Alphabet Stock: Cloud Business Is Not Priced In

seekingalpha2021-06-01

Summary Alphabet Q1 2021 results show that it's back on its front foot. Alphabet's Cloud opportunity is compelling and growing substantially faster than investors realize. Alphabet is priced at 32x ...

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精彩评论

Camemberu
2021-06-01
Camemberu
Needs to do a stock split…
Ylwong016
2021-06-01
Ylwong016
👍🏻
Kenny77
2021-06-01
Kenny77
More b
Btyc
2021-06-01
Btyc
Like and comment! Thank you
- Kenny77:
  Ok sure help me back
- Jiawei725:
  Oops
MoonMoon
2021-06-01
MoonMoon
Please like and comment. Thanks![Happy]
- Btyc:
  👍🏻
AceWong1114
2021-06-01
AceWong1114
Nice
- Kenny77:
  Help me like and comment
- AceWong1114:
  nice

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I argue that Alphabet's Cloud business is compelling while at the same time contending that it's growing faster than many appreciate.\nMeanwhile, that Alphabet's stock is probably one of the cheapest investing opportunities in tech right now at just 32x trailing free cash flow. Note: not sales but clean free cash flow.\nDigging Into Future Revenue Drivers\nSource: author'swork\nAs we can above, Alphabet's Q1 2021 results were particularly strong. Even if consider that Q1 2020 was delivered lackluster growth as COVID fully disrupted the advertising sector, we can see above that momentum has returned to Alphabet.\nHaving said all that, one aspect that I don't believe investors are paying sufficient attention to is Alphabet's Cloud prospects. Google Cloud's business is now roughly 67% the size of Alphabet's YouTube. Moreover, this business is now worth 7% of Alphabet's total business and growing rapidly.\nSource: InvestorPresentation\nThe point to emphasize is that Alphabet's Cloud prospects are much bigger than investors are pricing in right now. And equally important, there'sno evidencethat Alphabet's Cloud prospects had a one-off benefit during COVID that brought about a digital acceleration and that its momentum has now tapered off.\nOn the contrary, the number of customers that are expanding their footprint with Google Cloud continues to increase as customers require cloud-native, multi-cloud technology.\nAnd this is a tailwind that isn't going to fizzle out any time soon. In other words, investors arenot falling for an unsubstantiated ''story'' stock. There's tangible momentum that is clearly resonating with customers:\nSource: Investor Presentation\nFurthermore, despite being a fraction of the size of Amazon's AWS (AMZN) Google Cloud clearly delivers a very high return on investment for enterprises.\nSource: Investor Presentation\nHaving said all that, investors may be right to question given all the momentum in Google Cloud, why is this segmentstill incurring heavy losses?\nAlphabet's Q1 2021 results reported approximately $1 billion in losses. On the other hand, let's keep in mind that Amazon's AWS grew approximately 32% y/y during Q1 2021, whereas Alphabet's Cloud segment was up 46% y/y.\nAny time that Alphabet's Cloud can outgrow AWS by 1,400 basis points during a single quarter, it should absolutely do whatever it takes to onboard more customers and gain market share.\nThe sole focus of Google Cloud should be to get enterprises to sign up and migrate onto its platform. Firstly, because this customer is going to be incredibly sticky as very few enterprises would churn out from their cloud platform. And secondly, over time, Alphabet can work on selling more products to enterprises and increasing its contract value with customers.\nIn essence, the point to impress on readers is that when many investors try to value Alphabet a put lot of energy on Alphabet for its monopoly-like Search business and YouTube, but investors aren't paying sufficient attention to its Cloud business.\nValuation - Still More Upside Potential\nAmazon is an amazing company. And many investors agree that a substantial portion of its market cap's value is derived from its cloud business. Hence, keep in mind the following facts. Both of these enterprises are traded at approximately $1.6 trillion.\nMeanwhile, Amazon's free cash flow margins over its trailing twelve months reached 5% versus Alphabet's free cash flow for the same period reaching 26%.\nWhat's more, Alphabet's Cloud business is evidently growing faster than Amazon's AWS and taking market share as it embraces this growing total addressable market. Furthermore, despite clocking up several billions of revenues during a single quarter, it's evidentlynotbenefittingfrom the law of small numbers.\nIf we acknowledge that Alphabet's Cloud business was the slowest off the running block amongst all the tech giants, Alphabet Cloud has still managed to come from behind and show that first player advantage means very little in tech.\nFinally, right now in tech, there aren't too many companies still being valued at 32x trailing free cash flow. There are plenty of unprofitable companies being valued at 32x forward sales, but few as free cash flow generative as Alphabet, still being priced as cheaply as Alphabet, while having several diverse monopoly-like businesses.\nThe Bottom Line\nAlphabet continues to steadily climb its revenues and shows no sign of meaningfully slowing down below 20% CAGR any time soon.\nAlphabet is well known for Search and YouTube, however, I make the case that very little weight is afforded towards Alphabet's Cloud business. Accordingly, that's why paying 32x trailing free cash flow this stock is cheaply valued and should be put on anyone's watchlist.