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GOOGLE STOCK ANALYSIS - Why It is Undervalued Now! - YouTube
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hi everyone this victor here welcome to
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the intelligent investor channel in this
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video we're going to analyze alphabet
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stock or also known as google to see if
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it's a great business for long-term
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investing and to see if the stock is
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under value now alphabet is one of my
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favorite long-term investments if you
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look at alphabet's stock performance
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here you can see it has outperformed the
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s p 500 by a large margin in the past
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five years alphabet stock grew nearly
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240 while the s b function grew almost
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99 during this period obviously past
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return does not guarantee future results
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so i believe it's important to
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understand alphabet's long-term business
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prospects its biggest competitive
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advantage its primary risk and its fair
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increase worry per share first before
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investing in it in this video i will
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give you an in-depth analysis of
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alphabet by covering these topics what
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is alphabet's business model is alphabet
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a new monopoly alphabet's two long-term
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growth catalysts alphabet's two main
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risk to consider what is alphabet's fair
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insurance world per share and will i buy
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alphabet stock if you like this video
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make sure to hit the like button
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subscribe and turn on the notification
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button i will continue to make many
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excellent stock analysis and investing
[75]
analysis videos every week that will
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help you become a great investor also if
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you like this channel and want to
[80]
support it check out my patreon blog in
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the video description and become a vip
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patron you'll be able to follow all the
[87]
best stocks i'm buying for the long term
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and download the latest intrinsic value
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calculators so you know when the stock
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is currently overwhelming fairly well or
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undervalued the link is in the video
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description take a look let's start so
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what is alphabet's business model and
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how does alphabet earn its revenues
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before investing in any stocks i believe
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it is important to understand the
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business and its products and services
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first alphabets primary products and
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services include google search engine
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youtube chrome web browser gmail google
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cloud platform google workspace apps
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android operating system google play
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store google drive google map and pixel
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smartphones all these products and
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services make up google or alphabet's
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ecosystem alphabet also has all the best
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and new business initiatives including
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deepmind rarely and waymo alphabet's
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primary businesses are search and
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advertising it earns revenues primarily
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from ads from google search engine
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youtube or third-party websites that
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have google ads under google's
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advertising network in the recent q2
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2021 quarter google advertising
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contributed 81.52
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of total revenues alphabet also earns
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revenues from the android play store
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google cloud services and other bets if
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you look at this operating income by
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segment here you can see google services
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which is primarily google advertising
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earns all the operating income google
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cloud and other bets are not profitable
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yet in terms of profitability alphabet
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has a very profitable business model for
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example its operating margin was 31 in
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the recent q2 2021 quarter its operating
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margin was 23 in 2020 and 21 in 2019.
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this is from morningstar if you look at
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these financials here in the past three
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years you can see alphabet had very
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consistent reveling growth operating
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income growth operating cash flow growth
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and free cash flow growth these are very
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good trends because it shows alphabet
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has a very strong business model with
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great equipment modes it has consistent
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revenue growth every year even in 2020
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when most businesses were impacted by
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the pandemic alphabet also has a strong
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balance sheet for example according to
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the recent q2 2021 balance sheet here it
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had
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135.86 billion of cash equivalents this
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is more than enough to pay off all the
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short-term and long-term debts when the
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u.s interest rates start to increase and
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when the u.s fed starts tapering its 120
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billion monthly bond purchase program it
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should not have a large impact on
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alphabet's business because alphabet
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does not have a large amount of debts
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compared with its cash equivalent on its
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balance sheet now here is another
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important question you may ask is
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alphabet a near monopoly business in my
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opinion alphabet has several businesses
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that are near monopolies including
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google search engine youtube android os
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and chrome personally i believe alphabet
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has large economic modes and many
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competitive advantages that can produce
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its businesses from most competitors for
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example google is the largest and most
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popular search engine in the world
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especially in north america according to
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stats counter the google search engine
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has a global market share of 92 the next
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closest competitor is microsoft bank
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with a much smaller global market share
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of 2.66 but if we consider all other
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search engines including e-commerce and
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video search engines the second largest
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search engine is actually youtube not
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microsoft bing youtube is essentially a
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search engine for videos for example
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according to this website here youtube
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has 2.29 billion users which is only
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behind facebook's 2.85 billion users at
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the time making this video also the
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google chrome web browser has the
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largest market share of 65 at the time
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of making this video if you're an
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advertiser you'll want to invest most of
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your advertising budget in google's
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advertising network because most users
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use google search engine youtube and
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chrome web browser to look for things
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they're interested in google also owns
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the android operating system that has
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the largest market share in the world as
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of now the smartphone market is a
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duopoly between apple ios and android os
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at the time making this video android os
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has a global market share of 72.45
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while apple ios has a global market
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share of 26.74
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android os has the largest mobile market
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share one of the biggest reasons is that
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android is open source and is free to
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all users and hardware manufacturers to
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use and distribute alphabet doesn't earn
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revenues directly from the android os
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but instead it earns revenues from the
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google play store and adds place in
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google search engine youtube google
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chrome third-party websites and apps on
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android smartphones i believe alphabet's
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first primary long-term growth catalyst
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is its increasing advertising relevance
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from advertisers around the world that
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rely on google search engine youtube and
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google's advertising network partners
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this is from e-marketer e-marketer
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forecast that digital as spending
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worldwide will continue to grow
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aesthetically between now and 2024.
