Alphabet (Google)’s stock (NASDAQ: GOOG) has gained around 20% YTD as compared to the 8% rise in the S&P500 index over the same period. That said, at its current price of $107, the stock is trading 16% below its fair value of $127 – Trefis’ estimate for Google’s valuation. The technology giant posted better-than-expected results in the first quarter of 2023, with revenues increasing 3% y-o-y to $69.8 billion. It was mainly due to a 28% jump in the Google Cloud segment. However, Google advertising revenues (including Google search, YouTube ads, and Google network) were marginally lower than in Q1 2022. Further, cost-per-impression was reduced by 5% y-o-y. Notably, the Google advertising unit contributes close to 80% of the top line. On the cost front, the cost of revenues increased 3% y-o-y, followed by a 19% rise in operating expenses. It led to a drop in operating margin from 30% to 25% in the quarter. Overall, the net income decreased by 8% y-o-y to $15.1 billion.
The company’s top line grew 10% y-o-y to $282.84 billion in FY 2022. It was primarily driven by a 7% increase in Google Services revenues and a 37% jump in the Google Cloud unit. However, the operating margin declined from 31% to 26% in the year, due to higher expenses. Further, other income decreased from $12 billion to -$3.5 billion, mainly because of changes in gains and losses on equity securities and performance fees. Altogether, net income dropped by 21% y-o-y to $59.97 billion.
Moving forward, Google’s revenues are estimated to touch $299 billion in FY2023. Further, its net income margin is likely to improve in the year, leading to a net income of $66.75 billion. This coupled with an annual EPS of $5.24 and a P/E multiple of just above 24x will lead to a valuation of $127.
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|S&P 500 Return||-1%||8%||85%|
|Trefis Multi-Strategy Portfolio||-1%||7%||238%|
 Month-to-date and year-to-date as of 5/4/2023
 Cumulative total returns since the end of 2016