Guys. It's ashley last night google published their q2 results and the results were were not great. But the stock market decided that not great is actually kind of in the current market environment and rewarded google with a seven percent increase in their share price this morning in this video. I will go through those results.

And explain what google did well and where the results really did not look particularly good and then i will share my updated valuation model for google and my revised target price my target price has dropped this quarter. And i'm baking in many more conservative assumptions. Within the model and this is probably going to be the case across the board for me with inflation. Where it is and the threat of recession looming.

But just before we dive into all of the numbers. And the details. Remember i am not a financial advisor and i'm not your financial advisor. I'm just a random guy on youtube sharing my personal analysis.

My opinion on what i'm doing so please take it for what it is and remember that i am also a google shareholder. So i may well be biased in my asses all right so google posted a new record of 6969 billion dollars worth of revenue in q2 2022 and this is 13 up year on year now. 13 is pretty low for google. And i'm going to explain exactly what's going on in here for a second.

But you can already see the effect of the strong dollar that is causing this revenue to be three percent lower than would otherwise be and because of the various headwinds google's operating margin was only 28 which meant net income dropped from 185 billion dollars in the same quarter last year to just 16 billion dollars. The good news is that google is buying back shares at a very healthy rate. You can see that google's cash and cash equivalents dropped by 15 billion dollars. This quarter.

And some of that could be potentially attributed to this strong us dollar. But you can also see in the cash flow statement that google bought back a record 152 billion. Dollars worth of shares that is a lot this quarter that's almost the same amount as the net income for the business and given the google share sold off like everybody else the buy back the effect of this buyback this quarter is going to be particularly good because they're going to be buying considerably more shares as a number of shares. And that's going to improve shareholder value.

But looking at google's individual business lines growth has really slowed down. I've taken these numbers and stuck them into my model in the excel spreadsheet and you can see what's happening here on the right. This is the annual growth as a percentage on those numbers you can see that this latest quarter is a lot softer than what we've been used to seeing recently google's main. Business which is ads on google search only grew 135 compared to 24 last quarter 36 a quarter before that and 44.

The quarter before that and so on and everything else was also pretty low youtube's. Revenue grew by just. 48. You might have heard some of the big finance channels on youtube.

Moaning and complaining that they're earning less than they used to did ems. The only solid growing business for google is google cloud which grew 35 year on year. But that is still lower than the roughly 45 year on year growth that we saw beforehand and it's important to remember that google cloud is still a loss making business for google google is losing money on that business line. There was a question on this in the earnings score.

But google navigated it very accurately and politically saying that they think google cloud is going to become strongly profitable with more scale is probably the case because this is still so so early. But slow growth. This quarter is not necessarily a particularly bad thing. And here is why you can see that google took a big hit in 2020.

When covet first arrived there were three consecutive quarters. Where the growth numbers just got decimated businesses were locked down companies were shut down. Nobody was spending money on advertising. The travel industry got destroyed and when we look at the same numbers the following year this yellow section.

You can see that the growth last year was absolutely massive and this is because those quarters and the yellow were being compared to these red quarters. When the numbers collapsed. So yeah. It's easy to have grown at 70 percent or whatever.

It is when you were 22 down the year before this is another example of the bullwhip effect or the ripple effect. Call. It whatever you want because last year in 2021. We had this market.

Euphoria lockdowns were on the way out in the summer and we had this over compensation compared to what happened in 2020. You have this big big down in 2020. Like when you get the first ripple coming through and then you coming back up. And you have a massive massive up year in 2021 and now we're in 2022 and we're seeing the next down wave coming q1 last year was up 35.

And so when we're lapping that quarter this year. Q1 dropped to just 22 growth year and year and then q2 last year was a whopping 62 percent year on year growth compared to the year before that so this year. The rate of growth has slowed even further to just 12 percent. But just like the ripples that go up and down over time the long term trajectory is still extremely consistent.

I did a quick calculation here and the different quarters are all growing. Very consistently at an average rate of about 24 year on year by the way i share all of these models with my team members in the patreon and i share the target prices with everybody and we talk about the stock market companies valuations all of that stuff every single day in the discord so feel free to join my patreon if you want to get access to that discord if you want to get access to special member videos. I post them about every week uh if you want up to date target prices as on when i update them rather than as and when i go and make a youtube video about it and a whole lot more the link is in the description so over time. If we don't have other issues happening.