\nReaders may question why the author doesn't hold any position here, given his bullish stance. That's because I find better opportunities amidstsmall-cap stocks.","kind":"news","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":119214992,"gmtCreate":1622548944116,"gmtModify":1634100602381,"author":{"id":"3574372734093079","authorId":"3574372734093079","name":"Camemberu","avatar":"https://static.tigerbbs.com/f6e006c4d0e8a340de0bf29e8c18ca51","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3574372734093079","authorIdStr":"3574372734093079"},"htmlText":"Needs to do a stock split…","listText":"Needs to do a stock split…","text":"Needs to do a stock split…","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/119214992","repostId":1149617351,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":119291494,"gmtCreate":1622547263018,"gmtModify":1631889707136,"author":{"id":"3579842741889317","authorId":"3579842741889317","name":"Ylwong016","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3579842741889317","authorIdStr":"3579842741889317"},"htmlText":"👍🏻","listText":"👍🏻","text":"👍🏻","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/119291494","repostId":1149617351,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":119291070,"gmtCreate":1622547243490,"gmtModify":1634100621002,"author":{"id":"3553679778150469","authorId":"3553679778150469","name":"Kenny77","avatar":"https://static.tigerbbs.com/77c5e512c4b7983d3f3075d8ec4c2f2d","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3553679778150469","authorIdStr":"3553679778150469"},"htmlText":"More b","listText":"More b","text":"More b","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/119291070","repostId":1149617351,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":119678196,"gmtCreate":1622546011715,"gmtModify":1631885888441,"author":{"id":"3572386838254554","authorId":"3572386838254554","name":"Btyc","avatar":"https://static.tigerbbs.com/29cb9292b9c967e5a9df5f775cc4cd02","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3572386838254554","authorIdStr":"3572386838254554"},"htmlText":"Like and comment! Thank you&nbsp;","listText":"Like and comment! Thank you&nbsp;","text":"Like and comment! Thank you","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":2,"repostSize":0,"link":"https://laohu8.com/post/119678196","repostId":1149617351,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4530344,"gmtCreate":1622547259376,"gmtModify":1631885888453,"authorId":3553679778150469,"author":{"id":3553679778150469,"idStr":"3553679778150469","authorId":3553679778150469,"name":"Kenny77","avatar":"https://static.tigerbbs.com/77c5e512c4b7983d3f3075d8ec4c2f2d","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":119678196,"type":1,"supId":0,"prevId":0,"content":"Ok sure help me back","text":"Ok sure help me back","html":"Ok sure help me back"},{"id":4530167,"gmtCreate":1622546293713,"gmtModify":1631885888442,"authorId":3577406641882569,"author":{"id":3577406641882569,"idStr":"3577406641882569","authorId":3577406641882569,"name":"Jiawei725","avatar":"https://static.tigerbbs.com/fc32f06022a6e1549c64fe656636920e","vip":1,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":119678196,"type":1,"supId":0,"prevId":0,"content":"Oops","text":"Oops","html":"Oops"}],"langContent":"EN"},{"id":119647516,"gmtCreate":1622545706135,"gmtModify":1634100638940,"author":{"id":"3581831647982295","authorId":"3581831647982295","name":"MoonMoon","avatar":"https://static.tigerbbs.com/7abc88bf78bc4fd17d5085b308a74c4d","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3581831647982295","authorIdStr":"3581831647982295"},"htmlText":"Please like and comment. Thanks![Happy]&nbsp;","listText":"Please like and comment. Thanks![Happy]&nbsp;","text":"Please like and comment. Thanks![Happy]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/119647516","repostId":1149617351,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4530116,"gmtCreate":1622546025938,"gmtModify":1635392542610,"authorId":3572386838254554,"author":{"id":3572386838254554,"idStr":"3572386838254554","authorId":3572386838254554,"name":"Btyc","avatar":"https://static.tigerbbs.com/29cb9292b9c967e5a9df5f775cc4cd02","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":119647516,"type":1,"supId":0,"prevId":0,"content":"👍🏻","text":"👍🏻","html":"👍🏻"}],"langContent":"EN"},{"id":119654688,"gmtCreate":1622544797744,"gmtModify":1634100646634,"author":{"id":"3575704845309016","authorId":"3575704845309016","name":"AceWong1114","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3575704845309016","authorIdStr":"3575704845309016"},"htmlText":"Nice","listText":"Nice","text":"Nice","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":2,"repostSize":0,"link":"https://laohu8.com/post/119654688","repostId":1149617351,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4530350,"gmtCreate":1622547271846,"gmtModify":1635392523972,"authorId":3553679778150469,"author":{"id":3553679778150469,"idStr":"3553679778150469","authorId":3553679778150469,"name":"Kenny77","avatar":"https://static.tigerbbs.com/77c5e512c4b7983d3f3075d8ec4c2f2d","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":119654688,"type":1,"supId":0,"prevId":0,"content":"Help me like and comment","text":"Help me like and comment","html":"Help me like and comment"},{"id":4532995,"gmtCreate":1622559687699,"gmtModify":1635392335428,"authorId":3575704845309016,"author":{"id":3575704845309016,"idStr":"3575704845309016","authorId":3575704845309016,"name":"AceWong1114","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":119654688,"type":1,"supId":0,"prevId":0,"content":"nice","text":"nice","html":"nice"}],"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":49,"commentSize":17,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1149617351"}