Hey guys it's sasha today i want to talk about google stock. I have recently been buying google stock and i have added it to my man versus the market portfolio as well. I shared the thinking on google stock and why i was buying in my members discord a while ago, so it's about time to do evaluation by the way. If you want to join the discord, the link to my patreon is in the description in this video.

I will share my thoughts on google and i know that they are called alphabet, but i just can't get my head around that name and the ticker still says google. So there we go, i'm going to show you my evaluation model and tell you what my target share price for the stock is on. Why, in case you don't want to watch the video or in case you don't care for the numbers, you don't really have to watch it. My personal target prices right in the thumbnail, it's four thousand dollars, but remember that i am a random guy on youtube.

I build my own models based on my own assumptions. I probably make mistakes in those models and in the assumptions - and i also do not own any crystal ball. So please take my evaluations for what they are just the thoughts of a random guy on the internet. All right, so google is a behemoth stock that has had a phenomenal couple of years.

At the start of 2020, the stock was trading at around 1 360 and it reached almost 3 dollars just two years later in december last year. Since then, google has not been immune to the stock market correction and the stock is currently trading at two thousand six hundred and ninety one dollars about nine percent down from the peak. But given google is already so big they've. Had this huge run over the last couple of years - and it is already the third biggest company in the united states - is there really much of an upside in the stock price? Well, let's break down the business model and go through the numbers.

I've kept these as simple as possible, so let's look at the revenue. First, google earns revenue through three key areas. One is ads we're going to talk about that in a second two. Is google cloud we're going to cover that two and three is everything else and everything else is not all that exciting.

It isn't doing that much growth, so i'm going to focus on the other two in this video ads have three sub categories: google search youtube and google network. Google search is the sponsored ads that you see when you search for something and there's other bits that google also bundles into this. It's pretty self-explanatory. Google network is ad placement on partner websites and other parts of the google website family, so that is sort of split out as a separate process, because it is often things that google does not necessarily control but can place adverts on and youtube.

Well, that is the ad that you had to watch before watching this video. Thank you very much by the way for watching it and ads are where google makes almost all of its money. 80.6 of the total revenue in 2021 came from ads and the vast majority of google's ad revenue is google search, so just so that we are clear. I know people get very excited by google's mobile phones, other technology, their cameras, payment processing, new exciting projects and all of that jazz.

But just remember that at the moment and for the near-term foreseeable future. Google is an online advertising business and everything else is somewhat peripheral. In terms of the commercials now there are two caveats to this: one caveat is that google is clearly becoming really serious as an information provider as well, and although the commercials of that are still ads that actually has really interesting, long-term upticks in terms of customer stickiness Retention and the ability to increase pricing on the ads. Now, over the last two years, google started splitting out youtube ad revenue as a separate line in their quarterly results, because youtube is fast becoming something pretty big for google youtube is displacing the global tv industry, and this is not an over exaggeration and young people now Get their news get their information and entertainment on places like youtube? Many young people do not even own a tv.

Most of them do not watch tv at all. So this is a trend that is only going to accelerate in the future, and youtube is steadily becoming more and more important for google, with their commercials. In q4, 2021 youtube made up 11.5 percent of the total revenue, a pretty hefty chunk of the total, and in q4 2018, when google's total revenue was about half what it is today, youtube was just 9.2 percent of the total, so youtube is gradually growing as a Proportion of google's revenue, even as google itself, is growing really fast on average, by the way, some of this data that i'm showing you that i'm using in my models comes from google's costly reports, but if you don't want to troll through dozens of quarterly reports, each Time you go and do evaluation of the company and manually adding things up on a calculator. You can just go and use seeking alpha to get company performance data iu seeking alpha for all of my analysis, including this one and i've been a paying user of seeking alpha long before i started talking about it on youtube.

But if you want to use it to get data for your analysis, i have an affiliate link now in the description that gives you 50 off your membership. So you can pay half what i paid for my membership if you want to get access all right, so the other part of google that is growing really fast, is google cloud. This is the cloud computing solution that google has, which competes with amazon's aws and microsoft. Azure, these are the three big platforms out there.

I personally use google cloud for the various businesses and websites that i operate, and i really like the service there's a reason why i picked it over the others. Google cloud is only making about 7.4 percent of google's total revenue, but just three years ago that number was 4.4 percent. So there's a very good likelihood. The google cloud is going to grow to over 10 of google's total business over the coming years, not too long in the future and will also become a very important part of the total.

