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Alphabet Inc Class C GOOG

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Morningstar’s Analysis

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Capital Allocation


We See Minimal Impact of Election 2020 on Facebook and Alphabet; Maintaining FVEs

Ali Mogharabi Senior Equity Analyst

Analyst Note

| Ali Mogharabi |

With the final races of the 2020 elections decided, our views regarding the potential impact of antitrust suits and legislative efforts against Alphabet and Facebook have not changed. We think the antitrust suits against both firms will ultimately be decided by the U.S. Supreme Court, which is likely to apply what’s known as the consumer welfare standard—benefiting Alphabet and Facebook. In addition, given the Democrats’ only slight advantage in the Senate, we do not expect large changes to the antitrust laws or to Section 230 of the Communications Decency Act, which offers immunity from liability for Internet content. However, regulations surrounding data, which have bipartisan support, are likely. We are maintaining our $1,980 and $306 fair value estimates of wide-moat Alphabet and Facebook, respectively. While both companies are trading at a discount to our fair value estimates, they remain 3-star stocks.

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Company Profile

Business Description

Alphabet is a holding company, with Google, the Internet media giant, as a wholly owned subsidiary. Google generates 99% of Alphabet revenue, of which more than 85% is from online ads. Google’s other revenue is from sales of apps and content on Google Play and YouTube, as well as cloud service fees and other licensing revenue. Sales of hardware such as Chromebooks, the Pixel smartphone, and smart homes products, which include Nest and Google Home, also contribute to other revenue. Alphabet’s moonshot investments are in its other bets segment, where it bets on technology to enhance health (Verily), faster Internet access to homes (Google Fiber), self-driving cars (Waymo), and more. Alphabet’s operating margin has been 25%-30%, with Google at 30% and other bets operating at a loss.

1600 Amphitheatre Parkway
Mountain View, CA, 94043
T +1 650 253-0000
Sector Communication Services
Industry Internet Content & Information
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Aggressive Growth
Employees 132,121