Dear Reader,
Here I am going to make an attempt to value Alphabet Inc, or otherwise known as the owner of the ubiquitous Google search engine.
Currently Alphabet Inc's market value is 713.87 billion USD, which is a staggering sum. The stock with the ticker GOOGL trades at a Price/Earnings multiple of 34.51 and Price/Sales multiple of 7.91.
The main driver of the high valuation Alphabet Inc is the growth of the online advertising market where the company has a dominant circa 34% market share. Furthermore, the online advertising market is growing in excess of 10% globally.
However, I think Alphabet Inc is circa 20% overpriced. The online advertising market will not continue growing strongly forever, since Earth's population is not growing so fast anymore and there is a natural limit which is the size of the global advertisement market. The GOOGL ticker stock is too richly valued for my liking.
A wild card, though, is the possibility that Alphabet enters and disrupts another industry. The closest the company has come is its cloud computing offering. But the revenue from Alphabet's cloud computing efforts is still not enough to move the needle significantly. Another bet is self driving cars. But as Tesla's struggles show it is far more difficult to build automobiles profitably at scale than initially envisaged.
So I stick with my call that Alphabet's stock is circa 20% overvalued. With the first US stock market correction GOOGL will fall significantly.
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Kind regards,
Petar Posledovich
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