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Google Q4: A PayPal Moment

Ten years ago, PayPal was at the heart of the fintech revolution. It was one of the most innovative companies in the space, but despite steady growth and profitability, the stock and company have not performed as one might have expected.Indeed, PayPal became entrenched in its ways, and the competition in the space became fierce. GOOGL now runs a similar risk. The company may have become too big for its own good, lacks a clear vision and is under threat from new competitors.There are certainly so

Google Q4: A PayPal Moment

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{"i18n":{"language":"en_US"},"data":{"magic":2,"id":269428332470272,"tweetId":"269428332470272","gmtCreate":1706795226354,"gmtModify":1706799294345,"author":{"id":3573600501193618,"idStr":"3573600501193618","authorId":3573600501193618,"authorIdStr":"3573600501193618","name":"Tennis8321","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":0,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"html":"<html><head></head><body><p>Hiyzz<a href=\"https://ttm.financial/U/3574939406817507\">@Pokpok </a> not yt</p></body></html>","htmlText":"<html><head></head><body><p>Hiyzz<a href=\"https://ttm.financial/U/3574939406817507\">@Pokpok </a> not yt</p></body></html>","text":"Hiyzz@Pokpok not yt","highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://ttm.financial/post/269428332470272","repostId":2408341565,"repostType":2,"repost":{"id":"2408341565","pubTimestamp":1706788800,"share":"https://www.laohu8.com/m/news/2408341565?lang=&edition=full","pubTime":"2024-02-01 20:00","market":"us","language":"en","title":"Google Q4: A PayPal Moment","url":"https://stock-news.laohu8.com/highlight/detail?id=2408341565","media":"Seeking Alpha","summary":"Ten years ago, PayPal was at the heart of the fintech revolution. It was one of the most innovative companies in the space, but despite steady growth and profitability, the stock and company have not performed as one might have expected.Indeed, PayPal became entrenched in its ways, and the competition in the space became fierce. GOOGL now runs a similar risk. The company may have become too big for its own good, lacks a clear vision and is under threat from new competitors.There are certainly so","content":"<html><head></head><body><ul style=\"\"><li><p>Alphabet/Google&#39;s Q4 earnings disappointed investors with lower-than-expected ad revenues, causing the stock to drop over 7%.</p></li><li><p>Despite concerns about Google&#39;s lack of innovation and clear vision, the company still dominates the search market and leverages AI in its products.</p></li><li><p>Google&#39;s solid performance, commitment to development, and undervaluation make it a strong investment with long-term potential.</p></li></ul><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/d2ea3525551a78da30e115d08dcb4ae5\" alt=\"Wirestock/iStock Editorial via Getty Images\" title=\"Wirestock/iStock Editorial via Getty Images\" tg-width=\"750\" tg-height=\"500\"/><span>Wirestock/iStock Editorial via Getty Images</span></p><h2 id=\"id_905242568\">Thesis Summary</h2><p><strong>Alphabet Inc.</strong> (NASDAQ:GOOGL) has just reported its Q4 earnings, and the stock is down over 7% after disappointing investors with lower-than-expected ad revenues, even though the company beat on both EPS and overall revenue.</p><p>It would seem that many investors have written off Google, since the artificial intelligence (&#34;AI&#34;) mania has taken place. Sure, this presents many challenges but also opportunities.</p><p>I see some interesting similarities between Google and <a href=\"https://laohu8.com/S/PYPL\">PayPal</a> Holdings (PYPL), which I recently covered here. PayPal, too, is a large and established company with reasonable growth, good profitability and a fair valuation.</p><p>But like PayPal, investors fear that the company is failing to innovate and that this could lead to its displacement from its core market.</p><p>Of course, I strongly disagree with this thesis. GOOGL still holds a firm grip on the market. However, a new sense of direction, or perhaps even just an actual sense of direction, would certainly serve to renew investor confidence.</p><p>Overall, I remain of the opinion that GOOGL is still the best of the magnificent seven.</p><h2 id=\"id_2400518\">The PayPal Dilemma</h2><p>In my last article on Alphabet, I discussed the Q3 earnings. Back then, investors also found a reason to sell Google, even though guidance was beat. In Q3, it was the lack of cloud growth, and now it seems to be the slowdown in ad growth.