Googl Report - I am initiating coverage of Alphabet Inc...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Analyst: Ranran Mou 04-16-16 Analyst Ranran Mou Ticker GOOGL Opinion Sector Outperform Industry Internet Media Price Target $878 (DCF) Date April-16-16 Stock Data (4/16/16) Current Price 770 52WK High 810 52WK LOW 529 Com Share Outs 685M Market Cap 525B P/E (FY1) 11.32 Basic EPS 22.5 Div Yield 0% Beta 1.4 One Year Daily Price and Volume Source: Bloomberg I am initiating coverage of Alphabet Inc - Class A (GOOGL) with a Buy rating due to the following considerations: Key Positives: The trend of Alphabet’s core business in online advertising maintains a strong growth prospect in the future. In the 2015, the advertising revenue grew 13% y-o-y. The primary driver is the increased mobile usage and search by users. The other drivers include the growth of video advertising (YouTube) and programmatic advertising. Alphabet’s non -advertising revenues have grown and are expected to grow in a long-term. In 2015, the Google’s non -advertising revenue grew 18% y-o-y and Other Bet’s revenue increased 3 7% y-o-y. The trend is expected to continue as the company has been focusing on expending non-adverting offerings such as sales from digital content products, hardware sales, service and licensing fees. The company’s approach in investing heavily in R&D and strategic acquisition is economically beneficial and is critical to the company’s success. A part of the success in mobile ads business also came from the company’s ongoing efforts in enhancing the efficiency in mobile search . The company’s expertise in virtual reality and artificial intelligence would also open more sales in its advertising and non- advertising business such as cloud, display advertising, and operation system. Alphabet now is more focusing on improving profit margin and capital expenditures, and it is believable that the company has the potential and ability to improve regarding to its tremendous economic of scale. The 2015 4Q financial result showed an improvement in profit measurement, and the management discussion also addressed this as a main issue the company would work on. The company has repurchased $1.8 billion of its Class-C common stock, and there is $3.7 billion left for future repurchase. The stock repurchase program would indirectly benefit the Class-A common stock as it decreases the supply in the whole stock market. The current stock price is slightly undervalued. The analysis DCF model suggests that GOOGL is undervalued by 14.02%, the relative model suggests that GOOGL is undervalued by 14.5%-19% regarding to fair P/E multiples and EV multiples assessments. Key Concerns: The company’s margin may be hard to improve. Considering Alphabet’s strategic approach in continuously fostering ongoing investments to improve its existing products and expend its offerings. As a result, t he company’s profitability will stay in current or lower level over years.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern