Google - How has it done as a company for almost 20 years...?
You know, that tech company that's been compounding it's revenue and earnings since the early 2000s
Hello fellow humans,
Today we’re looking at Alphabet aka Google aka That search engine a lot of people use…
Firstly a disclaimer: I'm not telling you to buy or sell this asset, this is NOT financial advice, merely looking at company results and considering some plausible assumptions and possible expected returns.
Disclosure: I do hold a position in GOOGL as of 11/04/2022.
What is Google?
Google actually owns and has more hands in things than you think, including YouTube, computers, phones, and plans to invest in things like self-driving taxis.
What's the growth been?
In 2004, Google generates $3 billion dollars in revenue, earnings of $400 million dollars, FCF of over $300 million, fast forward to 2021 it’s making almost $260 billion and earning over $76 billion.
That's a CAGR of over 23% for almost 20 years. In other-words, $1000 of Googl stock in 2004 would be worth over $50,000 today.
Shares outstanding?
Shares outstanding from 2004 has changed from 272 million to 677 million. This includes the 2:1 stock split in 2014. Also to note in 2022, it’ll have a 20:1 stock split. More about stock splits here:
Google has been performing share buybacks and holds over $118 billion worth of its own stock. It’s reduced its shares outstanding from 751 million to 677 million over the last 4 years.
This can be viewed as equivalent to roughly 2-3% per year worth of dividends.
Balance sheet?
Like any business or even personal banking statement, it’s important to consider how much cash and debt Google has. As of 2021, Google has over $20 billion in cash, almost $120 billion in its own stock. As for long term-debt it has less than $15 billion as of time of publication.
Employee sentiment?
A brief look on Glassdoor shows an Employee rating of 4.5/5 stars from over 30,000 reviews.
An interesting read about employee sentiment and stock performance can be found here.
https://seekingalpha.com/article/4479505-top-stocks-not-to-miss-from-glassdoors-2022-rankings
Where it might go from here?
We’ve all heard “Past performance is not a good indicator of future results”. One might make assumptions that are accurate or highly incorrect. For me, I see a business that can use its capital to grow, it may continue to grow but likely at a slower rate as it becomes larger.
What's a possible expected return?
Emphasis on possible, the future is difficult to predict. Though I have run a few scenarios and punched some numbers in a model to see what happens.
Using the good ol’ DCF model, with a discount rate of 10% (being quite conservative), some plausible growth assumptions and valuations, here are my results.
A bear case
Google grows at 15% this next year but slows down at a rate of 97.5% its last growth rate (14.6% the next year, 14.25% the next and so on), reduces its operating margin of about 20% with P/E, P/FCF valuations of 20x, it could appreciate at a CAGR of 7.5% adjusted for inflation.
A bull case
Google grows at 21% this next year but slows down at a rate of 97.5% its last growth rate (14.6% the next year, 14.25% the next and so on), maintains its operating margin of about 28% with P/E, P/FCF valuations of 20x, it could appreciate at a CAGR of 15.5% adjusted for inflation.
As you can see, even small assumption changes can have quite drastically different results, no one knows the future, but it is interesting to ponder about.
Thanks so much for reading to the end!
I always welcome feedback and comments, hope you have a wonderful day.
Till next time…
Nice work tezza! Clear and concise, very much to the point.