[Google isn't dead]
I'll go against X today, wish me luck, and show up for Google and I'll draw the conclusion even before developing my points. I think $GOOG is a good buy. Arguably one of the best ones in the magnificent 7.
So let's do a review of what is wrong with it, why people are against it and why I think they're mostly wrong although there sure are good arguments.
[The bad]
1. Cloud. That has been shown many times during the last quarterly earnings and the stock has even dropped because of not good enough results. "Not good enough" means that investors aren't happy with the growth rate of that branch, not that their services aren't growing.
There's a very important distinction between what people expect and reality. Facts are, we still have a growing business, not as fast as $MSFT or $AMZN, that's for sure, but it's here and it exists.
2. Bard. I think lots of hate and complaints come from Bard and its latest image generation issue. It was a problem, a big one, and it's even hard to imagine how they were able to release something like this. There's a culture issue, but even though I entirely disagree with those values, it's not what investing is about. Google proposes services which please 90% of their users & most of them don't give a sh*t if bard likes black a bit too much. That's what it is about. I'll just mention one other thing here. Software can be modified. Just saying.
3. Management. Another criticism goes to the management which lacks motivation and would bring once more a wrong culture inside the company. It's entirely possible. Sundar has been here since 2015 though and Google did well since. Maybe he's not up to it anymore, maybe he is and is just in a bad momentum, hard to say from a retail perspective. But Google sure lacks strong innovation but I wouldn't call them late anywhere. Far from it.
4. More? That's what I have about Google for the wrong. If I missed anything please comment but to my opinion, those aren't "real" issues. Cloud business grows. Bard will be updated. Sundar will either step up or be removed. None of those arguments are enough to call Google dead or to refute any possibility to invest in it. Not if you take into consideration what I'll write next.
[The good]
Most of it is already resumed here but I'll write some arguments again. https://twitter.com/WealthyReadings/status/1715797838112657441
1. Monopoly. Yes, Google has a monopoly on the search engines, had it for long and their market shares aren't shaking.
I honestly do not know what would make them flinch either way, nothing free at least and many are talking about OpenAI taking shares from them. Let's be honest please, have you used ChatGPT for online research? Is it perfect? Damn far from it, so very far! Is it biased? So much. Is it free? Absolutely not. I still do not see a world where Google's search engine is even in danger, not as long as OpenAI isn't a free tool at least. And it won't be for very, so very long.
2. YouTube. Another monopoly once more, free. Many will talk to me about $SPOT but if you've been here for some time, you know my opinion on the subject. https://twitter.com/WealthyReadings/status/1722583626015965580
No, nothing touches YouTube like nothing touches Google, and the streaming platform is only growing and growing.
That's easy to see.
3. Resources. We are here talking about one of the most interesting and valuable companies on earth. They're full of talent & money, especially the latter as Google is really in an excellent financial position.
They can invest, they can acquire, they can buyback... They can.
[The prospect]
Now we still need to answer an important question, is $GOOG cheap? Spoiler: Yes.
1. Ratios. That's the first way for which they are cheap, the ratio average.
They both are cheap compared to their history, especially relative to their growth, but also compared to their industry - with a PER of x35.
2. Growth. I'll put some numbers and some excel sheets because you guys know I love those. $GOOG compounded revenues at 17.6% CAGR the last five years. It is enormous. So bear with me as I'll make a simple base case up to 2030. Here are the assumptions.
1. Revenue CAGR of 15%.
2. Net margins and FCF margins equal as today's - 21.3% for both.
3. The shares outstanding are staying flat over the next years. No emission, no buybacks.
4. The F.PER and F.P/S are calculated with the actual market capitalization of the company, I'm trying to know how many years of growth I'd be buying at the actual price. Here's the result.
How is that an expensive company?
[Conclusion]
Google isn't dead. Google has issues that need to be fixed but none of them seem very hard to be fixed. Google has some of the strongest moats any business can have and two products close to monopolies. Google has enormous resources, an easy business to run, and plenty of opportunities to pursue with AI, cloud, and many other tech sectors. And its stock is trading at multiples under its own average & its industry average as of today and with pretty low F.PER & F.P/S, meaning you wouldn't be buying any years of growth at today's price. Is it undervalued? Maybe. Is it fairly valued? I don't think so. Is it overvalued? C'mon. Everyone is entitled to their own investments and choices. But $GOOG seems really attractive to my opinion.