2. Exponential Growth
Alphabet Inc. breaks US$200 billion in annual revenue for the first time, showing no ill effects from the ongoing global pandemic or lingering issues with the global supply chain.
Its revenue and net income have been growing exponentially over the past decade.
To own a great business with predictable growth in earnings and one that operates 24 by 7 and spins money while we sleep give us an ultimate peace of mind.
Alphabet Inc.'s Revenue
Alphabet Inc.'s Net Income
3. Stock Price only goes up in long-term
In tandem with its exponential growth in revenue and net income, Alphabet Inc.'s share price has performed well in the long term and should continue to do so.
Its share price topped US$1000 prior to previous stock split in 2014 when it was halved to around US$500 and then slowly gained more than 5 times to today's price over the next 8 years.
After the impending stock split in 15 Jul 2022, I forsee that its share price will slowly and steadily climb up from $130 to $150 range back to above $1000 in the next 5 years.
4. Strong moat
Alphabet Inc. has a dominant and strong moat in its digital advertising world, complemented by an ecosystem of search engine and Android mobile operating system which is prevalent in 73% of mobile phone globally. Google provides impeccable services at almost no cost or free to the masses in the world, and monopolizes a more than 90% market share in the Internet search industry, controlling majority of the digital world and establishing a deep and wide moat. It thereby earns massive income from the advertisement streams to fund research into delivery drones, green energy, artificial intelligence projects such as DeepMind, self-driving vehicle such as Waymo and development of IoT technology such as its Pixel mobile phone and Nest smart home devices.
5. Stock Split
The impending stock split will make its stock price attractive, affordable and assessable to retail investors once again. At a range of around US$150 per share, investors no longer have to save up to US$2k to US$3k in order to invest in one share of Alphabet Inc. Investors could perform dollar cost average to accumulate Alphabet Inc. shares over the long term. As 100 shares of Alphabet Inc. shares currently cost more than US$200k, options trading for this company is almost out of reach to most traders on the streets because one option contract involves 100 shares of the underlying company stock.
With this stock split, trading of options of Alphabet Inc. will become a possibility for investors to generate more income. For example, shareholders could sell out-of-the-money call options to collect premiums while the stock is trending sideways and potential investors on the sidelines could sell out-of-the-money put options to commit buying Alphabet Inc. shares at a lower price than market price.
6. Resilience
Alphabet Inc.'s digital advertisement and dominant online search business is unaffected by the global pandemic as seen from the tremendous increase in its revenue and net income over the past 2 years. Instead of being impacted by the virus, the shift of trend toward hybrid working environment and emphasis on digital world has allowed Alphabet Inc. to thrive on stronger demand for online advertising based on search results and Youtube videos.
7. Fair Valuation
Alphabet Inc. is trading at around 24 times of Price/Earning ratio which seems rather high. However, if we look at its Price to Earning growth ratio, it is only around 0.75, suggesting that it is fairly or even undervalued.
A quick check on Simply Wall Street reveals that it could be more than 40% below its intrinsic value.
8. More with Less
There are 3 classes of Alphabet Inc. stock. Class A (GOOGL) stock comes with voting rights. Class B are held by its founders and insiders and not publicly traded. Class C (GOOG) stock does not come with voting rights and are created from the 2014 stock split. GOOGL used to trade at a premium compared to GOOG because it comes with voting rights. However, over the years, GOOG has become slightly more pricier than GOOGL despite having no voting rights. This was possibly due to frequent share buybacks of GOOG shares by the company itself, resulting in lower supply and higher demand. I prefer GOOGL because it offers more at a lower price.
Conclusion
There are definitely huge risks involved when it comes to investing. Alphabet Inc., being in a monopolistic mega tech business dealing with copyrights and trademarks, is always subjected to regulatory risks and brushes with the intellectual property laws and the authorities. Its cloud computing business also fare poorer relative to Amazon.com Inc. and Microsoft. Nonetheless, it presents a great piece of business to hold patiently for the long-term future, considering the reward to risk ratio. I believe its share price will remain volatile in the short-term in the run up to stock split and will consider adding more shares should its share price tank due to irrationality because in the next decade, this company will continue to own our lives and certainly grow astoundingly.
No comments:
Post a Comment