Google Cloud, YouTube, NEW Pixel Phones, & AI are Lifting Alphabet (GOOGL)

Stock (Symbol)

Alphabet (GOOGL)

Stock Price


Data is as of
August 2, 2023
Expected to Report
October 23
Company Description
Alphabet’s segments include Google Services, Google Cloud, and Other Bets.

The Google Services segment includes products and services such as ads, Android, Chrome, hardware, Google Maps, Google Play, Search, and YouTube.

The Google Cloud segment includes Google’s infrastructure and platform services, collaboration tools, and other services for enterprise customers.

The Other Bets segment includes earlier stage technologies that are further afield from its core Google business, and it includes the sale of health technology and Internet services. Its Google Cloud provides enterprise-ready cloud services, including Google Cloud Platform and Google Workspace. Google Cloud Platform enables developers to build, test, and deploy applications on its infrastructure. Google Workspace collaboration tools include applications, such as Gmail, Docs, Drive, Calendar, Meet, and various others.

The Company also has various hardware products. Source: Refinitiv

Sharek’s Take
David Sharek

Aplhabet (GOOGL) delivered solid results last quarter that makes me think the stock is going higher. The biggest plus is Google Search Ads — which make up 57% of company revenue — have turned the corner and is showing accelerating revenue growth. During the past four quarters, this operating segment has had revenue growth go from +4% to -2%, +2%, and most recently +5%. YouTube subscripitions (Music and Premium) were also strong, as are sales of the new Pixel 7a Phone. Overall, profit grew 19% which was much better than the -5% Alphabet delivered three months earlier. Moving on to Artificial Intelligence. In last quarter’s research report, I noted Alphabet was seen as laggerd in the AI boom. With Microsoft in bed with OpenAI, the developer of ChatGPT, Alphabet was set up for an uphill battle. This quarter, GOOGL’s earnings call is littered with AI successes, including:

  • The launch of Search Generative Experience (SGE), which uses generative AI to make searches more intuitive and natural.
  • More than 70% of AI unicorns are Google Cloud customers, including Cohere, Typeface, and Jasper.
  • GOOGL provides AU supercomputer options with advanced NVIDIA H100 GPUs.
  • Google Ads launched a conversational feature to help advertisers make campaigns easier to execute.
  • The company developed a Gen AI virtual fitting room with a try-on tool for brands including H&M and Anthropologie.
  • Advertising through YouTube and YouTube Shorts will also be improved through the introduction of two new AI solutions, Demand Gen and Video View campaigns, which will  help advertisers with visual storytelling.

Founded in 1998, Alphabet’s mission is to organize the world’s information and make it universally accessible. The company’s main division, Google Search, performs more than a trillion searches per year. Alphabet’s brands include:

  • Google: the world’s largest search engine in Google.
  • YouTube: a video platform.
  • Android: a computer/phone operating system.
  • Google Chrome: an Internet browser.
  • Google Maps: the world’s best online map.
  • Gmail: an email platform.
  • Pixel: a mobile phone.
  • Google Cloud: a data storage unit.
  • Waymo: fully autonomous ride-hailing business. Waymo is running in multiple locations in the US.

Here’s Alphabet’s main divisions:

  • Google Search — ad revenue from the search engine from Google.com.
    • 57% of total Alphabet revenue last qtr, with +5% year-over-year growth.
    • New AI capabilities are doing great (as explaned above).
    • During the past 4 qtrs, revenue growth in this segment has gone from +4% to -2%, +2%, and most recently +5%.
    • Growth was led by the retail vertical.
  • Google Network Members — Ad Manager (ads on websites) & Ad Mob (ads on an app).
    • 11% of company revenue last qtr, -5% growth yoy.
  • Google Cloud
    • 11% of total revenue, +28% growth last qtr.
    • Strong growth across geographies, industries and products, but the rate of consumption growth continues to moderate as customers optimize their budget spending.
  • Google Other — app sales on Google Play, YouTube subscriptions, Pixel phones.
    • 11% of total revenue, +24% growth.
    • Growth was driven by increasing subscriptions for YouTube Music Premium and YouTube TV.
    • The company introduced new Pixel devices, including the 7A, Pixel Fold, and Pixel Tablet.
    • The NFL Sunday Ticket is coming over from DIRECTV. The price is $449 for the year, and this should become a catalyst for the company.
  • YouTube Ads
    • 10% of total sales, +4% growth year-over-year.
    • YouTube Shorts are now watched by more than 2 billion logged-in users, up from 1.5 billion a year ago.
    • Revenue growth the past four quarters has gone from -2% to -8%, -3%, and +4% last qtr. This is accelerated growth!
  • Other Bets
    • Less than 1% of revenue, +48% growth.

