Hey guys it's sasha. Last night, google released their q1 results and their stock immediately collapsed by over six percent in after hours trading. Apparently according to wall street, google's earnings were weak and they missed on pretty much every target. Except when i looked at the results, i seem to see something completely different and i am absolutely baffled by the self wall street never ceases to amaze me in the lack of depth in the analysis on the companies that they apparently invest in.

So let's go through the earnings and i'm going to explain why i think the market is completely missing the big picture with google, so first here's the top line numbers for google or alphabet or whatever you want to call them. Revenues for q1 hit 68 billion dollars at 23 percent. Year-On-Year growth operating income was 20.1 billion, the operating margin is sitting at 30 percent and the net income was 16.4 billion dollars and 8.3 percent drop on q1 2021 and wall street analysts are known for the rigor of their analysis, because this is where they clearly stopped. Reading, oh, my god, net income is down, google is going bust, sell all your shares, sell, sell, sell, except here is what actually happened.

First up, here's the breakdown of google's revenue by business segment. I have gone and taken all of these numbers and compared it to my assumptions that i made for this year, and here it is google's ads on search and google network are tracking at twenty four point, three percent and twenty point: two percent up on q1 2021. Above my assumption of twenty percent for this year, q1 is always a big drop from q4, because advertisers don't spend much money in q1. It is the lowest point in the year for ad revenue in general and yeah.

Last year there was almost no drop, but there was a massive exception because the world was opening up after covid the one thing that everyone was pointing fingers at this time around was youtube and youtube's revenue only grew by 14.4, which seemed to get everyone very concerned. But there are a few very important points to note about youtube and advertising. In general, google acknowledged that there was a hit on advertising in europe in q1. That will continue into q2.

Google has cut all business in russia soon after russia invaded ukraine and russia made up one percent of google's total advertising revenue. It's not a huge proportion, but it is somewhat noticeable, but more noticeably european countries in general outside russia had a drop in advertising spent following the start of the war because of you know, shifts and priorities and effects on some of the countries in europe. More than some of the others, ruth polar at google cfo confirmed on the earnings call last night that this is the case and you can see the evidence on page eight of the results that they published. U.S revenues are up 27 percent year on year.

In q1. Pretty good other americas are up 32, even better, but with the russian invasion of ukraine. The newly emerging covet crisis in china, emea only grew by 19 and asia, pacific at just 13 and as an investor. Looking at these figures, do i think there is a long-term concern here.

Well, no, i do not. These are one-off, in my opinion, short-term perturbations, that don't affect the long-term outlook for me whatsoever. Youtube is also busy working on new formats like shorts after tick tock arrived and stole a whole load of eyeballs, and they are in the very early stages on development on that front. Although things are apparently going quite well and they seem to be catching up, views are growing very rapidly, but there is very little monetization of shorts out there available.

So it's not bringing revenue. It's not driving content creators necessarily to create as much content as they could. Otherwise, so all of that is going to come as the format and the overall ecosystem develops. Going back to the comparison, though other services only posted growth of 4.9, which was disappointing, although apparently some parts like waymo are actually doing pretty well beneath the surface.

But look at google cloud: it is still a relatively small part of the overall total at the moment, and my projection for 2022 was growth at 45, which seemed pretty ambitious. But here we are looking at 43.8 in q1. Looking really pretty good and almost bang on the thing with google cloud at the moment is because of the size because they haven't reached scale just yet. They are still technically loss making and they didn't publish specific results for that in the paper.

But they did mention that on the earnings score, however, as the size comes through as they're able to get those economies of scale, that is where the profitability is going to come just like with aws for amazon. All in all, revenue in q1 is above my expectations. I had an assumption of 21 from these core business lines on average and revenue grew by 21.9 percent. If i exclude the other stuff that doesn't really affect anything in the long term and in q2, we are probably going to take a another hit because the war and the impact on the global economy and the stuff that's happening over in china with covered lockdowns.

But again, one-off impacts do not make for long-term forecasts. Now look at costs, cost of revenue is 43.5 below my forecast, which is good. R d is 13.4 percent below my forecast, sales and marketing is eight point. Six percent of revenue way below my forecast, general admin came in at five percent, just below my forecast.