</p><p>However, it’s worth mentioning that the stock has outperformed the market since that last report, up over 12%.</p><p>The latest earnings and earnings call give us some more clear insights into what’s going on at GOOGL and what the plans are for the future. I remain of the opinion that the coming years will present many opportunities for GOOGL. But will the company be able to capture them?</p><p>Ten years ago, PayPal was at the heart of the fintech revolution. It was one of the most innovative companies in the space, but despite steady growth and profitability, the stock and company have not performed as one might have expected.</p><p>Indeed, PayPal became entrenched in its ways, and the competition in the space became fierce. GOOGL now runs a similar risk. The company may have become too big for its own good, lacks a clear vision and is under threat from new competitors.</p><p>There are certainly some similarities but also some stark differences, but before we get into this, let’s look at the latest earnings.</p><h2 id=\"id_2986157319\">Latest Earnings</h2><p>Google beat on revenue and EPS, but the stock is still down over 5%. Let&#39;s look at the breakdown in revenues and operating income to get a better idea of what’s happening.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/351c16701cea5b035c160b9bad528814\" alt=\"Google Income Statement (Earnings Release)\" title=\"Google Income Statement (Earnings Release)\" tg-width=\"1280\" tg-height=\"954\"/><span>Google Income Statement (Earnings Release)</span></p><p>As we can see, Search revenues grew by a little under 12% YoY. YouTube ads continued to show strong growth—however, Google Advertising revenues overall came in slightly below what analysts were expecting, $65.5 billion versus $65.8 billion.</p><p>Quite surprising was the sudden uptick in Cloud revenues, which, as mentioned above, became a point of concern in the last quarter but, on this occasion, increased over 25% YoY.</p><p>Finally, as we can see, GOOGL did even better at increasing its overall income relative to revenues. However, overall income from operations was reduced by the higher than usual costs associated with “Alphabet-level activities&#39;&#39;:</p><blockquote><p>Alphabet-level activities included charges related to the reduction in force and our office space optimization efforts totaling $1.2 billion and $62 million in accelerated rent and accelerated depreciation.</p></blockquote><p>Source: Earnings Release.</p><p>Overall, this is still a pretty solid performance for the company, in which I would highlight the increase in profitability over the year:</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/51514d7e8f9b1823b65dd1c948f98b43\" alt=\"Revenues, OI and EPS (10K)\" title=\"Revenues, OI and EPS (10K)\" tg-width=\"1260\" tg-height=\"794\"/><span>Revenues, OI and EPS (10K)</span></p><p>While overall revenues rose 9%, operating income increased 13%, and we saw diluted EPS increase by 27% compared to 2022.</p><h2 id=\"id_1484054483\">Insights From The Earnings Call</h2><p>A lot of the issues raised by investors were discussed in the earnings call.</p><p>Firstly, over the “concerns” that Google Search may be affected by AI.</p><blockquote><p>Thanks, Justin. First of all, look, we think about effects on Search, obviously, more broadly. People have a lot of information choices. So -- and user expectations are constantly evolving. And so we&#39;ve been doing this for a long time. And I think what ends up mattering is a strong, continuous track record of innovation.</p><p>Obviously, generative AI is a new tool in the arsenal. But there&#39;s a lot more that goes into Search: the breadth, the depth the diversity across verticals, stability to follow through getting actually access to rich, diverse sources of content on the web and putting it all together in a compelling way.</p></blockquote><p>Source: Earnings Call.</p><p>As Sundar Pichai explains here, AI is only one of many factors that can improve and influence search. No doubt, it is a factor that GOOGL will have to strive to introduce, and keep innovating in, but Google’s search, still holds an advantage, so to speak, due to its breadth and depth.</p><p>We also got some insight into the re-acceleration of cloud:</p><blockquote><p>Thanks, Mark. On Cloud, let me take that. First of all, a combination of factors. I think definitely excitement around the AI solutions on top of our foundational pillar with data and analytics, infrastructure, security, et cetera. But AI is definitely something which is driving interest and early adoption. And as you saw, that greater than 70% of Gen AI unions are using Google Cloud. And so I think it&#39;s an area where our strengths will continue to play out as we go through &#39;24, especially when I look at innovation ahead from us on the AI front. And second, I think there are regional variations, but the cost optimizations in many parts are something we have mostly worked through. And I think that was a contributing factor as well.