GOOGLE STOCK ANALYSIS – Why It is Undervalued Now!

In this in-depth Google Stock Analysis, you will learn about why I believe Google stock is undervalued now. You will learn about Google’s business model, its near-monopoly businesses, its dominant market shares, its long-term growth catalysts, and its risks. You will also learn about Google/Alphabet stock’s fair intrinsic value per share.

Hi everyone this victor here welcome to the intelligent investor channel in this video we’re going to analyze alphabet stock or also known as google to see if it’s a great business for long-term investing and to see if the stock is under value now alphabet is one of my favorite long-term investments if you look at alphabet’s stock performance here you can see it has

Outperformed the s p 500 by a large margin in the past five years alphabet stock grew nearly 240 while the s b function grew almost 99 during this period obviously past return does not guarantee future results so i believe it’s important to understand alphabet’s long-term business prospects its biggest competitive advantage its primary risk and its fair increase

Worry per share first before investing in it in this video i will give you an in-depth analysis of alphabet by covering these topics what is alphabet’s business model is alphabet a new monopoly alphabet’s two long-term growth catalysts alphabet’s two main risk to consider what is alphabet’s fair insurance world per share and will i buy alphabet stock if you like

This video make sure to hit the like button subscribe and turn on the notification button i will continue to make many excellent stock analysis and investing analysis videos every week that will help you become a great investor also if you like this channel and want to support it check out my patreon blog in the video description and become a vip patron you’ll be

Able to follow all the best stocks i’m buying for the long term and download the latest intrinsic value calculators so you know when the stock is currently overwhelming fairly well or undervalued the link is in the video description take a look let’s start so what is alphabet’s business model and how does alphabet earn its revenues before investing in any stocks

I believe it is important to understand the business and its products and services first alphabets primary products and services include google search engine youtube chrome web browser gmail google cloud platform google workspace apps android operating system google play store google drive google map and pixel smartphones all these products and services make up

Google or alphabet’s ecosystem alphabet also has all the best and new business initiatives including deepmind rarely and waymo alphabet’s primary businesses are search and advertising it earns revenues primarily from ads from google search engine youtube or third-party websites that have google ads under google’s advertising network in the recent q2 2021 quarter

Google advertising contributed 81.52 of total revenues alphabet also earns revenues from the android play store google cloud services and other bets if you look at this operating income by segment here you can see google services which is primarily google advertising earns all the operating income google cloud and other bets are not profitable yet in terms of

Profitability alphabet has a very profitable business model for example its operating margin was 31 in the recent q2 2021 quarter its operating margin was 23 in 2020 and 21 in 2019. this is from morningstar if you look at these financials here in the past three years you can see alphabet had very consistent reveling growth operating income growth operating cash flow

Growth and free cash flow growth these are very good trends because it shows alphabet has a very strong business model with great equipment modes it has consistent revenue growth every year even in 2020 when most businesses were impacted by the pandemic alphabet also has a strong balance sheet for example according to the recent q2 2021 balance sheet here it had

135.86 billion of cash equivalents this is more than enough to pay off all the short-term and long-term debts when the u.s interest rates start to increase and when the u.s fed starts tapering its 120 billion monthly bond purchase program it should not have a large impact on alphabet’s business because alphabet does not have a large amount of debts compared with

Its cash equivalent on its balance sheet now here is another important question you may ask is alphabet a near monopoly business in my opinion alphabet has several businesses that are near monopolies including google search engine youtube android os and chrome personally i believe alphabet has large economic modes and many competitive advantages that can produce

See also  Todays recommendations news for the stock market (2022-10-20)

Its businesses from most competitors for example google is the largest and most popular search engine in the world especially in north america according to stats counter the google search engine has a global market share of 92 the next closest competitor is microsoft bank with a much smaller global market share of 2.66 but if we consider all other search engines

Including e-commerce and video search engines the second largest search engine is actually youtube not microsoft bing youtube is essentially a search engine for videos for example according to this website here youtube has 2.29 billion users which is only behind facebook’s 2.85 billion users at the time making this video also the google chrome web browser has the

Largest market share of 65 at the time of making this video if you’re an advertiser you’ll want to invest most of your advertising budget in google’s advertising network because most users use google search engine youtube and chrome web browser to look for things they’re interested in google also owns the android operating system that has the largest market share

In the world as of now the smartphone market is a duopoly between apple ios and android os at the time making this video android os has a global market share of 72.45 while apple ios has a global market share of 26.74 android os has the largest mobile market share one of the biggest reasons is that android is open source and is free to all users and hardware

