Halls of Shrewd'm / US Policy❤
No. of Recommendations: 2
On a a market cap basis bases on profits compared to Tesla, Amazon, Google, Apple, Nvidia?
No. of Recommendations: 23
"On a a market cap basis bases on profits compared to Tesla, Amazon, Google, Apple, Nvidia?"
Yes, compared to those companies, Berkshire is way undervalued. Absolutely no doubt. Just from the amount of cash it pulls in.
That said, I always find relative comparisons to be a very bad way to make valuations though. The reason is, is because it doesn't account for mistakes in valuations.
Let's take Buffett's favorite sport: baseball. Some team, say the Dodgers have a young 3rd baseman full of potential. So they sign him to a big, long contract for a lot of money. Now let's say that he doesn't live up to his potential. It isn't that he ends up a bad player, it is just he never quite reached his potential. He ends up being a decent player, but he had the potential to be one of the all-time greats. Perhaps one of the 10 best 3rd baseman in the history of baseball. His contract reflected that potential. Unfortunately he never reached it. So a couple of years later another 3rd baseman with lots of potential comes up with the Phillies. He is negotiating a long term contract with them and he uses the first players contract as a comparison. He is obviously better than the first player so he should make more. It doesn't matter that the first player was paid on potential and not actual production. His contract set the market for future comparisons. This mistake keeps compounding because everyone makes comparisons to previous contracts despite the fact that they were paid on potential and not actual production.
To bring a tortured analogy to the point. Just because Berkshire is way undervalued compared to other select companies does not mean Berkshire is really undervalued. Those companies may be way overvalued so Berkshire's overvalue is small in comparison. Being the tallest dwarf doesn't mean you are ready for the NBA.
No. of Recommendations: 8
"On a a market cap basis bases on profits compared to Tesla, Amazon, Google, Apple, Nvidia?"
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Yes, compared to those companies, Berkshire is way undervalued. Absolutely no doubt. Just from the amount of cash it pulls in.
That said, I always find relative comparisons to be a very bad way to make valuations though. The reason is, is because it doesn't account for mistakes in valuations...
An excellent post on the inadvisability of relative valuation exercises. The risk comes up particularly often in "sum of parts" valuations, which don't give you the values of the parts, but the current market prices of the parts.
On the other hand, I think there is a reasonable case to be made that Google/Alphabet might not be overvalued.
Revenue/share, earnings/share, and cash flow/share have risen an average of 20%/year in the last 10 years, and 24%/year in the last 5 years. If those growth rates decayed slowly from (say) a real 15%/year next year down to 7%/year over the next decade, with multiples falling to the teens, you'd still get a decent return over the next 5-10 years. e.g., maybe 7%/year. If growth or multiples come in a bit higher, then the returns would be commensurably better.
A similar exercise could be done with Apple. The range of plausible numbers is very wide for Tesla and Amazon, so it would not be as informative.
Or for Berkshire. From today's price, maybe inflation plus 4-6%/year in a 7.5 year time frame. I hope for more, but I don't count on it. As we both agree head to head comparisons are not a good habit, but that's lower than the Alphabet scenario above.
Jim
No. of Recommendations: 4
Google/Alphabet might not be overvalued.
AI is the joker in the pack.
Google has it, but so do others. Google killed AltaVista, AskJeeves, Lycos etc with a superior search.
All had search engines.
Is Google Search going to be the dominant way to grep for information on the web forever? Magic 8-ball says answer is unclear. That's Google's biggest revenue generator.
No. of Recommendations: 0
Is Google Search going to be the dominant way to grep for information on the web forever
Pretty confident the answer is no. Forever is a long time.
A more reasonable question, are there any immediate threats (next 3-5 years) to their position? Probably not.
BTW: My 9-12 month price forecast for GOOG is between $170 and $205 per share; earnings due to be reported next week and that could potential cause an adjustment. This of course assumes there are no major market disruptions (which I would view as a buying opportunity).
tecmo
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No. of Recommendations: 11
Is Google Search going to be the dominant way to grep for information on the web forever? Magic 8-ball says answer is unclear. That's Google's biggest revenue generator.
I'd rephrase a bit...
Remember that they are an advertising firm, not a search firm.
Their ad revenue depends on two main factors: volume of impressions, and the quality of their profiling data.
Obviously if their search market share were to fall, it would hit impressions in that segment, which is of course the largest segment. It wouldn't affect the other sources of impressions, though: Youtube, third party sites, Maps and so on. So the drop in overall impressions would be smaller than the search market share drop. They also have a few other revenue sources that would not be directly affected, notably the Google Play store with revenues in the neighbourhood of $50 billion at an operating margin around 65%.
I don't think it would affect the quality of their profiling data all that much. They still have lots of raw material for profiling, and it comes from a lot more data sources than most people realize. All the content of all messages to or from Gmail accounts, "login with Google" sites, Youtube history, and so on.
So if their profit is primarily the product of two numbers, I think one would drop a smaller amount than the search share, and the other would not be affected, so the hit to the product of the two factors would not be all that huge. Unless the search share dropped by half or some such thing, which is certainly possible but seems very unlikely.
Any strong business can weaken, but I don't see a clear and present danger.
Jim
