Liberty Posted April 23, 2018 Author Share Posted April 23, 2018 Q1: https://abc.xyz/investor/pdf/2018Q1_alphabet_earnings_release.pdf Link to comment Share on other sites More sharing options...
wolverine890 Posted April 24, 2018 Share Posted April 24, 2018 Aswath Damodaran on Alphabet Link to comment Share on other sites More sharing options...
flesh Posted April 24, 2018 Share Posted April 24, 2018 I thought I'd post this here: https://ftalphaville.ft.com/2018/04/23/1524506401000/Is-Google-cheap-/ The above is a good read, IMO. The authors are upfront and open about their assumptions and thought process that walks you from the current EV, market cap and GAAP EPS to their 'adjusted' P/E of 16.5x. Quite often, you meet people IRL and online who will off-handedly quip that GOOG trades at a 'market' or 'below-market' (I assume they mean the S&P500 is the market) multiple of earnings or free cash flow, but don't really explain how they get to that. That did not always sit well with me because if you take GAAP net income or if you follow the classic calculation of levered or unlevered free cash flow (e.g. treating stock-based comp as a real cash expense), I always got P/E or EV/uFCF multiples north of 30x, which isn't quite 'market' or 'below-market'. I think GOOG is a fine business and the long-term result from a buy-and-hold approach to GOOG stock is likely to be satisfactory, but IMO saying the stock trades at a below market multiple is incorrect if one does not have the appetite to go into the level of granular discussion that the Alphaville article is engaging in, especially making some specific assumptions that GCP and Youtube are separable (in a SOTP sense) from the core business, and then valuing those components using some specific EV/Rev multiples. I'd be interested to see how you get to a plus 30 pe for goog ex cash? Link to comment Share on other sites More sharing options...
VAL9000 Posted April 24, 2018 Share Posted April 24, 2018 Aswath Damodaran on Alphabet Interesting. I agree that operating margin at Google is very carefully managed. However, his revenue growth assumptions seem overly conservative. GOOG dropping from reliable 20%+ growth y/o/y to 12.5% y/o/y overnight, then further to 2.75% after 5 years seems really unlikely. My own modeling assumes a reduction in growth rate of 1% per year over the next 15 years to stabilize at 5%. This would give a substantially higher valuation than $969. But nice to see that other than a differing view on input variables our two different models come up similar. My view is that Google is a reliable 15%/year compounder with a free option on another huge hit with Waymo. I've been adding below $1,000. Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted April 24, 2018 Share Posted April 24, 2018 Why do most (nearly all?) valuations of Alphabet not discount its net cash? They have ~$100 billion in cash + marketable securities, yet are fairly conservative in buying back stock and (obviously) don't pay a dividend. Similarly, the sheer size of the cash hoard, combined with antitrust concerns stemming from Alphabet's own size and market power, means that it's unlikely that more than a fraction of it can be productively used in M&A. Take a look at page 60 of the most recent 10-K. Would you buy that collection of cash and marketable securities at NAV? If the answer is "no", then why aren't you discounting it for valuation purposes? Link to comment Share on other sites More sharing options...
Contra123 Posted April 24, 2018 Share Posted April 24, 2018 I thought I'd post this here: https://ftalphaville.ft.com/2018/04/23/1524506401000/Is-Google-cheap-/ The above is a good read, IMO. The authors are upfront and open about their assumptions and thought process that walks you from the current EV, market cap and GAAP EPS to their 'adjusted' P/E of 16.5x. Quite often, you meet people IRL and online who will off-handedly quip that GOOG trades at a 'market' or 'below-market' (I assume they mean the S&P500 is the market) multiple of earnings or free cash flow, but don't really explain how they get to that. That did not always sit well with me because if you take GAAP net income or if you follow the classic calculation of levered or unlevered free cash flow (e.g. treating stock-based comp as a real cash expense), I always got P/E or EV/uFCF multiples north of 30x, which isn't quite 'market' or 'below-market'. I think GOOG is a fine business and the long-term result from a buy-and-hold approach to GOOG stock is likely to be satisfactory, but IMO saying the stock trades at a below market multiple is incorrect if one does not have the appetite to go into the level of granular discussion that the Alphaville article is engaging in, especially making some specific assumptions that GCP and Youtube are separable (in a SOTP sense) from the core business, and then valuing those components using some specific EV/Rev multiples. I'd be interested to see how you get to a plus 30 pe for goog ex cash? I did a longer tweet thread on this ( ) but the TLDR version is that you have a $650 billion EV (which could be higher in reality b/c we haven't shocked it for tax; quasi-'trapped' cash) together with about $37 billion of cash from op activities, which you then adjust by $6-8 billion for SBC and further ding by $10-13 billion for capex. You quickly get to an EV/uFCF multiple around 28x if you assume the lower-end for SBC and capex closer to depreciation levels (e.g. say $8 billion; that means current capex levels of $13 billion exceed maintenance levels by a cool $5 billion); if you assume SBC closer to $8 billion and capex at say $12 billion, the EV/uFCF multiple is north of 35x. This is a reasonably quick & dirty calculation where I didn't even take out the $1 billion of interest income (which would further push the uFCF multiple up) and didn't do the proper NOPAT tax calc, but you get the idea. BTW I (slowly) learned to be super-skeptical of the concept of 'maintenance' capex; I don't trust mgt definitions of it, and I trust buy-side claims about maint. capex even less. IME 2 other occasional misrepresentations made about GOOG by those who pound the table about its cheapness - - Not conforming the denominator and numerator in a multiple calc, e.g. doing something like EV/E or P/EBITDA (LOL) - Thinking that SBC (which accounts for more than 15% of cash from ops) is not a real expense and not backing it out when calculating FCF Link to comment Share on other sites More sharing options...