</p></blockquote><p>Source: Earnings Call.</p><p>It looks like AI has been directly responsible for helping boost Cloud demand. The implementation of AI tools into Cloud has greatly increased the value offering.</p><p>Lastly, here is some good news with other bets:</p><blockquote><p>With regard to Other Bets, we&#39;ve been working to sharpen our investment focus while capturing the upside given compelling technology breakthroughs across the portfolio. For example, last week, Alphabet&#39;s X announced that it would be moving to spin out more projects as independent companies through external capital, giving X the opportunity to bring more focus to the breakthrough technologies it is working on to address some of the world&#39;s most pressing challenges.</p></blockquote><p>Source: Earnings Call.</p><p>I like this idea of spinning out more projects into separate companies. Google certainly has enough on its plate with its core offerings. This shows discipline and a commitment to focus on what got the company this far.</p><h2 id=\"id_853159350\">Future Outlook</h2><p>Based on all of this, I continue to be very bullish on the company, and I do not agree at all with those who characterize Google as being a “dinosaur” or those who believe the company is being displaced.</p><p>Yes, there are challenges but also many opportunities, and I don’t think it’s fair to compare Google to a company like PayPal, for example.</p><p>Firstly, Google still absolutely dominates the search market, with over 83% search volume as of the latest 2023 data. That’s still remarkable and much more than what PayPal ever had in the payment market.</p><p>Secondly, the situation with AI is very different here. As it has been made clear, AI is something the company is also leveraging and is already having an impact on Google Cloud and also in the development of Gemini and Search Generative <a href=\"https://laohu8.com/S/EXP.AU\">Experience</a> or SGE. Google’s products cannot be undercut, like transaction fees.</p><p>And lastly, even though I agree that the company has lacked a clear focus on its innovation strategies, at least it has shown a commitment to developing. Google is still a company that attracts some of the best and most inquisitive minds on the planet. The company has already said it has committed more CapEx for 2024, $11 billion.</p><p>I continue to be mystified at these investor reactions to earnings, when Google keeps firing on all cylinders. Nonetheless, as mentioned above, the long-term performance is what matters. Google has outperformed the major indexes over the last 5 years, and my bet is this will continue.</p><h2 id=\"id_3129814431\">Valuation</h2><p>Even after the solid appreciation of the last year, Google has much more to return to investors. As I already wrote about a while ago, this is the best value out of the Magnificent 7. But even using a simple cash flow analysis and analyst estimates, Google should be trading above $200.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/2312aff997d9f4aabbf17a65eb151275\" alt=\"DCF model (Alphaspread)\" title=\"DCF model (Alphaspread)\" tg-width=\"1280\" tg-height=\"558\"/><span>DCF model (Alphaspread)</span></p><p>The table above reflects analyst revenue estimates over the next five years. I have then applied a discount rate of 7.7%, and a terminal growth rate of 3%. The next margin is expected to improve to around 27%, which is indicative of the higher expectations for EPS growth.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/40e4a0e1f44230c395d8b29be7b97548\" alt=\"DCF Value (Alphaspread)\" title=\"DCF Value (Alphaspread)\" tg-width=\"1280\" tg-height=\"297\"/><span>DCF Value (Alphaspread)</span></p><p>This comes out to an undervaluation of 25%, with a price target of just over $200.</p><h2 id=\"id_3071339645\">Risks</h2><p>Google is under threat from many sides, sure, but that just comes with having a wide array of revenues. AI is as much a threat as an opportunity, and I just can’t see how I can price in this threat, when the current evidence doesn’t suggest it.</p><p>Yes, there was a slowdown in ad growth, but this was just one quarter. Overall, I am more concerned with how AI and competition could impact margins and also about how continued regulatory pressures could affect future cash flows.