Harsh,
You claim to be a "value" guy. Did you read the linked article by a Buffet/Munger follower?
seekingalpha.com
Excerpts:
Valuation Google Cloud and Other Bets hurt operating income such that valuations based on company-wide free cash flow [FCF] are flawed. Combined, these two segments lowered trailing twelve months [TTM] operating income by $9.4 billion! The P/E ratio can be even more problematic than FCF in terms of showing steady earnings power as it has the volatile “Other income” line in addition to the drain from Google Cloud and Other Bets. A sum of the parts valuation makes more sense to me than using these company-wide yardsticks. To be clear, the yardsticks have use with the advertising business in a vacuum but they are flawed when looking at the company as a whole.
The Other Bets segment is full of unknowns like Waymo; I’m guessing it is worth between $25 and $75 billion.
Summing things up, I think Alphabet is worth over $2 trillion:
$1,872 to $1,950 billion Google Services
$128 to $160 billion Google Cloud
$25 to $75 billion Other Bets
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$2,025 to $2,185 billion
I view market cap as the sum of class A and class B shares times the class A GOOGL price as the first component plus the class C shares times the class C GOOG price as the next component. The 1Q21 10-Q shows 300,746,844 A shares and 45,836,948 B shares which add up to 346,583,792 shares that need to be multiplied by the May 5th GOOGL price of $2,314.77. The 10-Q also shows 323,580,001 C shares that need to be multiplied by the May 5th GOOG price of $2,356.74. Summing things up, we get a market cap of $1,564.9 billion or $802.3 billion plus $762.6 billion.
The enterprise value of $1,457 billion is $107.9 less than the market cap due to $26.6 billion cash and equivalents along with $108.5 billion in marketable securities partially offset by $13.9 billion long-term debt, $11.4 billion long-term operating lease liabilities and $1.9 billion current operating lease liabilities from the “Note 6. Supplemental Financial Statement Information” section of the 10-Q.
My valuation is substantially higher than the enterprise value so I think the stock price is very reasonable! Anything can happen with the stock price in the coming months but I think it will do well over the next 5 years. |
