No. of Recommendations: 17
Regarding the high price, look at the price to sales compared to where it was historically:
https://www.macrotrends.net/stocks/charts/GOOG/alp...Despite recent quote rises, it is no more expressive than it was on average the last ten years, but the sales kept rising with a 16% CAGR. That doesn't need to continue at more than 10% for the investment to be adequate from here.
Margins are about 'normal for Google' now after being inflated after Covid, so margins are unlikely to have any signifiant and lasting fall from here. From here over the next decade, price may simply roughly grow with the rate of sales in the vicinity of 10% per year.
https://www.macrotrends.net/stocks/charts/GOOG/alp...I don't expect miracles but I do expect it to be very safe, bordering upon indestructible. There will be constant complaints about their excessive power but, other than China where Google has almost no sales, we live in neoliberalism (public policy run by business rather than business run by public policy) so nothing will likely actually happen that is highly consequential there.
My main insight as I wrote before is that the online advertising industry is more undeveloped than people imagine and has a long runway ahead to bring consumers to producers more effectively when they search for anything on the internet. They day you write in Google 'What is the very cheapest ticket to South Africa, making sure the plane sets off in the morning and arrives within 20 hours, and caters for vegetarians?'. There is actually a conclusive single answer, and the data is available, but Google cannot yet combine all those facts and just deliver lots of answers instead of one. When it gives the right answer, and that is extended to all commercial topics, the effectiveness of advertising may be a magnitude greater, so people will use Google much more.. the more they use search and the more frequently they reach a transaction (the two are multiplicative), the more sales will increase, and I believe Google have a long runway ahead as strange as that sounds given how large they already are.
Remember that search advertising is their main source of sales by far. If you want to have a good investment return, you will require higher sales per present user. This is because they already have market dominance in India, the Commonwealth countries, Europe and USA, so unless their sales per present user increases (as they say, their organic growth) they are not going to grow gross sales greatly, and thus with their PE of 30 on typical margins the present quote will not provided a great significant return. I do believe sales per user will increase as I expressed above, but you should not assume it blindly, or you should have signifiant other assumptions that permits substantial growth in sales and at the present high margins (diverting sales to cloud does not sustain margins).
Their cloud business is not significantly profitable so even if sales there hover in the 10-20% range of total sales, I have relatively little regard for the future profit itself being as important as analysts conjecture. I am not even sure how sticky cloud services are between providers. (I could move Shrewd'm to another server if reliable without it being a big deal, and whilst it is not Interactive Brokers I'm also just one person.)
Google's main business is advertising.
They can grow into other areas by acquisitions and investments but generally not with the same high margins that their advertising business enjoys, so they really need to keep growing advertising for you to do well as an investor. Don't have a convincing model for now they is possible? Then do not invest. The alternative is to just 'hang in with hope, following the others', as many do.
- Manlobbi