</p><h2 id=\"id_2430998330\">Takeaway</h2><p>Google continues to fire on all cylinders. The latest earnings report has shown encouraging growth in the cloud, and the earnings call reflects a good commitment from management to focus on improving Google’s core offerings. Perhaps, 10 years down the line, things will be different, but I just don’t see any evidence of that right now.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Google Q4: A PayPal Moment</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; 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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nGoogle Q4: A PayPal Moment\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-02-01 20:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4666356-google-q4-a-paypal-moment><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Alphabet/Google's Q4 earnings disappointed investors with lower-than-expected ad revenues, causing the stock to drop over 7%.Despite concerns about Google's lack of innovation and clear vision, the ...</p>\n\n<a href=\"https://seekingalpha.com/article/4666356-google-q4-a-paypal-moment\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"IE00B7KXQ091.USD":"Janus Henderson Balanced A Inc USD","LU0965509101.SGD":"AB LOW VOLATILITY EQUITY PORTFOLIO \"A\" (SGDHDG) ACC","BK4566":"资本集团","LU0528227936.USD":"富达环球人口趋势基金A-ACC","IE00B3S45H60.SGD":"Neuberger Berman US Multicap Opportunities A Acc SGD-H","LU0234570918.USD":"高盛全球核心股票组合Acc Close","LU0109391861.USD":"富兰克林美国机遇基金A Acc","LU0417517546.SGD":"Allianz US Equity Cl AT Acc SGD","LU0053666078.USD":"摩根大通基金-美国股票A（离岸）美元","LU0889565833.HKD":"FRANKLIN TECHNOLOGY \"A\" (HKD) ACC","BK4550":"红杉资本持仓","GOOGL":"谷歌A","LU0082616367.USD":"摩根大通美国科技A（dist）","LU0080751232.USD":"富达环球多元动力基金A","LU0354030438.USD":"富国美国大盘成长基金Cl A Acc","BK4551":"寇图资本持仓","LU0353189680.USD":"富国美国全盘成长基金Cl A Acc","LU0061474960.USD":"天利环球焦点基金AU Acc","LU1280957306.USD":"THREADNEEDLE (LUX) US CONTRARIAN CORE EQUITIES \"AUP\" (USD) INC","LU1914381329.SGD":"Allianz Best Styles Global Equity Cl ET Acc H2-SGD","IE00BKDWB100.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5H\" (SGDHDG) ACC","LU0234572021.USD":"高盛美国核心股票组合Acc","IE00BSNM7G36.USD":"NEUBERGER BERMAN SYSTEMATIC GLOBAL SUSTAINABLE VALUE \"A\" (USD) ACC","LU0128525689.USD":"TEMPLETON GLOBAL BALANCED \"A\"(USD) ACC","LU0353189763.USD":"ALLSPRING  US ALL CAP GROWTH FUND \"I\" (USD) ACC","LU0965509010.AUD":"AB LOW VOLATILITY EQUITY PORTFOLIO \"AD\" (AUDHDG) INC","LU1861217088.USD":"贝莱德金融科技A2","IE00BZ1G4Q59.USD":"LEGG MASON CLEARBRIDGE US EQUITY SUSTAINABILITY LEADER \"A\"(USD) INC (A)","LU1861220207.SGD":"Blackrock FinTech A2 SGD-H","BK4548":"巴美列捷福持仓","LU0061474705.USD":"THREADNEEDLE (LUX) GLOBAL DYNAMIC REAL RETURN \"AU\" (USD) ACC","LU1814569148.SGD":"WELLINGTON GLOBAL QUALITY GROWTH \"D\" (SGDHDG) ACC","IE00BJTD4N35.SGD":"Neuberger Berman US Long Short Equity A1  Acc SGD-H","LU0158827948.USD":"ALLIANZ GLOBAL SUSTAINABILITY \"A\" (USD) INC","LU0965509283.SGD":"AB LOW VOLATILITY EQUITY PORTFOLIO \"AD\" (SGDHDG) INC","LU0861579265.USD":"联博低波幅策略股票基金A","IE00B1BXHZ80.USD":"Legg Mason ClearBridge - US Appreciation A Acc USD","LU2089283258.USD":"安联环球可持续基金Cl AM Dis","BK4106":"数据处理与外包服务","LU0289960550.SGD":"AB FCP I - GLOBAL EQUITY BLEND PORTFOLIO 'A' (SGD) ACC","LU0316494557.USD":"FRANKLIN GLOBAL FUNDAMENTAL STRATEGIES \"A\" ACC","BK4554":"元宇宙及AR概念","LU0786609619.USD":"高盛全球千禧一代股票组合Acc","IE00BFSS8Q28.SGD":"Janus Henderson Balanced A Inc SGD-H","LU0354030511.USD":"ALLSPRING  U.S. LARGE CAP GROWTH \"I\" (USD) ACC","BK4553":"喜马拉雅资本持仓","LU0211327993.USD":"TEMPLETON GLOBAL EQUITY INCOME \"A\" (USD) ACC","GOOG":"谷歌","IE0009356076.USD":"JANUS HENDERSON GLOBAL TECHNOLOGY AND INNOVATION \"A2\" (USD) ACC"},"source_url":"https://seekingalpha.com/article/4666356-google-q4-a-paypal-moment","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2408341565","content_text":"Alphabet/Google's Q4 earnings disappointed investors with lower-than-expected ad revenues, causing the stock to drop over 7%.Despite concerns about Google's lack of innovation and clear vision, the company still dominates the search market and leverages AI in its products.Google's solid performance, commitment to development, and undervaluation make it a strong investment with long-term potential.Wirestock/iStock Editorial via Getty ImagesThesis SummaryAlphabet Inc. (NASDAQ:GOOGL) has just reported its Q4 earnings, and the stock is down over 7% after disappointing investors with lower-than-expected ad revenues, even though the company beat on both EPS and overall revenue.It would seem that many investors have written off Google, since the artificial intelligence (\"AI\") mania has taken place. Sure, this presents many