6
Alphabet Inc. (GOOG)
- Equity
- US
- Communication Services
RISK
RETURN
Key risk factors
Negligible price volatility
Strong & resilient to price shocks
Low default risk
Key return factors
Very strong margins and returns
Greatly overvalued vs peers
Very low or no dividends
Corporate actions & dividendsDividend of USD 0.200 with an ex-date of 10 Jun 2024.
Company profileAlphabet Inc. offers various products and platforms in the United States, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America. It operates through Google Services, Google Cloud, and Other Bets segments. The Google Services segment provides products and services, including ads, Android, Chrome, devices, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search, and YouTube. It is also involved in the sale of apps and in-app purchases and digital content in the Google Play and YouTube; and devices, as well as in the provision of YouTube consumer subscription services. The Google Cloud segment offers infrastructure, cybersecurity, databases, analytics, AI, and other services; Google Workspace that include cloud-based communication and collaboration tools for enterprises, such as Gmail, Docs, Drive, Calendar, and Meet; and other services for enterprise customers. The Other Bets segment sells healthcare-related and internet services. The company was incorporated in 1998 and is headquartered in Mountain View, California.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
26.60
23.30
PEG
1.50
-
P/B
7.50
5.70
P/S
6.90
6.30
P/FCF
31.70
27.00
EV/EBITDA
20.20
19.70
Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. Specifically, the stock is expensive' on P/E, overvalued on EV/EBITDA, and overpriced on P/FCF.
Performance: Decent
The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 24ppts over past six months and grown 10ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is 'fair'.
Analyst view: Somewhat favourable
The average target price is 193 and suggests 9% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 205.0. This translates into 15% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 145.0. This is equivalent to 19% downside potential in the worst case.
Profitability: Very strong
RoE
Alphabet Inc. reported a return on equity (RoE) of 28.6% in the last 12 months, up from 23.6% in FY22. The market consensus projects an RoE of 34.3% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 20.4% in the last 12 months, an increase from 16.6% in FY22. The market analysts predict that RoA will be 24.2% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) grew to 25.3%, above the peers. The consensus estimate for FY24 for RoCE is 36.2%, again ahead of the peers.
Net margin
EBITDA margin
Historically, GOOGL has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 25.9%, a growth from 21.2% in FY22. The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 34.1% in the last 12 months, up from 33.2% in FY22.
RoIC / WACC = 3.2(excellent value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 3.2 in the past several years. This ratio implies a excellent shareholder value creation. Growth: Good
Revenue
EBITDA
EPS
Free cash flow
GOOGL reported revenue of USD 318 146mn in the last 12 months, up 3% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 12% from FY23 to USD 6.59. Market expects EPS to reach USD 7.56 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA growth has been steady. This all contributed to fast EPS growth (positive). The FCF trend is in line with EBITDA. We emphasize the highly volatile dynamics of EBITDA, EPS and FCF.
Dividends: Very low or none
The company does not pay dividends at all, or it pays them sporadically.
Default risk: Low
The risk of default is low. We note robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to excessive margin volatility.
Volatility: Negligible
In normal market circumstances, GOOG is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to minimal. We would also like to highlight the minimal intraday volatility of the instrument.
Stress-test: Negligible
In highly turbulent market conditions, GOOG is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.
Selling difficulty: Low
GOOG boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and is average on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.