Google Stock: Invest Now or Wait It Out?✋ - InvestingChannel

Google Stock: Invest Now or Wait It Out?✋

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Financial Pros React: Is Google a Buy?

Google (GOOGL) handily beat analyst earnings and revenue estimates. 

Yet, shares plunged almost 10% the following day.

Financial pros wanted to know why.

They began searching for the answers in earnest, according to our Trackstar Data.

Specifically, they looked at data related to Google’s cloud unit, one of its fastest-growing segments.

We peruse the company’s earnings report and found a lot more to like than dislike.

And in our opinion, the stock’s reaction is an opportunity.

Google’s Business

This tech behemoth is not just a search engine; it’s a digital ecosystem that’s revolutionized how we access and use information.

Its repertoire ranges from search engines to email services (Gmail), mapping technology (Google Maps), productivity tools (Google Docs, Sheets, Slides), and cloud storage (Google Drive). 

Google’s business breaks down as follows:

  • Search Advertising (70% of total revenues): Google’s primary income source is advertising. When you use the search engine for free, businesses are paying for their ads to appear in your search results. 
  • YouTube (15% of total revenues): YouTube, the world’s largest video-sharing platform, contributes significantly to Google’s earnings. Revenue streams here include ads, premium subscriptions, and channel memberships.
  • Google Cloud (10% of total revenues): The growing reliance of businesses on cloud computing is good news for Google. Its cloud services cater to a wide range of needs and contribute substantially to its overall revenue.
  • Other Bets (5% of total revenues): This segment includes Google’s experimental projects like Waymo (self-driving cars) and Verily (life sciences). Although they contribute less to the overall revenue, they represent Google’s innovative spirit.

In the latest quarterly report, Google beat earnings and revenue estimates. Yet, investors initially punished shares as margins fell short of expectations, but more importantly, cloud whiffed.

Although 60% of the world’s top 1,000-largest companies are on Google’s Cloud, its Bard AI and systems haven’t taken off the way OpenAI has.

However, Google has been the AI leader for decades and won’t go quietly into the night.

Although they’re moderating expenses, they continue to invest heavily in the hardware to make AI a core competency.



Source: Stock Analysis

It’s amazing to see Google’s revenue growth robust after nearly 25 years.

Analysts worry Google, like many tech companies, needed to cut overhead fat as gross margins remain largely unchanged over time.

While we’ve seen operating margins improve some, the 12,000 jobs cut (6% of its workforce) hasn’t materialized into better results.

However, the company still generates a whopping $6.10 free cash flow per share off a 26.1% FCF margin.

That’s a fantastic number, given the revenue growth.

Said differently, it would take the company 16.7 years to pay enough cash to cover its current share price if we assume revenue growth continues at ~20% per year.

Although the company carries $26.3 billion in total debt, its $120.0 billion in cash could pay that off in a heartbeat.



Source: Seeking Alpha

We compared Google to other internet and content companies, from Meta (META) to Baidu (BIDU).

Google is about as cheap as Meta on a P/E basis. Yet, it’s slightly more expensive on a price-cash-flow ratio.

Bidu trades at half the price but carries all the risk of a Chinese company.



Source: Seeking Alpha

Like its peers, Google’s revenue growth slowed dramatically this year and isn’t likely to break into double digits next year.

However, its EBIT growth trounces its peers as does its levered free-cash-flow growth.



Source: Seeking Alpha

Meta’s EBIT margin beats out Google’s. Yet, Google’s net income margin stacks up better.

Plus, Google’s got the best returns on equity, assets, and total capital.

Our Opinion 9/10

Google is cheaper than it has been in a while. That’s not to say it’s inexpensive.

Yet, it easily translates growth into cash, something many other tech companies can’t readily do.

Even though revenue growth decelerated, if and when we move past a recession, it should reaccelerate to its historical average of around 20% per year.

We see the latest drop as a chance to average into a position at a bit of a discount. But leave some firepower just in case we get another market swoon.

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