Liberty Posted April 24, 2018 Author Share Posted April 24, 2018 What value do you assign Youtube, Contra? Do you think that it's not profitable structurally, or that growth expenses are masking profitability right now? Same question for the GCP. Link to comment Share on other sites More sharing options...
KCLarkin Posted April 24, 2018 Share Posted April 24, 2018 - Not conforming the denominator and numerator in a multiple calc, e.g. doing something like EV/E or P/EBITDA (LOL) I don't think the EV/E mismatch is a major problem here. The only adjustment needed is taking out after-tax interest income right? Seems like a better measure of value than EV/EBITDA which adjusts for interest but ignores depreciation and taxes. A more material problem is how to discount the very poor capital allocation (specifically the excess cash). There is a good argument that both the cash and future earnings should be discounted since they aren't being used for their highest purpose. If you use EV/E, you need to assume that they will dramatically increase shareholder yield in the next few years. Link to comment Share on other sites More sharing options...
Liberty Posted April 24, 2018 Author Share Posted April 24, 2018 Until recently the cash was trapped offshore, so it wasn't terrible to wait for an opportunity to bring it back without too much of a tax hit. Of course they could have raised debt in the US and used that for buybacks as Apple has done... But we'll see if they do things differently now that the cash is available in the US. Link to comment Share on other sites More sharing options...
cmlber Posted April 24, 2018 Share Posted April 24, 2018 What value do you assign Youtube, Contra? Do you think that it's not profitable structurally, or that growth expenses are masking profitability right now? Is there any disclosure on YouTube revenue or net income? Is it definitely unprofitable today, or is it possible that it's already reasonably profitable? Link to comment Share on other sites More sharing options...
Contra123 Posted April 24, 2018 Share Posted April 24, 2018 What value do you assign Youtube, Contra? Do you think that it's not profitable structurally, or that growth expenses are masking profitability right now? Same question for the GCP. I think the FT Alphaville way of doing it is a decent starting point and I don’t really have anything of value to add to it personally. There’s modest levels of info granularity and a lot happening in those 2 industries and their adjacent spaces, so for me right now it’s a little GIGO. Link to comment Share on other sites More sharing options...
oscarazocar Posted April 24, 2018 Share Posted April 24, 2018 Until recently the cash was trapped offshore, so it wasn't terrible to wait for an opportunity to bring it back without too much of a tax hit. Of course they could have raised debt in the US and used that for buybacks as Apple has done... But we'll see if they do things differently now that the cash is available in the US. GOOG ended 2017 with about $46 billion in onshore cash and $64 billion offshore cash. Most of the big tech companies have very little onshore cash (MSFT, AAPL, etc), but GOOG is not one of them. Link to comment Share on other sites More sharing options...
Liberty Posted April 24, 2018 Author Share Posted April 24, 2018 Until recently the cash was trapped offshore, so it wasn't terrible to wait for an opportunity to bring it back without too much of a tax hit. Of course they could have raised debt in the US and used that for buybacks as Apple has done... But we'll see if they do things differently now that the cash is available in the US. GOOG ended 2017 with about $46 billion in onshore cash and $64 billion offshore cash. Most of the big tech companies have very little onshore cash (MSFT, AAPL, etc), but GOOG is not one of them. My bad, I misremembered how much of it was offshore. Mea culpa. Link to comment Share on other sites More sharing options...