These wobbles up and down will generally flatten out. And i'm going to be expecting a considerably more consistent next year and the years beyond that if we don't get something really big throwing us again. Especially when we're coming back down from the inflation spike. So i've revised down my assumptions for growth for google.

I'm actually keeping them considerably below where i think they will end up to be somewhat on the conservative side certainly below. Where the data is indicating so i said let's assume google search ends the year on an average of 18 growth year on year remember significantly below that 24 ish mark uh. Where it was before so far. It's been 24 and 14 in the first two quarters and q4 numbers should probably bring that average up to the 80 mark and then instead of raising it back up.

I'm gonna go and just decline that rate of growth every year. All the way through to 2027 then i'm projecting a pretty low year for youtube. But i'm also expecting youtube to then come back next year to a 20 growth rate still far below where it was before and then it will reduce there in the model from there. I still think this could be a somewhat conservative assumption for me youtube is still in the early stages of growth.

So again. I think that this might be on the conservative side and the other important number in here is google cloud. I set it to grow at 42 this year and that rate then gradually slows down given that it's still so so early for that business. This is again.

I think probably reasonable maybe not as conservative as some of the others. But i would say somewhat reasonable as an assumption then we have the costs you can see these numbers have been trending steadily. And i'm assuming that the cost of revenues for google stays at 44 has been at roughly that figure. Very consistently in the past and then i'm expecting that the operating costs will continue gradually coming down over time as a proportion of revenue.

I haven't actually changed these assumptions this quarter and they haven't really been moving at all recently you can see that my projection for this year. Is almost bang on what we just saw in q2. So all of that looks on track so far so on the left here. I just take all of these assumptions in terms of growth multiply them through to get my ebitda numbers.

And then here is the calculator tab. I'm using the same 10 discount rate in here. I know some people might say that because inflation is running hot maybe you should be using 12 or even 15 for the next year or two at least. I don't know.

But this year. We are still sitting at below 10 on inflation. So the cost of opportunity is still the limiting factor not inflation in my discounting. And with will inflation go up to above 10 somewhere towards the back end of this year or next year.

Very possibly i really don't know. But if it peaks towards the end of this year or early next year. It might then dip back down by the end of next year. So i don't think.

10 is all that crazy anyway i have excluded the two quarters of this year from this year's numbers not that it really makes any meaningful difference. So that's why those numbers from this year are looking a. Bit funny then i have set the long term growth. Rate at 45.

Percent. And the ebitda multiple in 2027 to 15 times both of those to me seem quite reasonable for this kind of company in this kind of position as we've just had the 20 to 1 google stock split we now have 13 billion shares outstanding and when we do all of the math i get a target price of 149 using the perpetuity approach and 196 dollars using the ebitda multiple will a 15x multiple be appropriate in 2027 for google that you know a company that is still growing relatively fast at that point and has very very solid margins. I'd say sure why not so i will go somewhere in the middle of those two and set my target price to 180. Which is a drop on the 200 that it was beforehand my main reason for this drop is because i adjusted all of my growth assumptions down a fair bit this quarter.

Because i wanted to be a bit more conservative that adds a bit more of a cushion if numbers go back up. But to me it feels somewhat appropriate given. What we're seeing in the economy. At the moment.

Google is trading at about 112 dollars. So the ridiculous situation is that this still represents a 61 upside for me oh. And your upside can be even bigger. If you use one of my links in the description to get yourself a free share or some kind of bonus cash for signing up for one of my favorite investing apps.

Those apps are also super cheap so you get to save on the fees as well if you're on one of the old expensive platforms that charges you or 12 pounds per trade or whatever. It is that is a huge amount of money to be throwing away so be sure to check out some of my favorite cheap investing apps. Using the affiliate links below. Now google is not unique for having a big upside at the moment.

Because of the market crash that we've been seeing in the beginning this year. And for growth stocks has started really in november. Many of the upsides out there at the moment will look absolutely bonkers and this is why i am continuing to slowly buy google shares as well as many other companies that we're going to be talking about later on in this earnings season. Uh google is one of my big positions in my own portfolio.

If you found this video useful please don't forget to smash the like button for the youtube algorithm thank you so much for watching i really appreciate it and as always i'll see you guys later.