Valens Equity Weekly Insights - 2023 05 09
Alphabet (GOOGL) has a dominant position in online search, and it has several other cash cow businesses across entertainment, business, and tech hardware. Uniform Accounting highlights that investors have grown too worried about its economic moat, and Alphabet's continued innovation, including in AI, signals the potential for equity upside.Alphabet is the clear leader in search, and it has one of the most valuable ad platforms in the world. However, recent innovations in AI, plus broader economic concerns about a looming recession, have led investors to worry about the company's moat. That said, Alphabet is started proving to the market that its AI research has led to its own suite of viable products, and its Uniform ROA should be more sustainable than the market expects.
Alphabet's management is closely aligned to focus on improving cost controls and making rational investment decisions, which should help it from making bad investments.
Management confidence in the Q4 earnings call about its work into AI tools, its Performance Max ad platform, and Google Drive suggest management is executing on the company's ongoing strategy, and it's doing well adapting to the AI arms race.
Heartland Financial (HTLF) and Western Alliance (WAL) are being removed from the Conviction Long List. Both have been caught up in the resumed panic in the regional banking space, and with the self-fulfilling nature of banking panics, we've decided to step back from both names until we see if the panic subsides. We are closing Heartland down 40% and Western Alliance down 20%.
GOOGL
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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- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
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- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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