[Updated 12/31/2021] Google Update
Alphabet’s stock (NASDAQ:GOOG) has seen a rise of 69% since the start of 2021 but is now close to its near term potential. The company has continued to see healthy growth in revenue and earnings. For the first nine months, Google saw revenue grow by 45% y-o-y to $182 billion. Google search segment contributed to nearly 60% of total revenue, while high growth was seen in YouTube ads (57% y-o-y) and Google Cloud (48% y-o-y) segments. Operating Income rose more than 2x for the first nine months as the company continued to improve operational efficiency.
We believe the high revenue growth and improved margins are already priced in the stock price. Overall, we expect Google’s revenues to rise by 38% to $252 billion for 2021 while its net income is expected to be around $76.6 billion. For FY 2022 revenues are expected to rise to $283 billion. Further, its net income is likely to increase to $83.5 billion, increasing its EPS figure to $121.78 in 2022, which coupled with the P/E multiple of 26.1x will lead to Google’s valuation of $3173, which is 8% higher than the current market price.
Below you’ll find our previous coverage of Google stock where you can track our view over time.
[Updated 06/24/2021] Is Google Stock Undervalued?
Alphabet’s stock (NASDAQ:GOOG) has seen a rise of 45% since the end of 2020 but is now close to its near term potential. In comparison the S&P 500 rose by 13% since the end of 2020. Despite the coronavirus crisis, GOOG saw its revenue rise by 19% in 2020 with Google Cloud and YouTube ads segments leading the growth. The momentum continued in Q1 2021 as the company recorded revenue of $55 billion, up 34% y-o-y while operating margin improved to 30%. The earnings increased to $17.9 billion, compared to $6.8 billion in the same period of the previous year. We expect this momentum to continue in 2021.
We expect Google’s revenues to rise by 29% to $236 billion for 2021 as compared to the previous year. Further, its net income is likely to increase to $49.2 billion, increasing its EPS figure to $71.69 in 2021, which coupled with the P/E multiple of 37.6x will lead to Google’s valuation of $2693, which is 6% higher than the current market price.
[Updated 02/08/2021] Is Google’s Stock Out Of Steam In Near Term?
Having grown 57% since the end of 2019, Alphabet’s stock (NASDAQ:GOOG) still has moderate upside in the near term. GOOG’s stock grew from $1337 at the end of 2019 to around $2098 now, compared to the S&P 500 which has gained 20% since the end of 2019. The company has seen revenue rise over recent years, while its P/E multiple has also risen.
Despite the Covid-19 crisis, GOOG saw its revenue rise by 19% in 2020 with Google Cloud and YouTube ads segments leading the growth. In 2020, GOOG beat consensus estimates for revenue at $182.5 billion, up 13% y-o-y, and basic EPS was recorded at $59.15 compared to $49.59 in the same period of the previous year. Further, the company reported $65 billion of cash inflows from operating activities for the year.
We expect Google’s revenues to rise by 20.3% to $219.6 billion for 2021 as compared to the previous year. Further, its net income is likely to increase to $45.9 billion, increasing its EPS figure to $66.89 in 2021, which coupled with the P/E multiple of around 32.3x will lead to Google’s valuation of around $2160, which is 4% higher than the current market price.
[Updated 07/28/2020] Has Google Run Out Of Room To Grow As The World Wrestles With Covid-19?
After a 43% rise since the March 23 low of this year, at the current price of around $1,512 per share, we believe Alphabet’s stock (NASDAQ:GOOG) has a slight upside left. Google’s stock has increased from $1,057 to $1,512 off the recent bottom, better than the S&P which also increased by around 44%. The rise in stock price was helped by the Fed’s multi-billion dollar stimulus package announced on March 23rd which lifted market sentiments. The price further rose as Google’s Q1 2020 revenues beat market estimates. Advertising revenue growth slowed but non-advertising revenues were still resilient. Due to lockdown restrictions the usage of all Google properties from Google search to Youtube has gone up, which bodes well for the company. In non-ads segment certain products like Google Classroom and Meet have also seen a surge in usage helping the company’s stock price rise.
Some of the stock price rise in the 2016-2019 period is justified by the 75% growth in revenues. Google’s revenues increased from $90 billion in 2016 to $162 billion in 2019, mainly driven by growth in Advertising revenues from the Google Search segment. This was offset by a 2% decrease in profitability as net income margin slightly declined from 21.6% in 2016 to 21.2% in 2019.
Stock price increased during this period as margins and revenue grew (and as 2017 margin decline was due to one time tax expense), which led to a flat P/E multiple of 27x in 2016 and 2019. The multiple shot up this year and currently stands at 31x. We believe that the market has been optimistic about the Internet companies in the current environment, which has led to its rise.
Effect of Coronavirus
The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. This is likely to adversely affect consumption and consumer spending. Notably, Google’s stock is up by about 5% since January 31, after the World Health Organization (WHO) declared a global health emergency in light of the spread of coronavirus. However, during the same period, the S&P 500 index was flat. Despite the coronavirus pandemic the company saw a 13% growth in Total revenues for Q1 2020. Google Cloud led the revenue growth recorded at 52% y-o-y while the Advertising revenue recorded a 10% growth y-o-y. That said, lower consumer spending and consumption over the coming months could likely lead to lower demand for advertising as companies could focus on core expenses.
The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view, focusing their attention on FY 2022 results. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.
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|S&P 500 Return||5%||28%||114%|
|Trefis MS Portfolio Return||3%||48%||298%|
 Month-to-date and year-to-date as of 12/30/2021
 Cumulative total returns since 2017