 | |
.jpg) Googleplex, home to Alphabet Inc., in Mountain View, California | |
| Alphabet | |
| Type | Public |
| |
| ISIN | ] |
| Industry | Conglomerate |
| Founded | October 2, 2015 |
| Founders | |
| Headquarters | Googleplex, , U.S. |
Area served | Worldwide |
Key people |
|
| Products | |
| Revenue |  US$282.8 billion (2022) |
 US$74.84 billion (2022) | |
| US$59.97 billion (2022) | |
| Total assets | US$365.3 billion (2022) |
| Total equity | US$256.1 billion (2022) |
| Owners |
|
Number of employees | 181,798 (June 2023) |
| Subsidiaries | |
| Website | |
| Footnotes / references [1] | |
Alphabet Inc. is an American multinational technology company that is headquartered in California. The company was founded in late 2015 and later evolved into the parent company of Google and other former Google subsidiaries. Today, it stands as one of the largest technology companies in the world, ranking as the third-largest by revenue.
Alphabet's financial reporting is structured into three main segments: Google Services, Google Cloud, and Other Bets. The Google Services segment comprises key revenue-generating products such as Google Search, YouTube ads, and the Google network. These platforms have been instrumental in establishing Google's dominance in the online search and advertising market. The Google Cloud segment focuses on earnings derived from Google's cloud computing platform, which offers a wide range of cloud-based services to businesses and organizations. Additionally, this segment includes Google Workspace, a suite of productivity and collaboration tools tailored for enterprises. The third segment, Other Bets, encompasses a diverse portfolio of companies that Alphabet has acquired over the years. Some notable names within this category include DeepMind, a leading AI research lab; Wing, a company focused on drone delivery; Calico, a life sciences company aiming to tackle aging and diseases; and Waymo, a pioneering autonomous vehicle technology company.
With its subsidiaries and diverse business ventures, Alphabet has solidified its position as a global technology powerhouse, constantly innovating and contributing to various industries. As the parent company of Google and its various endeavours, Alphabet continues to play a crucial role in shaping the future of technology and its impact on society.
Operations
Working from their dorm rooms two Stanford University students, Sergey Brin and Larry page, built a search engine called Backrub that used links to determine the importance of individual pages on the World Wide Web. It ranked web pages better than any of its competitors and so within a few years managed to outperform the competition.
In August 1998, Sun co-founder Andy Bechtolsheim wrote Larry and Sergey a check for $100,000, and Google Inc. was officially born. With this investment, the newly incorporated team made the upgrade from the dorms to their first office.
Google is the core business of Alphabet and accounts for the majority of its revenue. Google's products and services include:
- Google Search - most well known for the search engine, income is generated through the use of advertisements that are displayed when the user makes relevant searches. – prices can vary for advertisers depending on the industry that is being advertised, for example a legal client will be more profitable for a firm than someone looking to buy fitness equipment so the cost per click will vary drastically.
- Youtube – A video sharing site that is also one of alphabets most valuable assets. Again revenue is generated through the use of advertisements in a similar way to the Google search however instead short video adverts are played before/during a video.
- Gmail
- Google Workspace
- Google Cloud is a state-of-the-art cloud computing platform that provides a wide range of services, such as virtual machines for flexible computing power, scalable storage solutions to securely manage data at any scale, AI and ML applications to drive data-driven decision-making and innovation, and data analytics tools for extracting valuable insights. This comprehensive suite of offerings empowers businesses to enhance efficiency, streamline operations, and achieve secure and scalable growth in the digital landscape. – prices vary depending on the features the customer is using however are generally in the range of about $10 per user per month
- Android – A mobile/tablet operating system that currently controls 70% of the global market share in the mobile OS market. Revenue is generated through android apps and services which introduce users into the google ecosystem.
Other Bets
Other Bets is a group of businesses that are still in the early stages of development. These businesses include:
Calico (longevity research)
Verily (life sciences)
Waymo (self-driving cars)
Wing (drone delivery)
CapitalG (venture capital arm)
GV (venture capital arm)
Online advertising
Alphabet generates the majority of its revenue from online advertising. The company's advertising products and services allow businesses to reach a large audience of potential customers.
Cloud computing:
Alphabet's Google Cloud Platform is a leading cloud computing platform that offers a wide range of services to businesses of all sizes.
Hardware:
Alphabet designs and manufactures a variety of hardware products, including the Pixel phone, the Nest smart home products, and the Fitbit fitness tracker.
Research and development:
Alphabet invests heavily in research and development. The company's research teams are working on a variety of projects, including artificial intelligence, self-driving cars, and renewable energy.