Google is a conservative growth stock that is also had a good growth rate. Prior to 2022, the company had profits up every year since its IPO in outside of 2017 (which was only down as it switched its accounting practices to a more conservative stance). The stock has a Est. LTG of 16% a year, and a P/E of 23, which is slightly undervalued as I think the P/E should be 25. That implies ~10% upside by the end of 2023. Management doesn’t pay a dividend, but does buyback stock. GOOGL is part of my Growth Portfolio and Conservative Growth Portfolio

One Year Chart

This stock has had two breakouts since May. Volume has been good each time. Notice qtrly profit growth is accelerating, with the trent expected to continue. There’s a lot to like about this chart.

The P/E of 23 makes the stock undervalued in my opinion. My Fair Value for is a P/E of 25. I imagine the P/E might get upto 27 or 28.

The Estimated Long-Term Growth Rate fell to 16% from 18% last qtr. I consider this to be a 15% grower long-term unless advances in AI boost profits more than anticipated.

Earnings Table

Last qtr, Alphabet delivered 19% profit growth and beat expectations of 11% growth. Revenue increased 7% and beat estimates of 4%. Excluding FX impact, revenue should have increased 9%. Operating Expenses rose just 4% year-over-year as the company lays off employees, and getting rid of office space. Here are the regional sales results during the qtr:

  • United States: 47% of company sales, +7% sales growth.
  • Other Americas: 6% of total sales, +4% sales growth.
  • Europe, Middle East, and Africa: 30% of total sales, +9% sales growth.
  • Asia Pacific & China: 17% of company sales, +9% sales growth.

Growth was driven by the solid delivery of Search and Youtube and the ongoing momentum of Cloud.

Annual Profit Estimates jumped this qtr. Here’s profit estimates for the upcoming years:
2023 $5.64
2024 $6.66
2025 $7.74
2026 $8.60
2027 $9.80

Qtrly Profit Estimates for the next 4 qtrs are 36%, 53%, 28%, and 15%. That’s great! Analysts think revenue will grow 10% next quarter, which would be continued acceleration in revenue growth.

Fair Value
My Fair Value P/E is 25. I have 10% upside for 2023 and 30% for 2024. But these new AI features and the acceleration of Search revenue will likely make my adjust my Fair Value higher next quarter.

In 2017, GOOGL changed its accounting practices to more conservative accounting, and that’s why profits declined that year.

Note profits almost doubled in 2021. Had that $5.61 figure really been around $3.50, this picture would look better.

Bottom Line
Alphabet (GOOGL) has been a steady grower this past decade, but 2020’s-2021’s move higher (116%) was a big one, and the stock had to digest some gains. Now the stock is trending higher once again.

Wow, this was an impressive report. From Google Search accelerating, to Google Cloud growing revenue 28%, and Google Other growing 24%. To accelerated growth in many areas. And of course Aphabelt is a prime benificiary of AI. 

GOOGL ranks 7th in the Conservative Portfolio Power Rankings. It’s got a great combo of growth and safety.

In the Growth Portfolio, the stock makes a big jump up from 26th to 16th in the Power Rankings. I will look to add to my position in clients accounts.

I will also add GOOGL to the Aggressive Growth Portfolio as the stock has 30% upside to 2024’s Fair Value. The stock will rank 14th in this Power Rankings.

Power Rankings
Growth Stock Portfolio

15 of 28

Aggressive Growth Portfolio

14 of 18

Conservative Stock Portfolio

7 of 31

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