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digital s bandit means ad spending on
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internet services such as search engines
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social media web browsers websites
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online videos and apps most consumers
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are spending much more time on their
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smartphones and on their computers
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instead of tv this is why advertisers
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are investing much more in digital ads
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instead of traditional non-digital ads
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now for example the blue line here
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represents digital s bending as a
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percentage of total media expanding you
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can see this low s bending is expected
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to be
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point nine percent of total median
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expanded in 2021. this trend is expected
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to increase growing four because
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advertisers are spending more money on
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digital ads now than non-digital ads
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here's the important part you want to
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know the digital advertising market is a
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dual play between google and facebook
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most advertisers spend most of their
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digital app budgets on google and
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facebook because they have the most
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active users each month amazon is the
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third largest player in the digital
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advertising market in the us this is
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from emarketer you can see google and
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facebook have the largest market shares
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in total digital expanding we have to
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exclude alibaba and tencent holdings
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here because they mainly operate in
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china this means amazon is the third
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largest player in the digital
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advertising market worldwide excluding
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china if you are an advertiser you will
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want to invest most of your app budget
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in the largest platforms that have the
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most users and that can give you the
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most return on and spend i believe the
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overall online advertising market will
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continue to increase because advertisers
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are spending more money on digital ads
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instead of long digital ads this is why
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i believe google's advertising revenues
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will continue to grow for many years as
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of now alphabet owns the two largest
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search engines in the world google
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search engine and youtube alphabet's
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android os has more than 2.5 billion
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active users in the world so it makes
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sense for most advertisers to invest a
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large portion of their app budget in
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google's advertising network i believe
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alphabet's second long-term growth
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catalyst is its google cloud business i
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believe the cloud computing market
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especially in infrastructure as a
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service and platform as a service will
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continue to grow for many years because
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of the increasing adoption of cloud
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computing by many organizations around
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the world the python that started in
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2020 actually caused many organizations
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and large enterprises around the world
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to accelerate their digital
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transformations and their adoption of
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cloud computing during the pandemic they
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realize their businesses are not as
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resilient and flexible as they initially
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thought for example many traditional
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businesses did not have the technologies
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to let their employees work from home
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and work at offices at the same time
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also many large organizations and
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enterprises are investing a large part
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of their i.t spending in cloud services
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now for example instead of building
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their own data centers in-house that
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costs a lot of money to build and
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maintain many large businesses choose to
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use data centers and infrastructure
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cloud services provided by the largest
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three public cloud providers amazon
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microsoft and google according to this
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article the current public cloud market
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in infrastructure as a service iaes and
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platform as a service paas is dominated
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by amazon aws microsoft azure and google
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cloud alibaba is the fourth largest
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cloud provider according to canada's the
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top three cloud service providers
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accounted for 61 of total cloud spent in
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q2 2021. during this period amazon aws
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had a market share of 31 microsoft
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australia had 22 percent and google
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cloud had 8 if you look at this here you
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can see the worldwide cloud
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infrastructure services spend have been
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growing very consistently every quarter
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in the past three years according to
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gartner research article it said as a
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result global cloud adoption will
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continue to expand rapidly garner
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forecasts end users spending on public
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cloud services to reach 396 billion in
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2021 and grow 21.7
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to reach 482 billion in 2022.