Competitions:
The design of goods and services directly relates Alphabet Inc.’s operations management to the competitive landscape. Products compete against information technologies and online services from other companies. For example, Google Search competes with Microsoft Bing. Also, through Google, Alphabet competes with Apple’s cloud services, consumer electronics, App Store, HomePod, and Siri; Facebook’s social media and digital advertising; eBay’s marketplace advertising; Amazon’s cloud services, Alexa, and consumer electronics; and Samsung’s consumer electronics and Bixby. Other Alphabet competitors include Disney, Netflix, and Sony, which compete with Google’s (and YouTube’s) digital content distribution or video streaming. Moreover, Uber competes with Waymo, which was a self-driving technology project under Google and is now a subsidiary of Alphabet Inc. These competitors affect the technology company’s product design. Thus, the competitive landscape influences this strategic decision area of operations management at Alphabet Inc.
Leadership
Sundar Pichai -
Financials
Income Statement:
| Year | Revenue (in millions USD) | Cost of Revenue (in millions USD) | Gross Profit (in millions USD) | Operating Expenses (in millions USD) | Operating Income (in millions USD) | General & Administrative Expense (in millions USD) | Other Operating Expenses | Interest Income | Interest Expense | Pretax Income | Income Tax | Net Income |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 280,875 | 126,203 | 154,672 | 81,791 | 72,881 | 42,291 | 1,304 | 1,817 | 357 | 76,033 | 11,356 | 59,972 |
| 2021 | 257,488 | 110,939 | 146,549 | 67,984 | 78,565 | 42,291 | 1,089 | 1,499 | 346 | 76,033 | 14,701 | 61,332 |
| 2020 | 182,350 | 84,732 | 97,618 | 56,571 | 41,047 | 36,422 | 90 | 1,865 | 135 | 40,269 | 7,813 | 34,343 |
| 2019 | 161,402 | 71,896 | 89,506 | 54,033 | 35,473 | 28,998 | 111 | 1,730 | 100 | 36,231 | 5,282 | 30,949 |
| 2018 | 136,958 | 59,549 | 77,409 | 45,878 | 31,531 | 28,015 | 90 | 5,394 | 114 | 28,335 | 4,274 | 24,061 |
Balance Sheet:
| Year | Total Assets | Current Assets | Non-Current Assets | Total Liabilities | Current Liabilities | Long-Term Liabilities | Total Equity |
|---|---|---|---|---|---|---|---|
| 2022 | 1,086,197 | 400,771 | 685,426 | 429,283 | 297,256 | 132,027 | 656,914 |
| 2021 | 1,022,081 | 390,586 | 631,495 | 447,545 | 272,405 | 175,140 | 574,536 |
| 2020 | 804,833 | 331,452 | 473,381 | 422,099 | 260,279 | 161,820 | 382,734 |
| 2019 | 713,006 | 304,222 | 408,784 | 415,289 | 254,999 | 160,290 | 297,717 |
| 2018 | 621,222 | 278,167 | 343,055 | 387,489 | 232,002 | 155,487 | 233,733 |
Cash Flow
| Year | Cash Flow from Operating Activities | Cash Flow from Investing Activities | Cash Flow from Financing Activities | Net Change in Cash and Cash Equivalents |
|---|---|---|---|---|
| 2022 | 76,033 | -27,494 | 56,361 | 60,302 |
| 2021 | 61,332 | -30,048 | 49,884 | 70,408 |
| 2020 | 40,269 | -32,459 | 29,250 | 6,800 |
| 2019 | 36,231 | -25,221 | 15,227 | 32,338 |
| 2018 | 28,335 | -24,889 | 6,741 | 3,795 |
Valuation
Expected return of an investment in Alphabet
The Stockhub users estimate that the expected return of an investment in the company over the next five years is 93%, which equates to an annual return of 14%. In other words, an £1,000 investment in the company is expected to return £1,930 in five years time. The assumptions used to estimate the return figure can be found below.
- WACC/Discount rate of 8.8%
- Perpetual Growth Rate of 3%
- Revenue estimates for the year 2024 and 2025[2]
Sensitivity analysis
| Input | 50% increase | Unchanged | 50% decrease |
|---|---|---|---|
| Discount Rate | 7% | 93% | 722% |
| Perpetual Growth Rate | 149% | 93% | 60% |
The sensitivity analysis highlights the impact of varying the assumptions used in the model. In the past 5 years Alphabet Inc has seen growth of 101% which is close to where we have predicted it will be in the next five years. Of course past returns do not indicate future returns.
Risks
Alphabet Inc.'s operations and financial results are subject to various risks and uncertainties, including but not limited to those described below, which could harm its business, reputation, financial condition, and operating results, and affect the trading price of its Class A and Class C stock.
Risks Specific to the Company
- Alphabet Inc. generates a significant portion of its revenues from advertising, and reduced spending by advertisers, a loss of partners, or new and existing technologies that block ads online and/or affect its ability to customize ads could harm its business.
