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Alphabet Inc Class C GOOG Stock Quote

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Morningstar‘s Stock Analysis GOOG

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Alphabet Missed Q2 Expectations, but Cloud Growth Impressive and Advertising Intact; FVE to $169

Ali Mogharabi Senior Equity Analyst

Analyst Note

| Ali Mogharabi |

While Alphabet’s second-quarter results missed FactSet consensus estimates, we found the firm’s search advertising and cloud numbers encouraging. Google’s diversified advertising offerings appear to be partially offsetting uncertainties in the macro environment, while digital transformation to cloud remains on top of many businesses’ priority list. We have slightly lowered our short- and medium-term expectations given the ongoing economic and geopolitical challenges, resulting in a $169 fair value estimate for Alphabet, down from $180. While the firm is taking steps to control costs at least through this year, with a strong cash-generating advertising business, progress toward profitability within its cloud segment, and a strong balance sheet, we think Alphabet is well-positioned to allocate more capital toward tuck-in acquisitions and investments.

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Company Profile GOOG

Business Description

Alphabet is a holding company. Internet media giant Google is 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 home 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
Industry Internet Content & Information
Most Recent Earnings Jun 30, 2022
Fiscal Year End Dec 31, 2022
Stock Type Aggressive Growth
Employees 174,014

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