Google stock price fundamental analysis

July 9, 2020

Google stock analysis and evaluationMikhail Hypov

GOOG stock: fundamental analysis, business structure, growth

estimates and stock evaluation

Dear friends,

In this article, let’s meet the next blue-chip of the American stock market - Alphabet Inc, which is the parent company of the well-known Google.

Alphabet revenue structure

To understand how Alphabet became what it is now, one has to understand the company’s philosophy and get to know with its products and services better. Of course, the business core of Alphabet is Google LLC and the services it provides which are well-known all around the world. The main task of all these products and services is to provide a business environment that would cover all possible customer needs in the virtual space and provide the most complete and efficient data collection for targeted advertising through Google Ads. By the end of 2019, the advertising business alone brought 83% of all profit ($134 billion) to the Alphabet conglomerate, of which 100 billion were direct revenue from the sale of advertising in the search engine, therefore, when assessing the fundamental value of the company, it is necessary to take into account the main performance indicators in the advertising industry and the demand for contextual advertising.

At the same time, the profit from advertising on YouTube is growing annually by 35%. Last year, it amounted to 15 billion US dollars. Cloud computing is another fast-growing segment of Google. In 2019, the Google Cloud platform brought the company almost 9 billion US dollars, which is half more than in the previous year. Sundar Pichai, CEO of Google, believes that this direction is one of the most promising for the corporation and predicts a three-fold increase in profits in 2021 from the cloud-related services. In times of pandemic and widespread switching to remote work, these estimates look justified.

Fundamental Google Stock Analysis

![LiteForex: Google stock price fundamental analysis][1]

Fundamental multipliers look quite good. We see that the debt to asset ratio remains dismissively low - the amount of the company’s liabilities does not exceed 6% of the total assets (see the first chart), and therefore, the company has a huge amount of liquidity to build up debt even in the midst of a deep structural crisis. The second chart shows the total revenue dynamics which is growing steadily. Given the current trend, experts suggest a doubling of revenue by 2024.

![LiteForex: Google stock price fundamental analysis][2]

On the third chart, we see an increase in operating expenses. This rate is also increasing, which can be explained by the growth in the number of the company’s employees. In the first quarter of 2020, the total number approached 130 thousand people.

![LiteForex: Google stock price fundamental analysis][3]

The fourth multiplier from the fundamental analysis set is P/E. This indicator is fully consistent with the general rate in the industry and is located in the region of 30 at the moment, however, given the potential and dynamics of profit growth, the fair price per [GOOG][4] share is estimated to be slightly higher than the current level, in the region of 1642.73.

Alphabet’s Promising Projects

[Alphabet][4]’s stability and development prospects are ensured by a successful business model in which most services are free and used everywhere, for example, Android mobile operating systems which are distributed free of charge, the Google Chrome browser which is used by 70% of people accessing the Internet. Such massive popularity creates a gigantic customer base for promoting their own products and forms sources for Big Data databases, thanks to which there evolve competitive advantages of end-to-end market analytics and scalable targeting, ranging from global advertising campaigns to a specific house and even personalized ads. Alphabet’s production of its own Google Pixel smartphones is the cherry on top. The popularity of these phones is constantly growing. At the end of 2019, the sales volume increased by 21.4% and amounted to a total of about 17 billion US dollars.

Other [Alphabet][4] projects, despite the fact there are so many of them, do not generate significant revenue. The profit generated by these companies does not exceed 0.5% of the total profit of Alphabet Inc. Nevertheless, it is necessary to highlight the subsidiary company X Development LLC - this is a semi-secret laboratory that specializes in amazing new technologies. By the way, the guys from there considered the possibility of implementing such projects as a space elevator, teleport and flying skateboard. None of these projects was developed due to economic inexpediency or lack of necessary technologies.

Nevertheless, thanks to this company, some revolutionary projects are now in development, such as:

Waymo - self-driving cars
Loon - providing Internet access to remote areas with the help of high-altitude balloons.
Wing - drone delivery service
Malta - electro-thermal energy storage system
Makani is a power generating system based on energy kites.
Verily is a research company in the field of healthcare and biological life in general.
Chronicle Security - strengthening online security

These projects are either at the last stage of testing or already in the process of entering a commercial stage, but due to poor media support they are greatly underestimated by the market. Two other promising companies owned by Alphabet are DeepMind which is engaged in the design and development of artificial intelligence, and Google Brain, a research company involved in training neural networks. Moreover, [Alphabet][4] has two venture capital funds that invest in promising projects and technologies. For example, in 2018, Nest Labs, a company engaged in the development and commercialization of IoT technology, was acquired by Alphabet.

![LiteForex: Google stock price fundamental analysis][5]

What is listed here is only a small part of the projects and companies in which Alphabet invests and develops. I just listed some of the most interesting and, in my opinion, promising. The businesses of this conglomerate have gone beyond the virtual space and now literally occupy all the free niches of promising technologies, not being afraid of the riskiest experiments. Thanks to this approach, the real value of Alphabet stocks is difficult to overestimate, because no one knows which technological direction has the potential to become succesful in the future, and given the attractiveness of working at this company for talents from around the world, as well as the company’s huge media, administrative and financial resources, each of the technologies can provide an excellent result.

Conclusion and prospects for the Google stock price

Fundamentally, the [GOOG][4] stock is greatly undervalued in the long run. The only thing the company lacks is its own Elon Mask who can effectively promote each of the Alphabet’s products. The company’s shares look even more underestimated against those of Tesla, which stock in its price per share is not so far from [GOOG][4]. At the same time, it is in a highly competitive market and is working on the verge of profitability, without proper diversification and speed of technology development, poor scalability and huge debt load.

Taking into account all the above, [GOOG][4] stock is a great instrument for long-term trading. I want to remind you that you can add this share to your portfolio using [LiteForex][4]. If you have not joined the team of traders yet, then now is the time, because LiteForex is holding a [draw][6] with cool Apple gadgets, a car and even a house in honour of its 15th anniversary. Anyone can win!

We will consider the prospects of Google stock price in terms of technical analysis in my next analytical article.

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Price chart of GOOG in real time mode

![Google stock analysis and evaluation][9]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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