Alphabet Inc, formerly Google Inc is worth 2.7 trillion USD, compared to Alphabet's current market capitalization of 1.6 trillion USD, according to Wolfteam Ltd.'s corporate view.
This comes out at a Price/Sales ratio of roughly 10. Wolfteam Ltd. estimates that such a Price/Sales multiple is justified for Alphabet Inc in the long-run, given that most mid-sized or even large capitalization cloud-computing companies with market capitalization mildly below or above 20 billion USD were recently valued at Price/Sales multiples of 20 and now many cloud computing companies are still valued at Price/Sales multiples of around 20.
Google's Cloud revenue is the only growing revenue category year on year as evidenced by Alphabet's latest 1 quarter 2023 reported results.
Quarter Ended March 31,
2022 2023
Google Search & other $ 39,618 $ 40,359
YouTube ads 6,869 6,693
Google Network 8,174 7,496
Google advertising 54,661 54,548
Google other 6,811 7,413
Google Services total 61,472 61,961
Google Cloud 5,821 7,454
Other Bets 440 288
Hedging gains (losses) 278 84
Total revenues $ 68,011 $ 69,787
Total TAC $ 11,990 $ 11,721
Number of employees(1) 163,906 190,711
Advertising revenue for Alphabet, formerly Google Inc is falling across the board year on year measured for 1Q2023. Cloud computing revenue is now making just above 10 % of Alphabet's revenue. The cloud computing business in general exhibits exceptionally high net profit margins and Alphabet with its Google Cloud is part of the cloud computing oligopoly market for Amazon, Microsoft and Alphabet, which together hold around 67 % of market revenue share in cloud computing.
Google Cloud makes up a significant part of the cloud computing revolution that is taking everything by storm.
Alphabet Inc, formerly Google Inc's business in general still exhibits very high profitability, though. Which makes Wolfteam Ltd.'s valuation of Alphabet at 2.7 trillion USD seem even a bit of an undervaluation.
Alphabet's advertisement business is very negatively influenced by economic slowdowns or recessions. Cloud computing, with its tiered, fractional pricing model in addition to being a necessity for firms to do computing is much more immune to economic slowdowns as evidenced by Alphabet's reported figures.
That said, cloud computing's growth is slowing down in general, influenced by size effect and the effective economic recession the global economy is in. Under 3 % world GDP growth Wolfteam Ltd. considers a recession.
In addition ChatGPT, the generative AI, artificial intelligence modelling program of Microsoft is making huge inroads into internet search and winning market share of in internet advertising from Alphabet. According to media repors even Sergei Brin, the founder of Google Inc along with Larry Page has returned to code in Alphabet's offices. ChatGPT, supported by Microsoft is treated as existential threat to Alphabet's Google search engine. ChatGPT is essentially an evolved chat bot. Alphabet's answer to ChatGPT is GoogleBard. I used ChatGPT, an excellent search engine, turned chat bot with 2 billion parameters in the model.
Q4 2022 financial highlights
The following table summarizes our consolidated financial results for the quarters and years ended December 31,
2021 and 2022 (in millions, except for per share information and percentages).
Quarter Ended
December 31, Year Ended
December 31,
2021 2022 2021 2022
(unaudited) (unaudited)
Revenues $ 75,325 $ 76,048 $ 257,637 $ 282,836
Change in revenues year over year 32 % 1 % 41 % 10 %
Change in constant currency revenues year over year(1) 33 % 7 % 39 % 14 %
Operating income $ 21,885 $ 18,160 $ 78,714 $ 74,842
Operating margin 29 % 24 % 31 % 26 %
Other income (expense), net $ 2,517 $ (1,013) $ 12,020 $ (3,514)
Net income $ 20,642 $ 13,624 $ 76,033 $ 59,972
Diluted EPS $ 1.53 $ 1.05 $ 5.61 $ 4.56
Alphabet Inc's revenues are still growing, despite ChatGPT making huge inroads int search. But for 1Q2023 year on year revenue is falling, which is mostly due to the slowing economiy, but also to a large extent to the competitiveness of ChatGPT.
Artificial intelligence, AI however is not still evolved enough to make sure ChatGPT provides all information, gives human like answers. The number of parameters in ChatGPT or GoogleBard is not the problem, rather it is the weights applied to those parameters. The weights should still be applied by a human hand or brain, which still appraises past, future and the present reality better than AI. ChatGPT's interface could be improved. ChatGPT is a great tool, but it is too cumbersome to be a genuine competitor to Alphabet Inc's Google search engine, for now is Wolfteam Ltd.'s opinion. The battle between GoogleBard and ChatGPT is a AI, Artificial Intelligence battle to savor for the ages.
Another avenue for growth for Alphabet is videos or YouTube. Videos are a mega trend, taking the world by storm, both in short clips and longer educational, film materials. Alphabet holds the lead with its YouTube property, the revenue from which is the only one along with GoogleCloud growing quarter on quarter in 1Q2023. But in videos there are also strong challengers to Alphabet's YouTube like TikTok and Fecabook's Reels. Alphabet has to prove its agility in videos once again.
Alphabet Inc, Google Inc formerly needs to become fast, agile, elastic, lean and quick again to fight off new challengers and old frenemies like Microsoft Inc. Alphabet has become more like a staid corporation, which is dangerous in today's fast changing world.
All in all, Alphabet, formerly Google is undervalued on cloud computing and general excellent profitability:
Quarter Ended March 31,
2022 2023
(recast)
Operating income (loss):
Google Services $ 21,973 $ 21,737
Google Cloud (706) 191
Other Bets (835) (1,225)
Corporate costs, unallocated(1) (338) (3,288)
Total income from operations $ 20,094 $ 17,415
Most importantly, though Alphabet, formerly Google Inc possesses a treasure trove of information on the world's internet users gathered over many users using huge computing resources, which could yet be many-fold monetized in many successful ways. Google's owners and management have to devise and execute a good business strategy for that. Many analysts and investors point to the fact that Alphabet Inc is indeed monetizing its treasure trove of information actively via the Google search engine. This is true. However, Alphabet Inc possesses staggering amount of information, which if sourced, ordered, researched and analyzed correctly could bring Alphabet's market capitalization to 5 trillion USD in the next 12 years. Every second billions of users of Alphabet's flagship products like Google, GoogleCloud, YouTube, Blogger etc. create terabytes of additional information which can be stored, researched, analyzed and made conclusions on.
Actually, the third-party AdSense advertisements business is an excellent avenue in which to seek the future growth of revenue and earnings for Alphabet Inc. Via Google search engine, Alphabet was able to tap into the world's information and minds of billions of people around the globe. By empowering AdSense users to create content and grow via its content, Alphabet could propel itself into 5 trillions USD of market capitalization.
Internet advertisements and Cloud computing are enough for now, but are adequate only currently, not for Alphabet Inc, formerly Google Inc's future.
Alphabet Inc has also to devise new avenues, products for growth. Almost all of Alphabet's most valuable properties outside Google and Google Cloud have been acquisitions - YouTube, Blogger, Waze etc. Alphabet Inc has to find again its product development and innovation expertise and know-how, so as not to be caught up with by nimble, more agile and efficient competitors.
All in all, Alphabet Inc. is undervalued on the billion of terabytes of information Alphabet Inc possesses and Wolfteam Ltd.'s assumption Alphabet Inc can monetize this information even better.
www.wolfteamedge.com
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