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Alphabet

Nasdaq:GOOGL
Snowflake Description

Flawless balance sheet with proven track record.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
GOOGL
Nasdaq
$563B
Market Cap
Internet Software and Services
Company description

Alphabet Inc., through its subsidiaries, provides online advertising services in the United States, the United Kingdom, and rest of the world. More info.


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3 Month History
GOOGL
Industry
5yr Volatility vs Market

Value

 Is Alphabet undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of Alphabet to its discounted cash flow value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

How is this discounted cash flow calculated?

  • The current share price of Alphabet is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avacados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for Alphabet's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are Alphabet's earnings available for a low price, and how does this compare to other companies in the same industry?
  • Good value based on earnings compared to the Software industry average.
  • Overvalued based on earnings compared to the overall market.
Price based on expected Growth
Does Alphabet's expected growth come at a high price?
  • Poor value based on expected growth next year.
Price based on value of assets
What value do investors place on Alphabet's assets?
  • Good value based on assets compared to the Software industry average.
X
Value checks
We assess Alphabet's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
  2. Is the PE ratio less than the market average, and/ or less than the Software industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Software industry average (and greater than 0)? (1 check)
  5. Alphabet has a total score of 2/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (14.12%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (Free cash flow to Equity)

The calculations below outline how an intrinsic value for Alphabet is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.

See our documentation to learn about this calculation.

5 year cash flow forecast

Present value of next 5 years cash flows:
$130,870

Terminal Value

Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)

Terminal Value = $50,586 × (1 + 2.5%) ÷ (10.84% – 2.5%)

Terminal value based on the Perpetuity Method where growth (g) = 2.5%:
$619,540

Present value of terminal value:
$370,383

Equity Value

Equity Value (Total value) = Present value of next 5 years cash flows + terminal value

Value = Total value / Shares Outstanding ($501,254 / 680)

Value per share:
$737.58

Current discount (share price of $828.17): -12%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 10.84% = 2.47% + (1.111 * 7.53%)



Estimate of Bottom Up Beta

The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).

Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))

1.111 = 1.106 (1 + (1- 30%) (0.7%))

Levered Beta used in calculation = 1.111



Assumptions
  1. The risk free rate of 2.47% is from the 10 year government bond rate in United States.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is Alphabet expected to perform in the next 1 to 3 years based on estimates from 33 analysts?

    The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

    Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
    3 year growth
    56%
    Expected earnings growth over 3 years.
    Future Earnings growth analysis
    Is Alphabet expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.

    Are Alphabet's annual earnings growth expected to exceed 3.6% over the next 3 years?

    • After 1 year
    • After 3 years
    1 & 3 year estimated growth in earnings
    Past and Future Earnings per Share
    The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
    Analysts growth expectations
    2 year growth check
    Super high growth metrics x1.5?

    Which of the these is expected to increase by over 50% in 2 year's time?

    • Revenue
    • Cash flow
    • Profit
    Performance in 3 years
    In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
    • Alphabet is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.

    Improvement & Relative to industry
    • Expected to be less than the Software industry average.
    • An improvement in Alphabet's performance (ROE) is expected over the next 3 years.
    X
    Future performance checks
    We assess Alphabet's future performance by looking at:
    1. Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
    2. Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
    3. Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
    4. Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
    5. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
    Some of the above checks will fail if the company is expected to be loss making in the relevant year.
    Alphabet has a total score of 3/6, see the detailed checks below.

    Note: If no +3 year data is available, +2.5 year data may be used.

    Note 2: We use GAAP per Share in all our calculations.

    Full details on the Future part of the Simply Wall St company analysis model.

    Past Performance

     How has Alphabet performed over the past 5 years?

    The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
    Past earnings growth
    Below we compare Alphabet's growth in the last year to its industry (Software).
    Past Earnings growth analysis
    We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
    • Alphabet's earnings growth has not matched the industry average in the past year.
    • Alphabet's 1 year earnings growth exceeds its 5 year annual average (25.1% vs 11.8%).
    • Alphabet has improved earnings in the past 5 years.
    Profit History
    Alphabet's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
    Performance last year
    We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
    • Poor return on shareholders funds (ROE) last year.
    • Alphabet performed above the Software industry average based on return on assets (ROA) last year.
    • Performance based on revenue producing assets (ROCE) is broadly the same over 3 years.
    X
    Past performance checks
    We assess Alphabet's performance over the past 5 years by checking for:
    1. Has earnings per share (EPS) increased in past 5 years? (1 check)
    2. Has the EPS growth in the last year exceeded that of the Software industry? (1 check)
    3. Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
    4. Is the Return on Equity (ROE) higher than 20%? (1 check)
    5. Is the Return on Assets (ROA) above industry average? (1 check)
    6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
    The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
    Alphabet has a total score of 4/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations.

