Why I'm Buying Google Stock RIGHT NOW | Episode #13 - YouTube

alphabet has been a monster long-term  winner for its investors up more than  

4,500% since his company's IPO however  this highly profitable Cash Cow business  

is currently down 22% from its 52-week high  we think that right now is a great time for  

investors to start building out a position in  this stock here's everything you need to know  

about investing in alphabet today my name is  Brian Feroldi and my name is Brian Stoffel  

thanks to commonstock for supporting today's  video as of the time of this recording I'm a  

shareholder of alphabet as am I and it's worth  pointing out Brian that alphabet is better known  

by its largest subsidiary which is Google now  this is a $1.5 trillion dollar company that has  

two different tickers you can choose from they  have different voting rights but for our purposes  

there's no big difference alphabet's mission is  to organize the world's information and make it  

universally accessible and useful this is one of  the best mission statements I've ever seen and  

alphabet really helped to put mission statements  on the map so how does it do that well right now  

Google has nine different tools that are used by  at least a billion people to help organize their  

information every day it's also worth pointing  out that the Google cloud has started generating  

meaningful Revenue as well while alphabet has  done a decent job at diversifying its Revenue  

over time the company is still primarily making  its money off of advertising Revenue coming in  

at more than $209 billion in 2021. it's important  to remember that for all Alph bet and Google do  

this is still primarily an advertising company  with a few Services added in like Google cloud  

and YouTube premium TV Google has reached the  phase of its life where its customer acquisition  

costs are extremely low that's large we do it at  Google's massive influence on society around the  

globe consumer demand for advertising is slightly  cyclical although in past recessions Google has  

been able to grow because it continues to capture  market share and the nature of advertising is a  

recurring Revenue business model so the vast  majority of Google's revenue is recurring in  

nature turning to the moat we're first going to  tackle the network effect now not only does the  

company's algorithm benefit when more people use  the search terms but certain parts of the business  

benefit as well like YouTube the more content  creators the more viewers the more viewers the  

more content creators in addition to the network  effect Google definitely benefits from strong  

switching costs once a user gets set up using  search mail YouTube or drive it becomes arduous  

to switch over to a competing product this is  especially true for the company's Advertiser  

once they get set up inside Google's Walled  Garden it's hard for him to switch away but  

I would argue that the largest mode that Google  has is low cost production what is being produced  

data and that data is then used for advertisers  how is the low-cost production happen because  

the company has those nine tools that have  over a billion users collecting data every  

day moreover you could also argue that Google  has an unfair distribution Advantage about 90%  

of the smartphones that are sold worldwide come  pre-installed with Google's products and many  

of the browsers that are out there have Google  pre-installed as a default that makes it hard for  

many users to switch away to competing products  especially when they're using those products for  

free it's also worth giving Google credit for  its brand value this is a company whose name  

has become a verb and is used around the world now  putting all those pieces together we would argue  

that while the moat is not widening as fast as it  was in the past it is still widening today turning  

to financials Google's numbers are about as good  as they get Revenue growth has been high even in  

recent years which is saying something given this  company scale gross margin is decent coming in at  

almost 57% and the company converts a lot of its  Revenue into net income coming in at $75 billion  

dollars in the patrolling 12 months and it's much  the same story when we look at free cash flow the  

company has one of the best balance sheets we've  ever seen in Returns on Capital are high as for  

management both Larry Page and Sergey Brin are no  longer involved in the data decisions however they  

are both members of the company's board the CEO  position has been owned by Sundar pachai a Google  

Insider who has been at the company for more  than 18 years company does very well in Glassdoor  

ratings and insiders own over 10 percent of this  company that's good for about 175 billion dollars  

turning to potential Google has a tremendous  amount of optionality in it the company has been  

pouring billions of dollars into its other bet  categories for years and has dozens of potential  

products out there that could turn into tomorrow's  Blockbuster products now when we look ahead one of  

the drawbacks of such a strong company is that  there's not a ton of room for operating leverage  

moving forward and the total addressable market  for digital advertising and Cloud spending is  

quickly approaching a trillion dollars but Google  has already captured over a third of it that being  

said most of the growth is organic however the  company has made Acquisitions in the past like  