Manufacturers to use and distribute alphabet doesn’t earn revenues directly from the android os but instead it earns revenues from the google play store and adds place in google search engine youtube google chrome third-party websites and apps on android smartphones i believe alphabet’s first primary long-term growth catalyst is its increasing advertising relevance

From advertisers around the world that rely on google search engine youtube and google’s advertising network partners this is from e-marketer e-marketer forecast that digital as spending worldwide will continue to grow aesthetically between now and 2024. digital s bandit means ad spending on internet services such as search engines social media web browsers websites

Online videos and apps most consumers are spending much more time on their smartphones and on their computers instead of tv this is why advertisers are investing much more in digital ads instead of traditional non-digital ads now for example the blue line here represents digital s bending as a percentage of total media expanding you can see this low s bending is

Expected to be point nine percent of total median expanded in 2021. this trend is expected to increase growing four because advertisers are spending more money on digital ads now than non-digital ads here’s the important part you want to know the digital advertising market is a dual play between google and facebook most advertisers spend most of their digital app

Budgets on google and facebook because they have the most active users each month amazon is the third largest player in the digital advertising market in the us this is from emarketer you can see google and facebook have the largest market shares in total digital expanding we have to exclude alibaba and tencent holdings here because they mainly operate in china

This means amazon is the third largest player in the digital advertising market worldwide excluding china if you are an advertiser you will want to invest most of your app budget in the largest platforms that have the most users and that can give you the most return on and spend i believe the overall online advertising market will continue to increase because

Advertisers are spending more money on digital ads instead of long digital ads this is why i believe google’s advertising revenues will continue to grow for many years as of now alphabet owns the two largest search engines in the world google search engine and youtube alphabet’s android os has more than 2.5 billion active users in the world so it makes sense for

Most advertisers to invest a large portion of their app budget in google’s advertising network i believe alphabet’s second long-term growth catalyst is its google cloud business i believe the cloud computing market especially in infrastructure as a service and platform as a service will continue to grow for many years because of the increasing adoption of cloud

See also  JobControl Vision | Laser Cutting Camera System | Return-On-Investment (ROI)

Computing by many organizations around the world the python that started in 2020 actually caused many organizations and large enterprises around the world to accelerate their digital transformations and their adoption of cloud computing during the pandemic they realize their businesses are not as resilient and flexible as they initially thought for example many

Traditional businesses did not have the technologies to let their employees work from home and work at offices at the same time also many large organizations and enterprises are investing a large part of their i.t spending in cloud services now for example instead of building their own data centers in-house that costs a lot of money to build and maintain many

Large businesses choose to use data centers and infrastructure cloud services provided by the largest three public cloud providers amazon microsoft and google according to this article the current public cloud market in infrastructure as a service iaes and platform as a service paas is dominated by amazon aws microsoft azure and google cloud alibaba is the fourth

Largest cloud provider according to canada’s the top three cloud service providers accounted for 61 of total cloud spent in q2 2021. during this period amazon aws had a market share of 31 microsoft australia had 22 percent and google cloud had 8 if you look at this here you can see the worldwide cloud infrastructure services spend have been growing very consistently

Every quarter in the past three years according to gartner research article it said as a result global cloud adoption will continue to expand rapidly garner forecasts end users spending on public cloud services to reach 396 billion in 2021 and grow 21.7 to reach 482 billion in 2022. additionally by 2026 garner predicts public house spending will exceed 45 of all

Enterprise i.t spending up from less than 17 in 2021. if you look at this table here you can see infrastructure as a surface iaes platform as a p aes and software as a service sas are expected to have the largest cloud spent in 2021 and 2022. this is a good sign for alphabet because google cloud is one of the three largest cloud providers in the world amazon aws

And microsoft azure will also benefit from the increasing adoption of cloud computing around the world personally i believe google cloud will eventually become a very profitable business for alphabet this is similar to amazon aws contributing the most profit for amazon and similar to microsoft’s intelligent cloud business contributing the most profit for microsoft

So what are the primary risks we should consider i believe alphabet’s first primary risk is anti-trust litigation according to this npr article google is appealing a 5 billion antitrust fund in the eu core the eu’s antitrust regulator has fined google multiple times for anti-trust behaviors between 2017 and 2019. the antitrust penalties have totaled more than 8

Billion the antitrust funds mainly focus on google’s dominant positions in its search engine digital advertising business android os and chrome web browser if you look at alphabet’s most recent quality report and annual report you will see all the ongoing antitrust investigations here that show the european commission has found alphabet multiple times in the past