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additionally by 2026 garner predicts
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public house spending will exceed 45 of
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all enterprise i.t spending up from less
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than 17 in 2021. if you look at this
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table here you can see infrastructure as
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a surface iaes platform as a
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p aes and software as a service sas are
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expected to have the largest cloud spent
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in 2021 and 2022. this is a good sign
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for alphabet because google cloud is one
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of the three largest cloud providers in
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the world amazon aws and microsoft azure
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will also benefit from the increasing
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adoption of cloud computing around the
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world personally i believe google cloud
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will eventually become a very profitable
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business for alphabet this is similar to
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amazon aws contributing the most profit
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for amazon and similar to microsoft's
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intelligent cloud business contributing
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the most profit for microsoft so what
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are the primary risks we should consider
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i believe alphabet's first primary risk
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is anti-trust litigation according to
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this npr article google is appealing a 5
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billion antitrust fund in the eu core
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the eu's antitrust regulator has fined
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google multiple times for anti-trust
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behaviors between 2017 and 2019. the
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antitrust penalties have totaled more
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than 8 billion the antitrust funds
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mainly focus on google's dominant
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positions in its search engine digital
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advertising business android os and
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chrome web browser if you look at
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alphabet's most recent quality report
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and annual report you will see all the
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ongoing antitrust investigations here
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that show the european commission has
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found alphabet multiple times in the
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past for antitrust behaviors alphabet
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has appealed to each of these fines this
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is just my opinion even if alphabet pays
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all these antitrust funds that are more
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than 8 billion it will not affect its
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business much because the company
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generates a lot of free cash flow a
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recorder for example it had a free cash
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flow of 16.4 billion in the recent q2
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2021 quarter but i do believe alphabet
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will likely face more anti-trust
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litigations and possibly more fines
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going forward i believe alphabet's
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second primary risk is the u.s increase
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in interest rates that will impact all
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stock evaluations in the u.s stocks
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generally do weigh well when interest
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rates are low but when interest rates
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start to increase much faster stocks
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generally do not perform as well at the
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time of making this video the uspc
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inflation rate is at 4.3 percent this is
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much higher than the u.s fed's average 2
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target inflation rate if the u.s
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inflation rate continues to be much
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higher than the 2 target inflation rate
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for a long period the u.s fed will start
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tapering its 120 billion monthly bond
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purchase program or its quantitative
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easing program much earlier if the
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current high u.s inflation rate is not
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temporary then the u.s fed will also
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start increasing its interest rate
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faster after the u.s fast tapering ends
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when interest rates increase all stock
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valuations will generally decrease one
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reason is that boring costs for
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businesses will be higher when interest
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rates increase let's talk about
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alphabet's interest rate per share first
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i define alphabets in transfer value as
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its future free cash flows discounted to
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the present day i always use this
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intrinsic value calculator to estimate
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your stocks for interest value here are
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the key assumptions the discount rate is
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8
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this is slightly higher than the 7.3
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percent cost of equity rate calculated
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by thinkbox.com if you want to be more
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conservative you can use a higher
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discount rate of 10 or more here
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alphabets traveling 12 months of free
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cash flow is 58.54 billion based on the
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long-term growth categories i talked
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about earlier i believe alphabet's free
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cash flow will grow at a compound and go
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through a char between 15 and 25 over
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the next five years if you want to be
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more conservative you can use a lower
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compound annual growth rate here to
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calculate the terminal value here we are
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using both the perpetual growth model
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and the exit multiple model then we take
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the average of both models to calculate
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the terminal value at the end of efi
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here let's go over these three case
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scenarios here the worst case the normal
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case and the best case scenarios under
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the worst case scenario we are using a
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compound annual growth rate ch of 15
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if we forecast alphabet's free cash flow
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to the next five years and discount the
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free cash flow to the present day
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alphabet's interesting value should be
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around 1.8 trillion for the entire
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company or 2 706 dollars per share i'm
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giving this scenario a probability of 25
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here under the normal case scenario
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we're using a compound and you'll go
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through a cagr of 20
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if we forecast alphabets free cash flow
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to the next five years and discount the
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free cash flow to the present day
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alphabet's intrinsic water should be
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around 2.2 trillion for the entire
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company or 3 298 per share i'm giving
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this scenario or probability of 50 here
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under the best case scenario we're using
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a compound and you'll go through a cagr
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of 25 a free forecast alphabet's free
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castle to the next five years and
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discount the free cash flow to the
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present day alphabet's in chainsaw you
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should be around 2.66 trillion for the
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entire country or
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3993 per share i'm giving this scenario
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or probability of 25 here if we add all
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these numbers here alphabet's fair
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insurance value should be around 3
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323.73 dollars per share at the time
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making this video this means alphabet
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stock in my opinion is likely under
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value at the time of making this video
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just to compare morningstar estimated
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alphabet's intrinsic value to around 3
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200 per share so will i buy alphabet
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stock yes i will continue to buy more
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alphabet shares for the long term i
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already have alphabet shares in my
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portfolio i invested in alphabet or
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google many years ago because i like its
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near monopoly businesses including the
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google search engine youtube android os
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and google chrome i also like google
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cloud i believe it will eventually
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become a profitable business personally
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i believe alphabet's fair interest rally
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is around 3
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323.73 per share based on the estimates
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i talked about earlier this means
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alphabet stock in my opinion is likely
[967]
under value at the top making this video
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now all these estimates are only my
[970]
opinion and my analysis based on my
[972]
research they are not financial advice
[975]
as always make sure you always do your
[977]
research and do your extra due diligence
[979]
first if you like this video hit the
[980]
like button subscribe and turn on the
[982]
notification button i will continue to
[984]
make many excellent stock analysis and
[986]
investing analysis videos every week
[988]
that will help you become a great
[990]
investor also if you like this channel
[991]
and want to support it check out my
[993]
patreon blog in the video description
[995]
and become a vip patreon you'll be able
[997]
to follow all the stocks i'm buying for
[998]
the long term and download the latest in
[1000]
ching's and wire calculators so you know
[1002]
when a stock is currently overwhelmed
[1004]
fairly well or under white the link is
[1006]
in the video description thank you for
[1008]
watching this video this video from the
[1010]
intelligent investor channel and i will
[1012]
see in the next video
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