What is the Downside To Alphabet’s Stock If Google Fails To Improve Its Share in Online Ads Market?
Alphabet Inc.’s subsidiary Google (NASDAQ:GOOG) has an estimated market share of 34% in the global online advertising market in 2015, according to our calculations.
Based on the reports from eMarketer, the total ad industry is expected to grow to $674 billion in 2020:
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Currently, we project that online ads industry spending would grow to $275 at a CAGR of 12.1%. We also project that Google’s ads revenue would grow to $116 billion due to growth in search queries and improvement in revenue per (1000) searches. This translates into 42% share for Google in the online ad industry.
However, if Google’s share in online ads were to decline to 30% then it will suffer a cash flow loss of $16 billion in 2020. The ensuing loss in cashflow for subsequent years of projection amounts to $45 billion. This would lead to a loss of $42 billion in valuation (based on net present value of loss) based on a discount rate of 7%, which we estimate is the weighted average cost of capital (WACC) for the company. As a result, Alphabet’s share price can decline by $61 per share or over 8%.
Have more questions about Alphabet? See the links below:
- What’s Alphabet’s Fundamental Value-Based On 2015 Results?
- By What Percentage Did Alphabet’s Revenue And EBITDA Increase In The Last Five Years?
- How Has Alphabet’s Revenue Composition Changed Over The Last 5 Years?
- By What Percentage Can Alphabet’s Revenues And EBITDA Grow In The Next 3 Years?
- How Much Are Advertiser Paying For Internet Users In Rest Of The World To Google?
- How Much Are Advertiser Paying For The US Internet Users To Google?
- What Was The Estimated Desktop Revenue Per Search For Google In 2015?
- How Much Revenue Can Desktop Search Generate For Alphabet By 2022?
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