Spekulatius Posted April 24, 2018 Share Posted April 24, 2018 Aswath Damodaran on Alphabet Interesting. I agree that operating margin at Google is very carefully managed. However, his revenue growth assumptions seem overly conservative. GOOG dropping from reliable 20%+ growth y/o/y to 12.5% y/o/y overnight, then further to 2.75% after 5 years seems really unlikely. My own modeling assumes a reduction in growth rate of 1% per year over the next 15 years to stabilize at 5%. This would give a substantially higher valuation than $969. But nice to see that other than a differing view on input variables our two different models come up similar. My view is that Google is a reliable 15%/year compounder with a free option on another huge hit with Waymo. I've been adding below $1,000. IMO, the fact that GOOG is fairly valued, when you put half the current growth rate in this model, means that GOOG very likely is undervalued significantly, unless the wheels come off. Link to comment Share on other sites More sharing options...
Liberty Posted April 28, 2018 Author Share Posted April 28, 2018 https://abc.xyz/investor/founders-letters/2017/index.html Shareholder letter by Sergey Brin. Mostly about AI. Link to comment Share on other sites More sharing options...
Spekulatius Posted April 28, 2018 Share Posted April 28, 2018 https://abc.xyz/investor/founders-letters/2017/index.html Shareholder letter by Sergey Brin. Mostly about AI. Strange shareholder letter, IMO. Non direct relation to GOOG business. I believe he should have at least try to address GOOG way on how solve the privacy of data issues, if he does not discuss the business . Link to comment Share on other sites More sharing options...
Liberty Posted April 30, 2018 Author Share Posted April 30, 2018 https://abc.xyz/investor/founders-letters/2017/index.html Shareholder letter by Sergey Brin. Mostly about AI. Strange shareholder letter, IMO. Non direct relation to GOOG business. I believe he should have at least try to address GOOG way on how solve the privacy of data issues, if he does not discuss the business . In one way, it's cool that they're thinking so long term that the current stuff doesn't even make the cut of a letter. A lot of things can be addressed in conference calls (GFDR, etc). But I haven't had time yet to read the latest transcript, so I don't know how transparent they were about that. I do like a mix of high level and some more operational, in-the-trenches level stuff in letters, though, so that one left me a little bit on my appetite too. Link to comment Share on other sites More sharing options...
John Hjorth Posted May 10, 2018 Share Posted May 10, 2018 Google Duplex Demo from Google IO 2018 [May 9th 2018]. I'm amazed - & spooked, it's almost bordering to freaking me the freak out. Link to comment Share on other sites More sharing options...
Liberty Posted May 10, 2018 Author Share Posted May 10, 2018 Google Duplex Demo from Google IO 2018 [May 9th 2018]. I'm amazed - & spooked, it's almost bordering to freaking me the freak out. There will be downsides to this too: https://news.ycombinator.com/item?id=17023226 Link to comment Share on other sites More sharing options...
Liberty Posted May 31, 2018 Author Share Posted May 31, 2018 https://www.cnbc.com/2018/05/31/waymo-fiat-chrysler-expand-autonomous-vehicle-plans.html Link to comment Share on other sites More sharing options...
Jurgis Posted July 12, 2018 Share Posted July 12, 2018 https://www.wired.com/story/alphabet-google-x-innovation-loon-wing-graduation/ Link to comment Share on other sites More sharing options...
LongTermView Posted July 18, 2018 Share Posted July 18, 2018 https://money.cnn.com/2018/07/18/technology/google-eu-fine-android/index.html The company was ordered by the European Commission on Wednesday to pay €4.34 billion ($5 billion) for unfairly pushing its apps on smartphone users and thwarting competitors. Link to comment Share on other sites More sharing options...
Liberty Posted July 20, 2018 Author Share Posted July 20, 2018 Ben Thompson on the EU's decision on Android and Google Play: https://stratechery.com/2018/the-european-commission-versus-android/ Link to comment Share on other sites More sharing options...
Gregmal Posted July 23, 2018 Share Posted July 23, 2018 Blowout. Still going strong, 25% y/y rev growth. Sometimes investing is easy. Link to comment Share on other sites More sharing options...
Liberty Posted July 23, 2018 Author Share Posted July 23, 2018 Q2: https://abc.xyz/investor/pdf/2018Q2_alphabet_earnings_release.pdf Link to comment Share on other sites More sharing options...
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