Alphabet (NASDAQ: GOOGL)
Quality Value Investing Research Report | $GOOGL Updated Coverage | June 2024
Summary:
Alphabet Inc. is a soon-to-be dividend-paying large-cap stock in the communications services sector’s interactive media industry.
A wide economic moat surrounds the company’s high-quality business model, which has endured since its founding as Google in 1998.
Alphabet’s current wealth and present value ratings appear in contrast. However, its low enterprise and share price downside risks prevail.
In this updated research report, QVI reiterates its coverage rating of the company and its stock in the Concentrated Real-Time Stock Picks.
When referencing this research report, access your Quality Value Investing (QVI) Glossary of Investing Terms and Metric Targets and Research Report Format Guide. Unless noted, all data presented is sourced from Seeking Alpha Premium as of the market close on June 4, 2024, and intended for illustration only.
In this updated coverage QVI Research Report, we’ll reexamine the Concentrated Real-Time Stock Picks communications services sector holding, Alphabet Inc., to see if it continues to meet Quality Value Investing’s criteria based on our checklist analysis of the business’s current wealth and the share price’s present value.
Alphabet: Company Current Wealth
Value Proposition
Alphabet, Inc. GOOGL 0.00%↑ is a non-dividend-paying large-cap stock in the communications services sector’s interactive media industry. It was added to the QVI Real-Time Stock Picks on February 23, 2022, at $127.59 cost basis per share, adjusted for a 20-to-1 stock split. The company announced its first-ever dividend of $0.20, payable beginning June 17, 2024.
Alphabet Inc. offers various products and platforms in the United States, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America. It operates through Google Services, Google Cloud, and Other Bets segments.
The Google Services segment provides products and services, including ads, Android, Chrome devices, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search, and YouTube. It is also involved in the sale of apps, in-app purchases, and digital content in Google Play and YouTube and devices, as well as in the provision of YouTube consumer subscription services.
The Google Cloud segment offers infrastructure, cybersecurity, databases, analytics, AI, and other services; Google Workspace includes cloud-based communication and collaboration tools for enterprises, such as Gmail, Docs, Drive, Calendar, Meet, and other services for enterprise customers.
The Other Bets segment sells healthcare-related and internet services.
The company was incorporated in 1998 and is headquartered in Mountain View, California, USA.
Economic Moat
Morningstar assigns Alphabet a wide moat rating, weighted toward the company’s technological expertise, durable competitive advantages, and network effect.
QVI’s Value Proposition Elevator Pitch for GOOGL:
Alphabet dominates search, data analytics, and maps with Google, mobile devices with Android, web browsing with Chrome, collaboration with Gmail and Drive, and video with YouTube, and is a rising star in the cloud and artificial intelligence.
QVI’s value proposition rating for Alphabet: Bullish.
Returns on Management
Revenue Growth and Net Profit Margin
Per the chart below, Alphabet’s trailing three-year annualized revenue growth was high-double-digits positive, outperforming the communications services sector’s +2.30% median growth. The company’s topline growth was +11.78% for the most recently reported twelve months.
Farther down the income statement, Alphabet’s three-year, high-double-digit positive net profit margin trounced the sector’s median net margin of +2.78%.
Returns on Equity and Invested Capital
Alphabet’s senior management produced a three-year double-digit return on equity, or ROE, above QVI’s targeted threshold and about nine times the sector’s median ROE of +3.10%.
Stock buyback programs often elevate ROE. For example, in April, Alphabet announced a $70 billion share repurchase program. Are they buying the shares at value prices on behalf of shareholders? We’ll answer the question in the valuation section of this report.
Alphabet’s three-year return on invested capital, or ROIC, was above QVI’s threshold and about seven times the sector’s median ROIC of +3.54%. Moreover, GOOGL’s ROIC exceeded its weighted average cost of capital, or WACC, of 10.67%, demonstrating that its senior executives are outstanding capital allocators. (Source of WACC: GuruFocus)
QVI’s business fundamentals rating for Alphabet.: Bullish.
Next, we’ll look at the company’s returns on management chart, enterprise downsize risks, the stock price’s present value, share price downside risks, and the investment thesis, each exclusive to Quality Value Investing’s premium (paying) subscribers.
Disclosure: At the time of this writing, I/we had a beneficial long position in GOOGL common shares in our family portfolio. I wrote this report myself, and it expresses my own opinions. I am not receiving compensation for it other than from Substack paid subscriptions. I have no business relationship with any company whose stock is mentioned in this post.
Additional Disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in their own research or due diligence and consider (as appropriate) consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or specialized attorney before making any investment, income tax, or estate planning decisions.