    Full details on the Past part of the Simply Wall St company analysis model.

    Health

     How is Alphabet's financial health and their level of debt?

    A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).

    The boxes below represent the relative size of what makes up Alphabet's finances.

    The net worth of a company is the difference between its assets and liabilities.
    Net Worth
    • Alphabet is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
    • Alphabet's cash and other short term assets cover its long term commitments.
    Balance sheet
    This treemap shows a more detailed breakdown of Alphabet's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
    Assets
    Liabilities and shares
    The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
    • High level of stock/ inventory/ unsold assets.
    • Total debt is covered by short term assets.
    Historical Debt
    Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

    The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

    If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
    • The level of debt (3%) compared to net worth is satisfactory (less than 40%).
    • The level of debt compared to net worth has been reduced over the past 5 years (13% vs 3% today).
    • Total debt is well covered by annual operating cash flow (greater than 20% of total debt).
    • Company earns more interest than it pays.
    X
    Financial health checks
    We assess Alphabet's financial health by checking for:
    1. Are short term assets greater than short term liabilities? (1 check)
    2. Are short term assets greater than long term liabilities? (1 check)
    3. Has the debt to equity ratio increased in the past 5 years? (1 check)
    4. Is the debt to equity ratio over 40%? (1 check)
    5. Is the debt covered by short term assets? (1 check)
    6. Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
    7. Alphabet has a total score of 6/6, see the detailed checks below.


    Full details on the Health part of the Simply Wall St company analysis model.

    Dividends

     What is Alphabet's current dividend yield, its reliability and sustainability?

    Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
    Annual Dividend Income
    Dividend payments
    0%
    Current annual income from Alphabet dividends.
    If you bought $2,000 of Alphabet shares you are expected to receive $0 in your first year as a dividend.
    Dividend Amount
    Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
    • Paying below low risk savings rate. (1.75%)
    • Paying below the markets top dividend payers. (3.18%)
    Historical dividend yield
    It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

    We also check to see if the dividend has increased in the past 10 years.
    • Not paying a notable dividend.
    • Not paying a notable dividend.
    Current Payout to shareholders
    What portion of Alphabet's earnings are paid to the shareholders as a dividend.
    • Not paying a notable dividend.
    Future Payout to shareholders
    • Insufficient estimate data to determine if a dividend will be paid in 3 years.
    X
    Income/ dividend checks
    We assess Alphabet's dividend by checking for:
    1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
    2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
    3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
    4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
    5. How sustainable is the dividend, can Alphabet afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
    6. Alphabet has a total score of 0/6, see the detailed checks below.


    Full details on the Dividends part of the Simply Wall St company analysis model.

    Management

     What is the CEO of Alphabet's salary, the management and board of directors tenure and is there insider trading?

    Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
    CEO
    Larry Page, image provided by Google.
    Larry Page
    COMPENSATION$1
    AGE44
    CEO Bio

    Dr. Lawrence Edward Page, also known as Larry, is Co-Founder of Alphabet Inc. and has been its Chief Executive Officer since October 2, 2015. Dr. Page co-founded Google Inc. in 1998 and served as its Chief Executive Officer from April 4, 2011 to October 2, 2015. He served as Chief Executive Officer of Google Inc. from September 1998 to July 2001 and served as its Chief Financial Officer from September 1998 to July 2002. He served as President of Products at Alphabet Inc. from July 2001 to April 2011 and also served as its Assistant Secretary. He worked at Chips & Technologies, Inc. He served as President of the University's Eta Kappa Nu Honor Society and built a programmable plotter and inkjet printer out of Legoš. He has been a Director of Google Inc., since its inception in September 1998 and Alphabet Inc., since October 2, 2015. Dr. Page serves as a Trustee of XPRIZE Foundation, Inc. He is a Member of the National Advisory Committee (NAC) for the University of Michigan College of Engineering. He is a speaker at such forums as the Technology, Entertainment and Design Conference, The Wall Street Journal Technology Summit, the World Economic Forum and the Commonwealth Club. He served at National Academy of Engineering since 2004. He was named a World Economic Forum Global Leader for Tomorrow in 2002 as well as a “Young Innovator Who Will Create the Future“ by MIT's Technology Review magazine. He was recognized as Research and Development Magazine's Innovator of the Year. He was honored with the Marconi Prize in 2004. Dr. Page was granted an honorary MBA by Instituto De Empresa and was the first recipient of the University of Michigan Alumni Society Recent Engineering Graduate Award. He holds a Masters degree in Computer Science from Stanford University and a Bachelor of Science degree in Computer Engineering from the University of Michigan.

