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Google Shopping Prospects Make It A Buy, But Not Without Risks (NASDAQ:GOOGL)

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Google Shopping Prospects Make It A Buy, But Not Without Risks (NASDAQ:GOOGL)

georgeclerk/iStock Unreleased via Getty Images

Alphabet (NASDAQ:GOOGL) (GOOG) has been going through a rough patch lately; however, the company still has a number of growth avenues. Their valuation is a bit stretched based on conservative assumptions but doesn’t look very

Revenue growth YoY %

Approximately 10% annually on average over the medium term, i.e., four years (this is largely driven by their core search ads business which is assumed to grow at 8% keeping pace with industry growth projections, supported by cloud revenue growth projected in the mid-20s which is in line with historical averages, 8% annual growth in YouTube ad revenues, and subscription growth at nearly 20% gradually dropping to the mid single digits after four years. Network revenues are assumed to decline 1% annually on average)

Terminal growth rate %

2%

Net margin %

Assumed to increase slightly from 24% to around 25% driven by growing cloud profitability with scale and profit contribution as cloud’s share of overall revenues increase, the gradual phasing out of lower margin network revenues, and potential tax benefits from CAPEX investments

Depreciation %

4% of revenues (roughly on par with historical average)

CAPEX %

12% of revenues in 2024, dropping to 11% and then 10% over the next three years (management mentioned plans to step up CAPEX investments to support growing AI needs which require considerably more computing resources)

Discount rate %

9% (based on cost of equity, but this depends on the individual investor)

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