For antitrust behaviors alphabet has appealed to each of these fines this is just my opinion even if alphabet pays all these antitrust funds that are more than 8 billion it will not affect its business much because the company generates a lot of free cash flow a recorder for example it had a free cash flow of 16.4 billion in the recent q2 2021 quarter but i do

Believe alphabet will likely face more anti-trust litigations and possibly more fines going forward i believe alphabet’s second primary risk is the u.s increase in interest rates that will impact all stock evaluations in the u.s stocks generally do weigh well when interest rates are low but when interest rates start to increase much faster stocks generally do not

Perform as well at the time of making this video the uspc inflation rate is at 4.3 percent this is much higher than the u.s fed’s average 2 target inflation rate if the u.s inflation rate continues to be much higher than the 2 target inflation rate for a long period the u.s fed will start tapering its 120 billion monthly bond purchase program or its quantitative

Easing program much earlier if the current high u.s inflation rate is not temporary then the u.s fed will also start increasing its interest rate faster after the u.s fast tapering ends when interest rates increase all stock valuations will generally decrease one reason is that boring costs for businesses will be higher when interest rates increase let’s talk

See also  My 2020 Crypto Investment Plan - Bitcoin, Ripple XRP & Ethereum

About alphabet’s interest rate per share first i define alphabets in transfer value as its future free cash flows discounted to the present day i always use this intrinsic value calculator to estimate your stocks for interest value here are the key assumptions the discount rate is 8 this is slightly higher than the 7.3 percent cost of equity rate calculated by

Thinkbox.com if you want to be more conservative you can use a higher discount rate of 10 or more here alphabets traveling 12 months of free cash flow is 58.54 billion based on the long-term growth categories i talked about earlier i believe alphabet’s free cash flow will grow at a compound and go through a char between 15 and 25 over the next five years if you want

To be more conservative you can use a lower compound annual growth rate here to calculate the terminal value here we are using both the perpetual growth model and the exit multiple model then we take the average of both models to calculate the terminal value at the end of efi here let’s go over these three case scenarios here the worst case the normal case and the

Best case scenarios under the worst case scenario we are using a compound annual growth rate ch of 15 if we forecast alphabet’s free cash flow to the next five years and discount the free cash flow to the present day alphabet’s interesting value should be around 1.8 trillion for the entire company or 2 706 dollars per share i’m giving this scenario a probability

Of 25 here under the normal case scenario we’re using a compound and you’ll go through a cagr of 20 if we forecast alphabets free cash flow to the next five years and discount the free cash flow to the present day alphabet’s intrinsic water should be around 2.2 trillion for the entire company or 3 298 per share i’m giving this scenario or probability of 50 here

Under the best case scenario we’re using a compound and you’ll go through a cagr of 25 a free forecast alphabet’s free castle to the next five years and discount the free cash flow to the present day alphabet’s in chainsaw you should be around 2.66 trillion for the entire country or 3993 per share i’m giving this scenario or probability of 25 here if we add all

These numbers here alphabet’s fair insurance value should be around 3 323.73 dollars per share at the time making this video this means alphabet stock in my opinion is likely under value at the time of making this video just to compare morningstar estimated alphabet’s intrinsic value to around 3 200 per share so will i buy alphabet stock yes i will continue to buy

More alphabet shares for the long term i already have alphabet shares in my portfolio i invested in alphabet or google many years ago because i like its near monopoly businesses including the google search engine youtube android os and google chrome i also like google cloud i believe it will eventually become a profitable business personally i believe alphabet’s

Fair interest rally is around 3 323.73 per share based on the estimates i talked about earlier this means alphabet stock in my opinion is likely under value at the top making this video now all these estimates are only my opinion and my analysis based on my research they are not financial advice as always make sure you always do your research and do your extra

Due diligence first if you like this video hit the like button subscribe and turn on the notification button i will continue to make many excellent stock analysis and investing analysis videos every week that will help you become a great investor also if you like this channel and want to support it check out my patreon blog in the video description and become a

Vip patreon you’ll be able to follow all the stocks i’m buying for the long term and download the latest in ching’s and wire calculators so you know when a stock is currently overwhelmed fairly well or under white the link is in the video description thank you for watching this video this video from the intelligent investor channel and i will see in the next video

Transcribed from video
GOOGLE STOCK ANALYSIS – Why It is Undervalued Now! By The Intelligent Investor