Summary
The debt rate was not high and it has considerable flexibility.
Profitability was strong.
Alphabet always returned shareholders by repurchasing stock.
We reckon that Alphabet’s reasonable valuation is $1.2 trillion or $96.5 per share.
Introduction
Google Services
Google Services revenues consist of Google advertising as well as Google subscriptions, platforms, and devices revenues.
Google Advertising
Google advertising revenues are comprised of the following:
Google Search & other, which includes revenues generated on Google search properties (including revenues from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc.), and other Google owned and operated properties like Gmail, Google Maps, and Google Play;
YouTube ads, which includes revenues generated on YouTube properties; and
Google Network, which includes revenues generated on Google Network properties participating in AdMob, AdSense, and Google Ad Manager.
Google Subscriptions, Platforms, and Devices
Google subscriptions, platforms, and devices revenues are comprised of the following:
consumer subscriptions, which primarily include revenues from YouTube services, such YouTube TV, YouTube Music and Premium, and NFL Sunday Ticket, as well as Google One;
platforms, which primarily include revenues from Google Play from the sales of apps and in-app purchases;
devices, which primarily include sales of the Pixel family of devices; and
other products and services.
Google Cloud
Google Cloud revenues are comprised of the following:
Google Cloud Platform, which generates consumption-based fees and subscriptions for infrastructure, platform, and other services. These services provide access to solutions such as cybersecurity, databases, analytics, and AI offerings including our AI infrastructure, Vertex AI platform, and Duet AI for Google Cloud;
Google Workspace, which includes subscriptions for cloud-based communication and collaboration tools for enterprises, such as Calendar, Gmail, Docs, Drive, and Meet, with integrated features like Duet AI in Google Workspace; and
other enterprise services.
Other Bets
Revenues from Other Bets are generated primarily from the sale of healthcare-related services and internet services.
Consolidated Balance Sheet Analysis
Asset structure analysis
As of December 31,2023，Alphabet Inc.(GOOGL,GOOG) have total assets of $402.4 billion, including total cash, cash equivalents, and marketable securities ($110.9 billion ),accounts receivable, net($48.0 billion) ,other current assets($12.65 billion),non-marketable securities($31 billion),deferred income taxes($12.17 billion),property and equipment, net($134.3 billion),operating lease assets($14.1 billion),goodwill(29.2 billion) and other non-current assets(10 billion).
We could see that total cash ,cash equivalents ,and marketable securities and property and equipment, net are two amounts of a large proportion. In addition, the ratio of goodwill to total assets was about 7%, which indicated Alphabet have not interest in acquisitions.
Liquidity and solvency analysis
From a business model perspective, Alphabet dose not need much debt ,unless he is too responsible for shareholders to borrow money to buy back shares.
As of December 31,2023,total liabilities were $119 billion, which account for 29.6% of total assets. The debt ratio is relatively low.
The rate of cash ,cash equivalents, and marketable securities to total liabilities is about 1:1,which indicate that debt pressure is very small.
The financial situation is not only very healthy ,but also flexible.
Consolidated Statement of Income Analysis
Profitability analysis
Alphabet’s revenues reached $257.6 billion, $282.8 billion and $307.3 billon in 2021,2022 and 2023,respectively.
Revenues
The following table presents revenues by type (in millions):
| Year Ended December 31, | |||||||||||
| 2022 | 2023 | ||||||||||
| Google Search & other | $ | 162,450 | $ | 175,033 | |||||||
| YouTube ads | 29,243 | 31,510 | |||||||||
| Google Network | 32,780 | 31,312 | |||||||||
| Google advertising | 224,473 | 237,855 | |||||||||
| Google subscriptions, platforms, and devices | 29,055 | 34,688 | |||||||||
| Google Services total | 253,528 | 272,543 | |||||||||
| Google Cloud | 26,280 | 33,088 | |||||||||
| Other Bets | 1,068 | 1,527 | |||||||||
| Hedging gains (losses) | 1,960 | 236 | |||||||||
| Total revenues | $ | 282,836 | $ | 307,394 | |||||||
The increase in revenues was $24.5 billion or 8.7% to 307.3 billion in 2023,compared with $282.8 billion in 2022.
We want to know that if Alphabet or Google is a growth company.
The increase in revenues was $25.2 billion or 9.8% to $282.8 billion in 2022,compared with $257.6 billion in 2021.
Total costs and expenses was $178.9 billion,$208 billion and $223.1 billion in 2021,2022 and 2023,respectively.
The increase in total costs and expenses was $15.1 billion or 7.2% to $223.1 billion in 2023,compared with $208 billion in 2022.
The increase in total costs and expenses was $29.1 billion or 14% to $208 billion in 2022,compared with $178.9 billion in 2021.
We think that Alphabet’s cost control is acceptable for investor.
Net income amounted to $73.8 billion, $60 billion and $76 billion in 2023,2022 and 2021,respectively. The amount in 2022 is lower than in 2023 and in 2021 because total costs and expenses increased.
Net profit margin was 24%,21.2% and 29.5% in 2023,2022 and 2021,respectively. Alphabet’s net profit margin seem not high because that is after tax and that includes losses from other businesses.
We need to pay attention that different segments have different profits, which would affect investors’ judgment on the company’s valuation.
The following table presents segment operating income (loss) (in millions).
| Year Ended December 31, | |||||||||||
| 2022 | 2023 | ||||||||||
| Operating income (loss): | |||||||||||
| Google Services | $ | 82,699 | $ | 95,858 | |||||||
| Google Cloud | (1,922) | 1,716 | |||||||||
| Other Bets | (4,636) | (4,095) | |||||||||
| Alphabet-level activities(1) | (1,299) | (9,186) | |||||||||
| Total income from operations | $ | 74,842 | $ | 84,293 | |||||||
Google services’ operating income hit $95.8 billion in 2023,which is huge profits. Google cloud start making $1.7 billion in 2023,and other bets and alphabet-level activities fell into loss.
Consolidated Statement of Cash Flow Analysis
Cash flow analysis
Net cash provided by operating activities was $91.6 billion,$91.5 billion and $101.7 billion in 2021,2022 and 2023.
Alphabet’ free cash flow was $67 billion,$60 billion and $69.5 billion in 2021,2022 and in 2023,respectively.
Alphabet reported repurchase of stock of $50.3 billion,$59.3 billion and $61.5 billion for 2021,2022 and 2023,respectively.
Net payments related to stock-based award activities reached $10.16 billion,$59.3 billion and $9.8 billion in 2021,2022 and 2023,respectively.
Given that the amount of net payments related to stock-based award activities is very high, which trigger outflow of cash flow. we think that free cash flow was overestimated and that seeing the amount of repurchasing stock as actual return is appropriate for shareholders.