Now, looking at the growth rates of these different parts, it is hard to make definitive conclusions because all of the numbers got hit hard and completely out of whack in 2020 because of the pandemic, and we didn't have google cloud split out during these months. We didn't have youtube for that during these months, but you can see that the sum of google cloud and other services was the one business line that remained incredibly resistant and it also remained very consistent during a period and after that period google's google cloud's growth. Since then has been very, very strong and around 45 percent year on year, so my assumptions, i've said google cloud to grow by 45 to 2022 and then taper down over the next five years, and i actually went really quite conservative with my assumptions on youtube. Youtube had an absolutely phenomenal 2021, but the big question is how big of an effect was the pandemic on the growth for youtube and the youtube's usage, you can see that the growth peaked in q2 2021 in terms of year-on-year growth, because that was being compared to Q2 2020, which was when the pandemic started, and everyone was panicking and all of that happened, but the growth then tailed right off towards the end of the year last year, at just 25.4 in q4.

So i went somewhat conservative with my youtube assumption - and i said it's 20 in 2022 as an average and then increased it to 24 in 2023. This is because i expect youtube will maybe grow slower over the next 12 months, because we're gon na see this rebound from a very fast rate of growth during the pandemic. But then i expect that growth to then rebound back to the sort of normal trajectory and slowly decay from that point onwards. Now these numbers, in my opinion, are still somewhat conservative and, with the rest, i have given them pretty reasonable extrapolations with all the other lines and they all also taper down year on year.

I don't think, there's very much interesting talk about now. Look at the costs. Cost of revenue is incredibly consistent in the last four years and i just kept it flat at 44 of revenue. My assumptions, because that seems the best fit r d - has been coming down quite sharply in 2021, but to be conservative.

I assume that that was a one-off blip and i increased that cost right back up to 14 in 2022 and taper it from there and then for sales and marketing and general costs. I just roughly tapered it from where they were already to where i think they're heading, but still staying somewhat conservative and then i also took some other conservative views on depreciation and amortization and capex dna have been dropping as a percentage of google's revenue. But i said it to be a bit higher in 2022 and i actually taped it a lot more slowly from there than where it's currently looking capex has also been dropping sharply, but i am going to presume it just goes back to 10 and stays flat there As the company perhaps finds new places that it wants to go and invest its cash or or whatever they want to do with it, and this model at the moment is pretty boring right. I don't have any assumptions for cool new future products that are going to change the world revolutionary inventive cool new things is just extrapolating their current business lines in the most reasonable kind of way.

Now, if all those other things come along great they're only going to give me an upside and i'm going to add them to my model later, when i have some data. So if we look at the main output tab, i have set the tax rate to be 17 in 2022.. It has been around 16.2 percent in the last two years, but i'm conservatively assuming that tax loopholes for corporations, global distribution of revenues and the government's working together will tighten the net. So i'm reverting it back towards 21 over the next five years.

Now again, you can see that pretty much every assumption in here, in my opinion, is on the conservative side, probably unlikely for all of these to play out this way, but but there we go. This makes me relatively happy with my assumptions and i'm also using a 10 discount rate flat across time. Maybe that's on the low side of inflation hits hard this year next year, but it's probably fair as an average. In my opinion, and then i said long term growth rate to be five percent, because i think google's business is still going to be growing at a strong, double digit rate at the end of this window.

But i've lowered my ebitda multiple to 16, because the presumption here is that google becomes that much more mature as a business in six years time and despite the growth, the multiple will be lower when we get there and after doing the sums that gives me a Target share price of three thousand four hundred dollars using the perpetuity approach or four thousand four hundred dollars using the ebitda multiple approach, so i'll go roughly in the middle, slightly weighing it towards the ebitda multiple calculation and set my target price at four thousand dollars. The prices i'm recording this video is two thousand six hundred ninety one dollars. So this is an upside of about forty, nine percent, which is not as high as many of the great stocks in my portfolio that have recently been decimated, but it is a robust behemoth. Company, where i would naturally expect that upside to both be collected a lot faster on average and for the volatility around my valuation movements to be lower over the next few quarters and years.

Remember that you can get access to my target prices, weekly member videos, all the conversation and a whole lot more by signing up to my patreon through the link in the description, and if you want to play around with the models, you can do that too. If you sign up as a team member or in there available, 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 really appreciate it and, as always i'll see you guys later, you.

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