Google (ticker symbol: GOOGL) is one of the most iconic and influential companies in the world. As a pioneer in search and online advertising, Google has revolutionized the way we access information and connect with businesses. Today, Google is a diversified technology juggernaut with a wide array of products and services including YouTube, Android, Google Cloud, and Waymo autonomous vehicles.
For investors, Google represents an opportunity to own a piece of a dominant and innovative company with a proven track record of growth. In this article, we‘ll take a deep dive into Google‘s stock, including its current price, historical performance, financials, competitive advantages, risks, and future prospects.
Google‘s Stock Price and Valuation
As of January 20, 2023, the price of one share of GOOGL stock is $93.05. At this price, Google‘s market capitalization (the total value of all its outstanding shares) is approximately $1.2 trillion, making it the 3rd most valuable company in the U.S. behind only Apple ($2.2 trillion) and Microsoft ($1.8 trillion).
While Google‘s stock price is down about 35% from its all-time high of $151 in November 2021, the company‘s valuation is still relatively high compared to the overall market. Google currently trades at a forward price-to-earnings (P/E) ratio of around 20, meaning investors are paying $20 for every $1 of expected earnings per share over the next 12 months.
This is lower than Google‘s 5-year average forward P/E of 26 but higher than the S&P 500‘s forward P/E of about 18. Google‘s price-to-sales (P/S) ratio of 4.7 is also well above the S&P 500‘s P/S of 2.2, reflecting Google‘s higher growth and profitability compared to the average company.
Here‘s how Google‘s valuation compares to some of its mega-cap tech peers:
| Company | Forward P/E | Price/Sales | Market Cap (Trillions) |
|---|---|---|---|
| Apple | 21 | 5.6 | $2.2 |
| Microsoft | 23 | 8.5 | $1.8 |
| Amazon | 55 | 1.9 | $1.0 |
| Meta | 17 | 3.4 | $0.4 |
As you can see, Google‘s valuation falls somewhere in the middle of the pack among the other tech giants. It‘s cheaper than Amazon and Microsoft but more expensive than Apple and Meta (Facebook).
Google‘s Financials and Growth
Despite a challenging macroeconomic environment, Google delivered solid financial results in 2022. In Q3, Google reported revenue of $69 billion, up 6% year-over-year, while operating income totaled $17 billion, down from $21 billion a year ago. Google‘s operating margin declined to 25% from 32%.
For the full year 2022, analysts expect Google to generate revenue of $282 billion (up 9%) and earnings per share of $4.77 (down 13%). In 2023, revenue and EPS are projected to reaccelerate to 13% and 19% respectively.
Here‘s a breakdown of Google‘s revenue by segment in Q3 2022:
| Segment | Q3 2022 Revenue | % of Total | Growth (Y/Y) |
|---|---|---|---|
| Google Search | $39.5B | 57% | 4% |
| YouTube Ads | $7.1B | 10% | 2% |
| Google Network | $8.0B | 12% | 3% |
| Google Cloud | $6.9B | 10% | 38% |
| Other | $7.5B | 11% | 2% |
| Total | $69.0B | 100% | 6% |
As you can see, Google‘s core advertising business (Search + YouTube + Network) still makes up the lion‘s share of its revenue at 79%. However, this growth has slowed recently due to headwinds in the digital ad market.
Google Cloud, on the other hand, continues to grow rapidly as more companies shift their computing needs to the cloud. In Q3, Cloud revenue surged 38% year-over-year and now accounts for 10% of Google‘s total revenue, up from just 7% a year ago. While still unprofitable, Google Cloud has enormous potential as it gains scale and capitalizes on the secularly growing cloud market.
Over the long-term, Google expects to generate revenue and EPS growth in the mid-to-high teens. The company has several major growth drivers, including:
- Continuing to gain search market share globally
- Further monetizing YouTube (still under-monetized relative to other social media)
- Expanding Google Cloud and achieving profitability
- Capitalizing on digital transformation of industries like healthcare and retail
- Leading in key technologies like artificial intelligence and quantum computing
Google‘s Competitive Advantages
Google is one of the most dominant and profitable companies in the world thanks to its strong competitive advantages, or "moats". These moats help insulate Google from competitors and give it pricing power, economies of scale, and superior returns on capital.
Google‘s main moats include:
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Massive scale and network effects in Search – Google has 90%+ global market share in search, generating over 5 billion queries per day. More searches means more advertiser demand and better search results, fueling a powerful virtuous cycle.
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Brand and mindshare – Google is one of the most valuable and recognized brands in the world. Its name has become synonymous with search. This mindshare leads more users and advertisers to choose Google over competitors.
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Superior technology – Google has industry-leading technology across artificial intelligence, machine learning, natural language processing, and more. This technology powers its superior search algorithms, ad targeting, and user experiences.
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Trove of data – Google has an unparalleled amount of data on users‘ search histories, locations, interests, and more. This data allows Google to constantly improve its products and deliver more relevant ads.
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Innovation culture – Google is a magnet for top engineering talent and fosters a culture of experimentation and innovation. This allows Google to stay ahead of the curve and pivot into new growth areas.
Combined, these competitive advantages form a wide and durable economic moat around Google‘s business. While not insurmountable, they make it very difficult for competitors to displace Google in its core markets.
Risks and Headwinds for Google Stock
While Google is an exceptional business, it is not without risks. Some of the key potential headwinds for Google include:
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Regulatory scrutiny – Google faces antitrust investigations and lawsuits in the U.S., Europe, and Asia. Regulators are increasingly concerned about Google‘s market power and data practices. Adverse rulings could lead to fines, restrictions on business practices, and forced divestitures, hurting growth and profitability.
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Privacy concerns – Google collects a vast amount of user data which has raised privacy concerns. New privacy regulations like GDPR in Europe and CCPA in California could limit Google‘s ability to collect and monetize user data.
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Slowing growth in advertising – As mentioned, Google‘s advertising growth has slowed due to a weaker economy and tougher comps. A prolonged slowdown could impact Google‘s valuation multiple.
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Market saturation – Google already has dominant market share in many of its core markets like search and mobile OS. This limits its growth potential in these mature markets, forcing Google to find new avenues for expansion.
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Failure to diversify – Despite its efforts, the vast majority of Google‘s profits still come from advertising. If Google fails to diversify into new profit pools, it could be vulnerable to disruption in the ad market.
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Geopolitical risks – Google operates in many countries around the world and is exposed to geopolitical risks like trade wars, conflicts, and local regulations.
While these risks are not to be ignored, Google has proven to be a highly adaptable and resilient company. With its deep moat, strong cash flows, and culture of innovation, Google is well-positioned to navigate these challenges and continue growing over the long-term.
The Bottom Line
Google (GOOGL) is a high-quality business with a wide moat, strong growth prospects, and a reasonable valuation. While not without risks, I believe Google‘s stock is a compelling long-term investment at current prices.
With $93, investors can buy a single share (or fractional share) of Google and participate in the upside of this tech leader. However, it‘s important to remember that no single stock, no matter how great the company, should make up 100% of your portfolio.
Diversification is key to managing risk. Consider building a balanced portfolio with a mix of stocks, bonds, and other assets that align with your goals and risk tolerance. And never invest more than you can afford to lose.
Predicting the future is difficult, but I believe Google has a bright one. With its massive scale, superior technology, and relentless innovation, Google is well-positioned to be a leader in shaping the digital world in the years and decades ahead. For patient investors who can stomach the volatility, owning a piece of Google could be a decision that pays off handsomely in the long run.
