GOOG.L - Embedded Expectations Analysis - 2021 06 15
Alphabet Inc. (GOOGL:USA) currently trades at a recent high relative to UAFRS-based (Uniform) earnings, with a 23.5x Uniform P/E. Even at these levels, the market has bearish expectations for the firm, but given management's confidence about their operating margin, pharma partnerships, and investments, market expectations are too bearish, suggesting equity outperformance is warrantedSpecifically, management is confident their Q1 operating margin reached 30%, that Calico entered a new drug therapy with AbbVie to treat traumatic brain injury, and that there has been a bump in work-from-home-related product consumption. Furthermore, they are confident there is more information than ever before as the web continues to scale and that uncertainties from the pandemic emphasized the value of their capital allocation investments. Management is also confident small and medium businesses (SMBs) are coming back to use their services and that Chrome OS has been operating for 10 years
Given management's confidence about their operating margin, pharmaceutical partnerships, and capital allocation investments, market expectations are too bearish, suggesting outperformance is warranted
Alphabet is a holding company. Through its subsidiaries, the company is engaged in a collection of businesses, which its primary business is Google. The company reports all non-Google businesses collectively as Other Bets. Google's main products and platforms are Android, Chrome, Gmail, Google Drive, Google Maps, Google Play, Search, and YouTube. The company also provides advertisers with tools that help them attribute and measure their advertising campaigns. In addition, Other Bets includes Access, Calico, CapitalG, GV, Verily, Waymo, and X, among others. Other Bets primarily engages in the sales of internet and TV services through Access as well as licensing and research and development services through Verily.
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