challenges but also opportunities.I see some interesting similarities between Google and PayPal Holdings (PYPL), which I recently covered here. PayPal, too, is a large and established company with reasonable growth, good profitability and a fair valuation.But like PayPal, investors fear that the company is failing to innovate and that this could lead to its displacement from its core market.Of course, I strongly disagree with this thesis. GOOGL still holds a firm grip on the market. However, a new sense of direction, or perhaps even just an actual sense of direction, would certainly serve to renew investor confidence.Overall, I remain of the opinion that GOOGL is still the best of the magnificent seven.The PayPal DilemmaIn my last article on Alphabet, I discussed the Q3 earnings. Back then, investors also found a reason to sell Google, even though guidance was beat. In Q3, it was the lack of cloud growth, and now it seems to be the slowdown in ad growth.However, it’s worth mentioning that the stock has outperformed the market since that last report, up over 12%.The latest earnings and earnings call give us some more clear insights into what’s going on at GOOGL and what the plans are for the future. I remain of the opinion that the coming years will present many opportunities for GOOGL. But will the company be able to capture them?Ten years ago, PayPal was at the heart of the fintech revolution. It was one of the most innovative companies in the space, but despite steady growth and profitability, the stock and company have not performed as one might have expected.Indeed, PayPal became entrenched in its ways, and the competition in the space became fierce. GOOGL now runs a similar risk. The company may have become too big for its own good, lacks a clear vision and is under threat from new competitors.There are certainly some similarities but also some stark differences, but before we get into this, let’s look at the latest earnings.Latest EarningsGoogle beat on revenue and EPS, but the stock is still down over 5%. Let's look at the breakdown in revenues and operating income to get a better idea of what’s happening.Google Income Statement (Earnings Release)As we can see, Search revenues grew by a little under 12% YoY. YouTube ads continued to show strong growth—however, Google Advertising revenues overall came in slightly below what analysts were expecting, $65.5 billion versus $65.8 billion.Quite surprising was the sudden uptick in Cloud revenues, which, as mentioned above, became a point of concern in the last quarter but, on this occasion, increased over 25% YoY.Finally, as we can see, GOOGL did even better at increasing its overall income relative to revenues. However, overall income from operations was reduced by the higher than usual costs associated with “Alphabet-level activities'':Alphabet-level activities included charges related to the reduction in force and our office space optimization efforts totaling $1.2 billion and $62 million in accelerated rent and accelerated depreciation.Source: Earnings Release.Overall, this is still a pretty solid performance for the company, in which I would highlight the increase in profitability over the year:Revenues, OI and EPS (10K)While overall revenues rose 9%, operating income increased 13%, and we saw diluted EPS increase by 27% compared to 2022.Insights From The Earnings CallA lot of the issues raised by investors were discussed in the earnings call.Firstly, over the “concerns” that Google Search may be affected by AI.Thanks, Justin. First of all, look, we think about effects on Search, obviously, more broadly. People have a lot of information choices. So -- and user expectations are constantly evolving. And so we've been doing this for a long time. And I think what ends up mattering is a strong, continuous track record of innovation.Obviously, generative AI is a new tool in the arsenal. But there's a lot more that goes into Search: the breadth, the depth the diversity across verticals, stability to follow through getting actually access to rich, diverse sources of content on the web and putting it all together in a compelling way.Source: Earnings Call.As Sundar Pichai explains here, AI is only one of many factors that can improve and influence search. No doubt, it is a factor that GOOGL will have to strive to introduce, and keep innovating in, but Google’s search, still holds an advantage, so to speak, due to its breadth and depth.We also got some insight into the re-acceleration of cloud:Thanks, Mark. On Cloud, let me take that. First of all, a combination of factors. I think definitely excitement around the AI solutions on top of our foundational pillar