    CEO Compensation
    • CEO's compensation has been consistent with company performance over the past year.
    • CEO's compensation appears reasonable.
    Management Team Tenure

    Average tenure of the Alphabet management team:

    Management tenure
    10.2 years
    • The average tenure for the Alphabet management team is over 5 years, this suggests they are a seasoned and experienced team.
    Management Team

    Eric Schmidt

    TITLE
    Executive Chairman
    COMPENSATION
    $8,038,178
    AGE
    61

    Larry Page

    TITLE
    Co-Founder
    COMPENSATION
    $1
    AGE
    44

    Sergey Brin

    TITLE
    Co-Founder
    COMPENSATION
    $1
    AGE
    43

    Ruth Porat

    TITLE
    Chief Financial Officer and Senior Vice President
    COMPENSATION
    $31,051,486
    AGE
    59

    Sundar Pichai

    TITLE
    Chief Executive Officer of Google
    COMPENSATION
    $100,632,102
    AGE
    44

    Diane Greene

    TITLE
    Director and Senior Vice President of Google
    COMPENSATION
    $454,448
    AGE
    62
    Board of Directors Tenure

    Average tenure of the Alphabet board of directors:

    Board tenure
    12.5 years
    • The average tenure for the Alphabet board of directors is over 10 years, this suggests they are a seasoned and experienced board.
    Board of Directors

    Eric Schmidt

    TITLE
    Executive Chairman
    COMPENSATION
    $8,038,178
    AGE
    61

    Larry Page

    TITLE
    Co-Founder
    COMPENSATION
    $1
    AGE
    44

    Sergey Brin

    TITLE
    Co-Founder
    COMPENSATION
    $1
    AGE
    43

    Diane Greene

    TITLE
    Director and Senior Vice President of Google
    COMPENSATION
    $454,448
    AGE
    62

    Paul Otellini

    TITLE
    Director
    COMPENSATION
    $426,198
    AGE
    66

    John Hennessy

    TITLE
    Lead Independent Director and Chairman of Nominating & Corporate Governance Committee
    COMPENSATION
    $426,198
    AGE
    64
    Recent Insider Trading
    Who owns this company?
    X
    Management checks
    We assess Alphabet's management by checking for:
    1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
    2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
    3. Is the average tenure of the management team less than 2 years? (1 check)
    4. Is the average tenure of the board of directors team less than 3 years? (1 check)
    5. Alphabet has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.


    Note: We use the top 6 management executives and board members in our calculations.

    Note 2: Insider trading include any internal stakeholders and these transactions.

    Full details on the Management part of the Simply Wall St company analysis model.

    Company News

    Articles
    Announcements

    Company Info

    Description

    Alphabet Inc., through its subsidiaries, provides online advertising services in the United States, the United Kingdom, and rest of the world. The company offers performance and brand advertising services. It operates through Google and Other Bets segments. The Google segment includes principal Internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome, and Google Play, as well as technical infrastructure and newer efforts, such as Virtual Reality. This segment also sells hardware products comprising Chromecast, Chromebooks, and Nexus. The Other Bets segment includes businesses, such as Access/Google Fiber, Calico, Nest, Verily, GV, Google Capital, X, and other initiatives. Alphabet Inc. was founded in 1998 and is headquartered in Mountain View, California.

    Details
    Name:Alphabet Inc.
    Ticker:GOOGL
    Exchange:NasdaqGS
    Founded:1998
    Market Cap:$562,820 million
    Website:http://abc.xyz
    Listings
    Map

    1600 Amphitheatre Parkway, Mountain View, 94043, United States

    Number of employees
    Street

    Current staff
    Staff numbers
    61,814
    Alphabet employees.
    Industry
    Industry:Internet Software and Services
    Sector:Software and Services