Alphabet (GOOG) $144, Buy on Declines $138-$145. 3-5 Year 16 to 18% Return.
Trade Alert – Bought GOOG at $144.25
The markets punished GOOG yesterday with a 5-6% drop after hours on ostensibly lower than estimated AD revenue growth of $65.52 V $65.8Bn expected. The difference is a measly 0.4%!.
What really matters:
- Overall top line revenue of $86.1Bn grew 13% – third quarter of revenue growth after dipping in 2022.
- Cloud roared back to 26% growth at $9.19Bn after a muted Q3 – it should dispel any notion that Google Cloud can’t compete with Azure or AWS, or simply doesn’t have the AI tools.
- You Tube, which grew at 16% was also slightly better than expected at $9.2Bn
- Also what the markets seem to forget, Net Profit jumped 52% to $20.69 billion, or $1.64 per share, (This was in spite of $1.2Bn severance charges)
- Subscriptions are a $15Bn business now, led mostly by You Tube.
Alphabet is an extremely profitable company, it has an operating profit margin of 27%! Or $84Bn on revenues of $307Bn – that is after all the massive spending on other bets such as Waymo, CAPEX on Al, etc.
Alphabet’s earnings should double in the next 4 years to about $10.50 – an 18% growth.
I believe it is definitely worth buying at a P/E of 21. The Price to Earnings Growth ratio (PEG) is just 1.17 (21/18) – that’s nothing for a market leader, $342Bn behemoth, with a search engine monopoly, and a very strong presence in AI and Cloud.