Should You Hold Google (GOOGL)?

Few things excite investors, like a dividend.

It happened with Meta (META) months ago.

Now, it was Google’s (GOOGL) turn.

The forward yield of 0.48% might not seem like much. Yet, the stock soared on the news, while financial pros’ search volume skyrocketed.

Shares have crossed the $2 trillion market cap.

But believe it or not, this stock may still be worth adding to your portfolio.

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Google’s Business

Technically, the company is called Alphabet. But we’ll still call them Google.

The tech giant dominates internet search, bringing in $46 billion each quarter.

Yet, that’s just one facet of their business.

Google’s entire company breaks down as follows:

• Google Cloud (12% of total revenues) – Offers infrastructure and platform services, collaborative tools, and other services for enterprise customers, driving revenues through consumption-based fees and subscriptions.
• Other Bets (less than 1% of total revenues) – Includes growth initiatives outside of Alphabet’s main internet products, such as healthcare services and advanced technology projects.
• Google Services (87% of total revenues) – Breaks down into the following subcategories:
  • Search and other (57% of revenues) – This includes Google Search and associated services like Google Assistant and Google Maps. These platforms remain central to Alphabet’s advertising revenue through targeted ads based on search queries and location data.
  • YouTube (10% of revenues) – YouTube continues to grow as a major source of advertising revenue with its vast user-generated and corporate media content. Subscription services like YouTube Premium and YouTube Music also contribute to its earnings.
  • Google Network (9% of revenues) – Comprises Google’s extensive network of affiliate websites that host Google ads, generating revenue through ad placements on these third-party platforms.
  • Subscriptions, platforms, and devices (11% of revenues) – This area includes consumer subscription services such as YouTube TV and Google One, along with revenues from the sale of hardware devices like Google Pixel phones and Google Nest products.

The big news from Google’s last earnings release was the newly minted dividend. However, investors shouldn’t overlook the $70 billion share repurchase program either.

Despite challenges from Microsoft and other AI competition, Google saw substantial ad revenue growth in Q1 2024, up 13% YoY. That helped drive operating income up a whopping 46%.

Management also offered an upbeat forecast, further solidifying its gains.

Financials

Source: Stock Analysis

In the last decade, Google only had two years with revenue growth below 10%…and just barely.

Yet, it’s not all web traffic growth. 

The company’s ability to monetize YouTube and other services has helped Google search ads drop as a total percentage of revenues (though it is still the largest piece.

Valuation

Source: Seeking Alpha

Even with the stock’s latest surge, Google trades at just 22x forward earnings and 16x forward cash flow.

That’s in line with Meta and significantly cheaper than Spotify (SPOT) or Snap (SNAP).

Google’s 6.6x price-to-sales ratio might seem a bit pricey. But it’s only a few ticks above its 5-year average.

Growth

Source: Seeking Alpha

What’s interesting is to see how Google’s valuation compares, given its growth rates.

Meta has shown better revenue growth recently, while Google outperformed over the past few years.

Similarly, Meta has grown its free cash flow far more than Google’s.

Yet, they’re both valued at roughly the same level.

Profitability

Source: Seeking Alpha

You might assume that Meta’s recent growth is just catching up with Google’s profitability.

However, despite Google’s fantastic margins, Meta beats them in every category.

The only other company with decent cash generation is Zoom (ZM), with a surprisingly strong $1.6 billion annual operating cash flow.

Our Opinion 9/10

Don’t discount Google because of our praise for Meta.

Google’s operations are far more steady and consistent than the social media giant.

The company has transformed itself from a search engine into an innovation behemoth and has done so quite profitably.

If you’re looking for a steady tech growth company for your portfolio, there isn’t a better one out there than Google.

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