Alphabet Inc. is the successor and parent holding company of Google Inc., which operates the world’s leading Internet search engine. The company derives revenues primarily through delivering targeted advertising. This week, I fundamentally analyze Alphabet’s stock. I review Alphabet’s operating segments, key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and look at expected rate of return from this investment. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Earnings per Share, Book Value, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding (DSO), Days Inventory, Payable Period, Cash Conversion Cycle, Inventory Turnover, etc. I also compare the GOOGL’s current valuation to that of S&P 500.
After taking into account the 2020 free cash flow of $42,843 million figure, a 10% growth rate of FCF (growth for the next 10 years), 10% discount rate, 4% long term growth rate (growth from 10 year mark to perpetuity), 733 million shares outstanding, and $13,932 million of long term debt, the DCF analysis yields us an intrinsic value of $1,578.59 per share. If we decrease the discount rate from 10% to 7% (7% is Alphabet’s WACC), GOOGL’s intrinsic value comes to $3,410 per share. Using the current stock price of about $2,089 per share, and taking into the shares outstanding and future projects of free cash flows, we get the annual expected rate of return of 3.1% if we hold this security through 2060.
Timestamp
0:00 Introduction
0:29 Operating Segments
3:59 Key Ratios Analysis
12:53 Discounted Cash Flow Analysis / Intrinsic Value
15:03 Expected Rate of Return Calculation
16:04 Summary / Conclusion
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References:
GOOGL’s Website: here
Morningstar Key Ratios Link: here.
Useful Resources here.
Alphabet Inc. is a holding company that gives ambitious projects the resources, freedom, and focus to make their ideas happen. Alphabet Inc. is an American multinational conglomerate headquartered in Mountain View, California. It was created through a restructuring of Google on October 2, 2015, and became the parent company of Google and several former Google subsidiaries.
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