with data and analytics, infrastructure, security, et cetera. But AI is definitely something which is driving interest and early adoption. And as you saw, that greater than 70% of Gen AI unions are using Google Cloud. And so I think it's an area where our strengths will continue to play out as we go through '24, especially when I look at innovation ahead from us on the AI front. And second, I think there are regional variations, but the cost optimizations in many parts are something we have mostly worked through. And I think that was a contributing factor as well.Source: Earnings Call.It looks like AI has been directly responsible for helping boost Cloud demand. The implementation of AI tools into Cloud has greatly increased the value offering.Lastly, here is some good news with other bets:With regard to Other Bets, we've been working to sharpen our investment focus while capturing the upside given compelling technology breakthroughs across the portfolio. For example, last week, Alphabet's X announced that it would be moving to spin out more projects as independent companies through external capital, giving X the opportunity to bring more focus to the breakthrough technologies it is working on to address some of the world's most pressing challenges.Source: Earnings Call.I like this idea of spinning out more projects into separate companies. Google certainly has enough on its plate with its core offerings. This shows discipline and a commitment to focus on what got the company this far.Future OutlookBased on all of this, I continue to be very bullish on the company, and I do not agree at all with those who characterize Google as being a “dinosaur” or those who believe the company is being displaced.Yes, there are challenges but also many opportunities, and I don’t think it’s fair to compare Google to a company like PayPal, for example.Firstly, Google still absolutely dominates the search market, with over 83% search volume as of the latest 2023 data. That’s still remarkable and much more than what PayPal ever had in the payment market.Secondly, the situation with AI is very different here. As it has been made clear, AI is something the company is also leveraging and is already having an impact on Google Cloud and also in the development of Gemini and Search Generative Experience or SGE. Google’s products cannot be undercut, like transaction fees.And lastly, even though I agree that the company has lacked a clear focus on its innovation strategies, at least it has shown a commitment to developing. Google is still a company that attracts some of the best and most inquisitive minds on the planet. The company has already said it has committed more CapEx for 2024, $11 billion.I continue to be mystified at these investor reactions to earnings, when Google keeps firing on all cylinders. Nonetheless, as mentioned above, the long-term performance is what matters. Google has outperformed the major indexes over the last 5 years, and my bet is this will continue.ValuationEven after the solid appreciation of the last year, Google has much more to return to investors. As I already wrote about a while ago, this is the best value out of the Magnificent 7. But even using a simple cash flow analysis and analyst estimates, Google should be trading above $200.DCF model (Alphaspread)The table above reflects analyst revenue estimates over the next five years. I have then applied a discount rate of 7.7%, and a terminal growth rate of 3%. The next margin is expected to improve to around 27%, which is indicative of the higher expectations for EPS growth.DCF Value (Alphaspread)This comes out to an undervaluation of 25%, with a price target of just over $200.RisksGoogle is under threat from many sides, sure, but that just comes with having a wide array of revenues. AI is as much a threat as an opportunity, and I just can’t see how I can price in this threat, when the current evidence doesn’t suggest it.Yes, there was a slowdown in ad growth, but this was just one quarter. Overall, I am more concerned with how AI and competition could impact margins and also about how continued regulatory pressures could affect future cash flows.TakeawayGoogle continues to fire on all cylinders. The latest earnings report has shown encouraging growth in the cloud, and the earnings call reflects a good commitment from management to focus on improving Google’s core offerings. Perhaps, 10 years down the line, things will be different, but I just don’t see any evidence of that right now.","news_type":1},"isVote":1,"tweetType":1,"viewCount":19,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":17,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}