Beruflich Dokumente
Kultur Dokumente
GOOG / GOOGL
April 3rd, 2019
Kevin Chen 陳子陸
1
Agenda
2
Google has a huge new moat. In fact, I’ve probably never seen such a wide moat...
I don't know how to take it away from them...Their moat is filled with sharks”
3
2004 Founders’ IPO Letter
Our goal is to develop services that significantly improve the lives of as many
people as possible. In pursuing this goal, we may do things that we believe have a
positive impact on the world, even if the near term financial returns are not obvious.
Google has had adequate cash to fund our business and has generated additional
cash through operations. This gives us the flexibility to weather costs, benefit from
opportunities and optimize our long term earnings.
We encourage our employees, in addition to their regular projects, to spend 20% of
their time working on what they think will most benefit Google.
4
Structure of the company
5
Google
6
The Google Ads program enables you to create advertisements which will appear on relevant
Google search results pages and our network of partner sites.
The Google AdSense program differs in that it delivers Google Ads ads to individuals'
websites. Google then pays web publishers for the ads displayed on their site based on user
clicks on ads or on ad impressions, depending on the type of ad.
The Google AdMob is a mobile advertising company, is a portmanteau for "advertising on
mobile".
7
Other Bets
Access: runs Google Fiber, which offer high-speed broadband access over fiber optic cables
Calico: R&D firm focusing on advanced technologies to increase our understanding of the
biology that controls lifespan
GV: venture capital arms investing in early stage startups in 5 main areas
– Consumer, Life science and health, Data and AI, Enterprises, Robotics and hardware
Verily: to make the world's health data useful so that people enjoy healthier lives
X: sci-fi sounding technologies that aim to make the world a radically better place.
8
Business model
Advertising
Sales of apps, in-app purchases (30% distribution partner and operating fees)
Sales of hardware
Licensing and Service fees: generated from Google Cloud and Verily
9
Advertising
Paid Click: pay only when the ads is clicked
10
Source: wordstream.com
Potential upside in Other Bets-1
CapitalG: 36 portfolio companies.
11
Potential Upside in Other Bets-2
GV: 264 portfolio companies (104 already exited)
12
Industry outlook
Internet Tends Report 2018 by Mary Meeker of Kleiner Perkins:
13
Slowing Growth on Internet Users
14
Means of Internet usage
Total Usage increase
Usage via Mobile increases, Usage via Desktop decreases → Lower margin for ads
15
Digital assistant
High accuracy + useful functions + personalization → high dependency
16
E-Commerce
17
Competition-1
According to annual report from 2014 to 2018, the competition faced by Google
is listed below.
18
Competition-2
2014 2015 2016 2017 2018
Facebook Facebook Facebook Facebook Facebook
Social Networks Twitter Twitter Twitter Snap Snapchat
Twitter Twitter
Facebook Amazon Amazon
Digital Video Netflix Facebook Facebook
Services Providers Amazon Hulu Hulu
Hulu Netflix Netflix
Amazon Alibaba Alibaba
Enterprise Cloud Services Microsoft Amazon Amazon
Microsoft Microsoft
Apple Amazon Amazon
Amazon Apple Apple
Digital Assistant Providers
Facebook Microsoft
Microsoft
Application platform providers Apple
As year goes on, it is clear that the number of competitors are condensed to
several big players, such as FB, Amazon, Microsoft and Apple.
19
AI & machine learning
TensorFlow developed by Google is one of the most popular tools for building
machine learning applications to create programs like text, audio, and image
recognition algorithms.
Applications:
–Improve accuracy when providing ads, more quality over quantity
–Google’s new AI algorithm predicts heart disease by looking at your eyes
–Quick, Draw!
20
Classes of stock
Dividend Policy
–We have never declared or paid any cash dividend on our common or capital
stock. We do not expect to pay any cash dividends in the foreseeable future.
21
Financials and valuations
Income statement
Balance sheet
Valuations
22
Income Statement
Year Ended December 31 (in millions)
2014 2015 2016 2017 2018
Revenues $ 66,001 $ 74,989 $ 90,272 $ 110,855 $ 136,819
Costs and expenses:
Cost of revenues 25,691 28,164 35,138 45,583 59,549
Research and development 9,832 12,282 13,948 16,625 21,419
Sales and marketing 8,131 9,047 10,485 12,893 16,333
General and administrative 5,851 6,136 6,985 6,872 8,126
European Commission fines 0 0 0 2,736 5,071
Total costs and expenses 49,505 55,629 66,556 84,709 110,498
Income from operations 16,496 19,360 23,716 26,146 26,321
Other income (expense), net 763 291 434 1,047 8,592
Income before income taxes 17,259 19,651 24,150 27,193 34,913
Provision for income taxes 3,639 3,303 4,672 14,531 4,177
Net income $ 13,620 $ 16,348 $ 19,478 $ 12,662 $ 30,736
23
Revenues Breakdown
2014 2015 2016 2017 2018
Google segment
Google properties revenues 45,085 52,357 63,785 77,788 96,336
growth rate 16% 22% 22% 24%
Google Network Members' properties
14,539 15,033 15,598 17,587 19,982
revenues
growth rate 3% 4% 13% 14%
Google advertising revenues 59,624 67,390 79,383 95,375 116,318
Google other revenues 6,050 7,154 10,601 15,003 19,906
growth rate 18% 48% 42% 33%
Google segment revenues 65,674 74,544 89,984 110,378 136,224
Other Bets
Other Bets revenues 327 445 288 477 595
growth rate 36% -35% 66% 25%
Revenues 66,001 74,989 90,272 110,855 136,819
growth rate 14% 20% 23% 23%
Steady growth rate from Google properties and an increasing growth rate from
Network Members’ properties.