- Alphabet Inc. faces intense competition. If Alphabet Inc. does not continue to innovate and provide products and services that are useful to users, customers, and other partners, Alphabet Inc. may not remain competitive, which could harm its business and operating results.
- Its ongoing investment in new businesses, products, services, and technologies is inherently risky, and could divert management attention and harm its financial condition and operating results.
- Its revenue growth rate could decline over time, and Alphabet Inc. anticipates downward pressure on its operating margin in the future.
- Its intellectual property rights are valuable, and any inability to protect them could reduce the value of its products, services, and brands as well as affect its ability to compete.
- Its business depends on strong brands, and failing to maintain and enhance its brands would hurt its ability to expand its base of users, advertisers, customers, content providers, and other partners.
- Alphabet Inc. faces a number of manufacturing and supply chain risks that could harm its financial condition, operating results, and prospects.
- Interruption to, interference with, or failure of its complex information technology and communications systems could hurt its ability to effectively provide its products and services, which could harm its reputation, financial condition, and operating results. In addition, problems with the design or implementation of its new global enterprise resource planning system could harm its business and operations.
- Its international operations expose us to additional risks that could harm its business, its financial condition, and operating results.
Risks Related to its Industry
- People access the Internet through a variety of platforms and devices that continue to evolve with the advancement of technology and user preferences. If manufacturers and users do not widely adopt versions of its products and services developed for these interfaces, its business could be harmed.
- Data privacy and security concerns relating to its technology and its practices could damage its reputation, cause us to incur significant liability, and deter current and potential users or customers from using its products and services. Software bugs or defects, security breaches, and attacks on its systems could result in the improper disclosure and use of user data and interference with its users’ and customers’ ability to use its products and services, harming its business operations and reputation.
- Its ongoing investments in safety, security, and content review will likely continue to identify abuse of its platforms and misuse of user data.
- Problematic content on its platforms, including low-quality user-generated content, web spam, content farms, and other violations of its guidelines could affect the quality of its services, which could damage its reputation and deter its current and potential users from using its products and services.
- Its business depends on continued and unimpeded access to the Internet by us and its users. Internet access providers may be able to restrict, block, degrade, or charge for access to certain of its products and services, which could lead to additional expenses and the loss of users and advertisers.
Risks Related to Laws, Regulations, and Policies
- Alphabet Inc. faces increased regulatory scrutiny as well as changes in regulatory conditions, laws, and policies governing a wide range of topics that may negatively affect its business.
- A variety of new and existing laws and/or interpretations could harm its business.
- Alphabet Inc. is subject to claims, suits, government investigations, other proceedings, and consent decrees that may harm its business, financial condition, and operating results.
- Alphabet Inc. may be subject to legal liability associated with providing online services or content.
- Privacy and data protection regulations are complex and rapidly evolving areas. Any failure or alleged failure to comply with these laws could harm its business, reputation, financial condition, and operating results.
- Alphabet Inc. faces, and may continue to face, intellectual property and other claims that could be costly to defend, result in significant damage awards or other costs (including indemnification awards), and limit its ability to use certain technologies in the future.
Risks Related to Ownership of its Stock
- Alphabet Inc. cannot guarantee that any share repurchase program will be fully consummated or will enhance long-term stockholder value, and share repurchases could increase the volatility of its stock prices and could diminish its cash reserves.
- The concentration of its stock ownership limits its stockholders’ ability to influence corporate matters.
- Provisions in its charter documents and under Delaware law could discourage a takeover that stockholders may consider favourable.
General Risks
- The continuing effects of COVID-19 are highly unpredictable and could be significant, and may have an adverse effect on its business, operations and its future financial performance.
- Its operating results may fluctuate, which makes its results difficult to predict and could cause its results to fall short of expectations.
- Acquisitions, joint ventures, investments, and divestitures could result in operating difficulties, dilution, and other consequences that may harm its business, financial condition, and operating results.
- If Alphabet Inc. was to lose the services of key personnel, Alphabet Inc. may not be able to execute its business strategy.
- Alphabet Inc. relies on highly skilled personnel and, if Alphabet Inc. is unable to retain or motivate key personnel, hire qualified personnel, or maintain its corporate culture, Alphabet Inc. may not be able to grow effectively.
- Alphabet Inc. is exposed to fluctuations in the fair values of its investments and, in some instances, its financial statements incorporate valuation methodologies that are subjective in nature resulting in fluctuations over time.
- Alphabet Inc. could be subject to changes in tax rates, the adoption of new U.S. or international tax legislation, or exposure to additional tax liabilities.
- The trading price for its Class A stock and non-voting Class C stock may continue to be volatile.