hit that like button thank you so much for watching my name is frank frank finance out
Transcribed from video
Big Tech Value? | Google Stock Earnings, Price Target, & DCF Model | Goog Googl Stock By Frank Finance