Other Bets revenues consist primarily of revenues and sales from internet and TV
services as well as licensing and R&D services.
Before 2015, annual report categorized revenues by US, UK and rest of the world.
25
Costs and expenses
Costs / Expenses 2014 2015 2016 2017 2018
Traffic acquisition costs 13,497 14,343 16,793 21,672 26,726
Other cost of revenues 12,194 13,821 18,345 23,911 32,823
Total cost of revenues 25,691 28,164 35,138 45,583 59,549
Research Development Expenses 9,832 12,282 13,948 16,625 21,419
Selling General and Administrative Expenses 13,982 15,183 17,470 19,765 24,459
% of Costs
TAC to Revenue 20.4% 19.1% 18.6% 19.5% 19.5%
Other cost of revenues to revenue 18.5% 18.4% 20.3% 21.6% 24.0%
Cost of Revenue to Revenue 38.9% 37.6% 38.9% 41.1% 43.5%
R&D to Revenue 14.9% 16.4% 15.5% 15.0% 15.7%
SG&A to Revenue 21.2% 20.2% 19.4% 17.8% 17.9%
TAC: paid to Google Network Members for displaying ads on their prosperities, fees
for phone manufacturers to use Google services
–Costs increased because new partner agreements and higher TAC via mobile
Other cost of revenues: content acquisition cost, expenses for data centers, costs
for hardware
TAC increased either way of displaying ads. Margin is significantly higher to display
on Google prosperities than on Network Members’.
27
Factors affect Margin
Users are increasingly using diverse devices and modalities to access our products and
services, and our advertising revenues are increasingly coming from mobile and other new
formats. → lower margin on mobile and other format than desktop search
As users in developing economies increasingly come online, our revenues from international
markets continue to increase and movements in foreign exchange rates affect such revenues.
non-advertising revenues is increasing: Google Cloud, Google Play, Harware products and
Youtube
28
Balance Sheet
2016 2017 2018
Current Assets
Cash And Cash Equivalents 12,918 8% 10,715 5% 16,701 7%
Short Term Investments 73,415 44% 91,156 46% 92,439 40%
Net Receivables 15,632 9% 18,705 9% 21,193 9%
Inventory 268 0.2% 749 0.4% 1,107 0.5%
Other Current Assets 3,175 2% 2,983 2% 4,236 2%
Total Current Assets 105,408 63% 124,308 63% 135,676 58%
Long Term Investments 5,878 4% 7,813 4% 13,859 6%
Property Plant and Equipment 34,234 20% 42,383 21% 59,719 26%
Goodwill 16,468 10% 16,747 8% 17,888 8%
Intangible Assets 3,307 2% 2,692 1% 2,220 1%
Accumulated Amortization - - -
Other Assets 2,202 1% 3,352 2% 3,430 1%
Deferred Long Term Asset Charges 383 0.2% 680 0.3% 737 0.3%
Total Assets 167,497 100% 197,295 100% 232,792 100%
29
2016 2017 2018
Current Liabilities
Accounts Payable 2,041 1% 3,137 2% 4,378 2%
Other Current Liabilities 5,851 3% 10,651 5% 16,009 7%
Total Current Liabilities 16,756 10% 24,183 12% 34,620 15%
Long Term Debt 3,935 2% 3,943 2% 3,950 2%
Other Liabilities 7,770 5% 16,641 8% 16,532 7%
Total Liabilities 28,461 17% 44,793 23% 55,164 24%
Stockholders' Equity
Common Stock 36,307 22% 40,247 20% 45,049 19%
Retained Earnings 105,131 63% 113,247 57% 134,885 58%
Treasury Stock -2,402 -1% -992 -1% -2,306 -1%
Other Stockholder Equity -2,402 -1% -992 -1% -2,306 -1%
Total Stockholder Equity 139,036 83% 152,502 77% 177,628 76%
Healthy capital structure with low debt ratio. Long term debt consists only 2%.
30
Cash flow statement
CFO: Stock-based compensation expense of 9,353, loss on debt and equity securities of 6,650.
CFO: Repurchases of capital stock of 9,075, Repayment of debt of 6,827, Net payments related
to stock-based award activities of 4,993.
31
Valuation
Alphabet Facebook Amazon
Market Cap 831.44B 481.47B 891.14B
Enterprise Value 710.54B 435.12B 882.75B
Trailing P/E 27.33 22.29 90.08
Forward P/E 21.84 19.02 45.4
PEG Ratio (5 yr expected) 1.43 1.3 1.47
Price/Sales (ttm) 6.08 8.62 3.83
Price/Book (mrq) 4.68 5.72 20.45
Enterprise Value/Revenue 5.19 7.79 3.79
Enterprise Value/EBITDA 17.58 14.89 31.8
I think Alphabet is fairly valued with 22x forward PE and 17x EV to EBITDA
32
Controversies
Gender diversity
33
Conclusion
What I like
34
Sources
Yahoo Finance
35