Google Deep Dive: Market Overreaction?

Key Takeaways

1. Revenue Growth: Alphabet Inc. saw a 14% year-over-year increase in Q2 2024 revenues, reaching $84.7 billion, driven by strong performance in Google Services and Google Cloud.

2. Higher Profit Margins: The company achieved a 26% increase in operating income to $27.4 billion, with an improved operating margin of 32%, indicating efficient cost management.

3. Valuation Upside: With a projected 14% annual earnings growth and a target P/E multiple of 25, the current stock price of $158 offers a margin of safety and potential upside.

4. Solid Financial Position: Alphabet's significant cash reserves of $100.7 billion and low net debt provide a strong buffer for ongoing investments and potential economic downturns.

5. Balanced Risk and Opportunity: Key risks include dependency on advertising and regulatory challenges, while growth opportunities exist in cloud services, AI, and expansion into emerging markets.

Table of Contents

1. Company Overview

2. Thesis

3. Fundamental Overview

4. Status Quo

5. Risks and Opportunities

6. Valuation

7. Conclusion

Company Overview

Google LLC, a subsidiary of Alphabet Inc., is one of the world’s most prominent multinational technology companies. It was founded in 1998 by Larry Page and Sergey Brin, initially focusing on search engine technology. Today, it has expanded into various sectors, including online advertising, cloud computing, artificial intelligence (AI), consumer electronics, and more. Google’s dominance in search, email, cloud storage, and mobile operating systems makes it a cornerstone of the digital economy.

Google’s parent company, Alphabet Inc., has a multi-class share structure. The company’s shares are divided into Class A, Class B, and Class C shares, with Class A offering voting rights and Class C being non-voting shares. Co-founders Larry Page and Sergey Brin maintain significant control over Alphabet due to their ownership of Class B shares, which have 10 times the voting power of Class A shares. As of Q2 2024, the company repurchased approximately $31.7 billion worth of Class A and Class C shares, continuing its share repurchase program.

Alphabet follows a structured corporate governance system that supports its massive global operations. Sundar Pichai has been serving as the CEO of both Google and Alphabet since December 2019. Alphabet’s board includes notable figures in the tech industry, and they emphasize innovation, sustainability, and ethical business practices. The company’s leadership development and compensation committee have implemented programs, such as dividend equivalent units, to align stockholder interests with management.

Google operates under two main business segments: Google Services and Google Cloud.

· Google Services: This is the largest segment, generating most of the company’s revenues through advertising on Google Search, YouTube, and other platforms. It also includes revenue from Google Play, hardware sales, and subscription-based services like YouTube Premium.

· Google Cloud: This segment focuses on providing infrastructure, platform, and collaboration services. It includes Google Cloud Platform and Google Workspace. In Q2 2024, Google Cloud's revenue significantly increased, representing a key area of growth as businesses worldwide continue to adopt cloud-based solutions.

Additionally, Alphabet has a segment called "Other Bets," which focuses on projects such as Waymo (self-driving cars) and Verily (life sciences).