As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, Alphabet Inc (GOOG).
ProfileAlphabet is a holding company. Internet media giant Google is a wholly owned subsidiary. Google services account for nearly 90% of Alphabet’s revenue, of which more than 85% is from online ads. Other Google services revenue is from sales of apps and content on Google Play and YouTube, as well as sales of hardware such as Chromebooks, the Pixel smartphone, and smart home products, which include Nest and Google Home. Goolgle’s cloud computing offerings account for a bit more than 10% of total Alphabet revenue. Alphabet’s moonshot investments are in its other bets segment, where it bets on technology to enhance health (Verily), provide faster internet access (Google Fiber), enable self-driving cars (Waymo), and more.
Recent PerformanceOver the past twelve months the share price is up 57.48%.
GOOG data by YChartsInputs
Forecasted Free Cash Flows (FCFs)
Terminal ValueTerminal Value = FCF * (1 + g) / (r – g) = 1494.74 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 971.48 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 338.23 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 1309.71 billionNet DebtNet Debt = Total Debt – Total Cash = -12.18 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 1321.89 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $106.09
Conclusion
Based on the DCF valuation, the stock is overvalued. The DCF value of $106.09 per share is lower than the current market price of $144.35. The Margin of Safety is -36.06%.More By This Author:The One Stock That Superinvestors Are Dumping: Is It Time to Sell?Nvidia Corp. DCF Valuation: Is The Stock Undervalued?Netflix Inc. DCF Valuation: Is The Stock Undervalued?
