GOOGL
📉 Google’s stock recently fell significantly, losing $150 billion in market cap in a day, due to concerns over Apple potentially replacing Google Search with an AI-powered alternative in Safari, threatening a lucrative partnership.
💰 A sum-of-the-parts valuation suggests Google Cloud (valued at $750B to $1T) and YouTube (valued at $600B) alone could represent a large portion, potentially 70%, of Google’s total market cap, implying the core search business and other ventures are significantly undervalued.
💡 Despite antitrust pressures and competition, Google’s core search business still generates $200 billion annually and grows at 10% year-over-year. The market may have overreacted, potentially creating a buying opportunity for a collection of valuable assets at an attractive price.
@bernardodegarcia:
“Google’s parent company, Alphabet, recently saw its stock fall by over 8%, wiping out $150 billion in market value in a single day. This drop was primarily triggered by news related to Apple’s plans for its Safari browser. During an antitrust testimony, an Apple executive, referred to as ‘Mr. Q,’ indicated that Apple is actively exploring adding AI-powered search options to Safari, which could eventually replace standard search engines like Google. This is a significant threat because Google pays Apple around $20 billion annually to be the default search engine on iPhones, a deal that accounts for 36% of Google’s search advertising revenue generated through Safari. Losing this position, especially amidst growing competition from AI search tools like ChatGPT and Perplexity, and ongoing antitrust scrutiny aimed at Google’s search dominance, poses a real threat to its main business. However, Google is not defenseless. The company has invested heavily in AI, integrating features like AI overviews in search results and developing its Gemini AI, which it hopes to integrate into future iPhones. A sum-of-the-parts valuation suggests Google might be undervalued. Google Cloud, with $50 billion in annualized revenue, could be worth $750 billion (or even $1 trillion using a 20x sales multiple). YouTube, generating $40 billion in ad revenue and $20 billion from subscriptions, could be valued at $600 billion (using a 10x sales multiple, conservative compared to Netflix’s 12x). Together, these two segments ($1.35 trillion) could account for about 70% of Google’s $1.88 trillion market cap. This implies that the remaining $530 billion market cap covers Google’s massive search business (still growing and generating $200 billion annually), its display advertising business ($30 billion annually), hardware division ($20 billion annually), futuristic projects like Waymo and DeepMind, $100 billion in net cash, and a $25 billion investment in SpaceX. This collection of assets for $530 billion, or even just valuing the search business at a mere 2x sales multiple, appears to be a bargain. Barrons’ analysis also suggests a higher valuation, estimating Google’s stock price target at $260 per share based on segment valuations, though the speaker adjusts this to around $230 for 2025. The speaker views the current situation as a potential overreaction by the market, creating an opportunity similar to Meta in 2020, despite acknowledging the real risks.”
Watch the exact part of the video where Bernardo talks about Alphabet (Google) here:
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Read more articles by the world’s top 100 analysts on Alphabet (GOOGL) at the following link. GOOGL stock.