By the way, if you want to discuss stocks, look these models go and discuss them in the community, get access to exclusive videos and my up-to-date target prices as and when i update them feel free to join my patreon. The link is in the description you can. Even get access to all of these models and play around with them by becoming a team member. If you want to constantly updated with the latest versions as and when they're available, but if whether you do or do not, we have a lively discord where we discuss stocks.

Everything else before it makes it into youtube, or sometimes it doesn't make it to youtube altogether. So if you decide to join i'm going to see you in there, okay, so revenue beat my forecast and costs also beat my forecast, but ebitda was only 29.7 of revenue and my forecast said 33.5. So what happened? Why was i so far out? Well, if we look carefully at the p l look at this line here called other income. It was 4.8 billion dollars in the green in q1, 2021 last year, but 1.2 billion dollars in the red in q1 2022.

That is a six billion dollar swing, which is very big when you consider that net income for the quarter was 16.4 billion dollars. The good news is that if you're, not a wall street analyst, you have the power to use the scroll button to look further down. In the report and do some kind of analysis - and there is this nice little breakdown here - of what other income actually is, and you can very quickly see the issue in q1. Last year there was 4.8 billion dollars posted in gains from equity securities.

The rest of the items in there pretty much added up to zero, and in q1 this year we had 1.1 billion dollar losses on equity security and, once again, the rest of the items pretty much add up to zero. Again. This is showing that some of the securities that google holds the companies that google has invested money in have lost value. So this quarter, some of the companies that google put money in have lost value well.

Last year they happened to gain value in the same quarter. This has literally nothing to do with google's core business. It has nothing to do with whether google will do well next year, the year after that or the year after that, in any of their core business lines and in the last quarter a lot of early stage growth companies, the kind of companies that google would be Investing money in have lost a heck of a lot of value. I know, because i've lost a whole lot of money in my portfolio as well, and i'm guessing if you're investing in some early stage, companies or grey stocks.

You will too, because every single grow stock has been decimated since november. This line literally has zero impact on the long term outlook for anything that you would model when you're trying to evaluate google's core business, but it cost them six billion dollars on the bottom line. In q1, and if they didn't have that six billion dollar write down, the numbers would look extremely epic and everyone would be jumping around, enjoy buying up google shares and the share price with skyrocket. The fact here is that google's core business is robust.

The balance sheet is extremely consistent: they carry 21 billion dollars in cash and another 113 billion in short-term, marketable securities. That is one heck of a load of cash and quasi cash. Individual business lines are all growing. We have some short-term headwinds in the shape of europe and asian revenues.

Q2 is probably going to look ugly as a result, but last night, when the share price tanked, their pe ratio dropped to below 20, and this is a company with extremely solid foundations. That is growing at over 20 year and year, and the overall direction here is really good. The performance in markets that didn't have direct hits were very, very strong in the last quarter. My assumptions for google's growth decline every year from now on, i'm presuming that this company is now mature and they're, now going to be gradually going towards some kind of steady state and in q1, google is ahead of my 2022 projection, which is the highest year-on-year growth That i have in my model, the most important thing is that the core business lines ads in google search and ads in google network are performing above forecast, and this is the key part of google's bread and butter.

Google cloud is growing, pretty much bang on forecast and the beauty of google cloud business is that is, it is incredibly sticky and incredibly robust. It doesn't suffer from seasonality and once people build their software, build their apps build their websites whatever it is. On the platform, you will be collecting growing revenues as those businesses scale for years and years in the future. Migrating from one platform to another and changing providers is a giant headache and doesn't happen very frequently, so that part of the business growing at 44 is incredibly good.

In truth, given this data, i am not even going to touch my model or change my assumptions, because everything is really quite close to where i was projecting at a 4 000 target price for google before these results came out and i'm very happy to keep it At exactly the same target price based on what i am seeing and as the share price has dived down yesterday, it just means that, for me, with these assumptions you know, google gradually declining google has a 75 upside, which is ridiculous. So i am going to be personally adding more google shares to my portfolio in the coming weeks and months. 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, you.