YouTube how has Google done for investors the  answer there is fantastic this company is up  

more than forty five hundred percent since its  IPL and it's also outperformed the market over  

the past five years moreover it has a habit of  exceeding wall Street's estimates having done  

so three of the last four times on the bottom line  the company is also returning cash to shareholders  

in the form of BuyBacks it doesn't really have any  debt to pay down at all and there's not a dividend  

yet though I wouldn't be surprised if there is  one in the future turning to risks the first  

we need to keep in mind is competition Google is  squaring off against many of the most profitable  

and largest tech companies on Earth such as meta  platforms Microsoft Amazon apple and more to say  

nothing of the many upstarts that are trying  to eat into Google's market share while the  

company's moat has protected it so far it would  be a mistake to overlook competition completely  

beyond that it's also worth pointing out that  this company has become so powerful that it has  

landed in the crosshairs of regulators both in the  United States and abroad and that is at risk worth  

watching finally while Google's valuation today is  more attractive than it has been in years it's not  

classically cheap and can't be called that we'll  have more to say on valuation in just a little  

bit before we cover the company's earnings it's  important to know that Google recently enacted a  

20 for one stock split that went into place on  July 15 2022. the numbers we're about to share  

have all been adjusted accordingly to comply with  that stock split so let's look at those numbers on  

the top line alphabet grew Revenue by 23 percent  which is astounding giving its size to 68 billion  

dollars which came in ahead of wall Street's  expectations on the bottom line Google reported  

Gap earnings per share of a dollar 23 that was  below wall Street's estimates however there's an  

important caveat when looking at Google's earnings  that we need to cover and here's what that caveat  

is when we look at the first quarter of this year  compared to the first quarter of last year we see  

a huge swing in other income this is from the  equity Investments that Google has made in other  

companies the accounting change requires Google  to mark up its net income when those Investments  

go up in value and mark down its net income when  those Investments go down in value for that reason  

the company's net income isn't the best indicator  of profitability at The Core Business finishing  

up the first quarter margins came in in line with  what the company historically does and free cash  

flow which we think is a better indicator of  profitability the net income was up 15 percent  

management doesn't give guidance for the quarter  or year but for what it's worth Wall Street is  

currently expecting 14 Revenue growth in the most  recent quarter and a slight decline in earnings  

per share and it's the same story when we look  at the full year Wall Street is expecting Revenue  

to grow 15 percent to nearly 300 billion while  earnings are supposed to decline slightly so what  

should investors watch to tell if their thesis is  on track first keep an eye on gross margin we want  

this figure to remain high and hopefully expand  over time as the company's products continue to  

scale and become more mature second keep an eye  on Google Cloud this is one of the new business  

segments outside of advertising that's been  growing very fast third keep an eye on that  

other bets category we've been patiently waiting  for more than a decade for some of the company's  

other bets to pay off we could be on the cusp  of seeing that with the company's waymo division  

but we want to see those events eventually turn  into revenue for the company and finally keep  

an eye on free cash flow for the reasons that  we've already talked about net income is not  

the best proxy for how profitable the company is  we're going to be watching free cash flow when  

we take it all together we believe that Google's  moat is stable at worst and widening at best and  

overall we believe that the thesis for owning this  company is fully on track I had a Google recently  

scoring our investing checklist the answer  there is excellent this company got an 83 on  

my investing framework but puts it well into the  high quality business category and it got a 13 and  

a half on my framework giving it an anti-fragile  rating one of the highest scores I've gotten now  

when thinking about valuation it's important to  keep in mind that Google is in the maturity stage  

for that reason price to earnings ratio and price  a free cash flow are two metrics that are likely  

best for determining the company's value although  as we've said numerous times now the earnings of  

this company are artificially depressed so you  have to keep that in mind when judging that metric  

turning to the company's price to sales ratio of  six that's high on an absolute basis but roughly  

in line with where Google has been in its past  if you look at gross profit this figure has been  

climbing steadily since this company came public  but really accelerated in 2020 into today when  

judging this company on a price to gross profit  basis Google is currently coming in at about a  

10 that's a fair number in absolute terms but  let's turn to my favorite metric for measuring a  

company like Google and that would be the price to  free cash flow ratio at trading at about 23 times  

trailing free cash flow again that's not cheap  but it is historically low for the company the  

price to earnings ratio has some flaws but on  that basis the company is currently trading for  

about 21 times trailing earnings which is low on  historic basis and about 21 times foreign earnings  

which is relatively high so there you have it  we're going to be buying shares of alphabet for  

our own portfolio that we have over account common  stock what do you think of this head on over and  

leave a comment I want to give a shout out to  disrupter investing who left the top comment  

on our profile from Airbnb common stock sent  disrupting investing a cash payment for making  

such an insightful comment and common stock will  continue giving away money a hundred dollars to  

the most insightful comment on our buy decisions  so head on over to common stock and the link  

in the description make a comment and you could  potentially win that hundred dollars Brian's out