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Google Sells With A Huge Discount For The Holding Structure

Mar. 04, 2021 4:44 PM ETAlphabet Inc. (GOOG), GOOGL23 Comments
Gleb Krivosheev profile picture
Gleb Krivosheev


  • Alphabet is a technology company that operates worldwide. It develops a various range of services and technologies which are aimed to simplify people's life.
  • Due to the holding structure, Alphabet's market value is significantly lower than the value of each of the major.
  • Nevertheless, Google effectively uses all the developments and easily can make them profitable. Therefore its holding discount should be lower.
  • I used a relative valuation model to estimate the price of each big segment of Alphabet. My target price is $2,800 per share, which is ~40% above the current price.

Investment Thesis

Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) is an international technological giant. It has a range of various businesses in its portfolio. The holding structure creates a lot of possibilities to develop business, which Google has been using for a long time. But also it underestimates the value of the company. The evaluation of Alphabet's segments separately shows that the real cost of all projects can be significantly higher than the market estimates them.

What Google Earns From

Google is a holding company consisting of a variety of technology businesses. The company is well-known all around the world and does not need additional commentary. The basis of the business is the sale of advertising, but the company actively develops third-party businesses through investments in startups or acquisitions of companies.

Source: wikipedia.org

The main business is a search engine and other services under the Google brand (mail, maps, browser, etc.), as well as YouTube. All of them have the same source of income - advertising. It is also the main source for the company as a whole. The high marginality of the core business allows the company to develop unprofitable fast-growing projects, and at the same time remain financially attractive.

Among other businesses, first of all, it is worth noting Google Cloud. It is a platform that provides various cloud services: computing, machine learning, data storage, and others. The basis of revenue is payments for services. This is a very fast-growing business, with revenue increasing by about 46% in 2020.

Google has many smaller, actively growing divisions. In the financial reports, they are disclosed as Other Bets and include projects at an early technological stage, which in the future can be included in the main business of Google. Among Other Bets, the most interesting ones are:

  • Waymo is an autonomous ride-haul service that

This article was written by

Gleb Krivosheev profile picture
"Courage taught me no matter how bad a crisis gets ... any sound investment will eventually pay off." — Carlos Slim said. Even though this statement may be true (history shows that in most cases it is so), I am focusing on investments, that will pay off soon. Therefore, most of my articles are about companies that can unlock great potential in the near future.I started investing while I was studying at the university. Since then I was interested in stocks' fundamental analysis and valuation. Having 4 years of experience in the stock market, I decided to share my unbiased view on the market. My area of interest is global companies with decent growth potential and good financial health. Also, I cover some Russian companies, that I personally find good for both domestic and foreign investors. Feel free to contact me via email: gleb.krvshv@gmail.com

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (23)

Not buying at these levels. WAIT FOR 10-20% Dip. PE 38 AND mkt cap 1.5T.

Mkts are now priced in all the stimulus and infa spending and very rich mkt.

Goog has a lot of things to worry, higer taxes, digital taxes, offshore loop holes being closed, regulatory issues, anti trust etc. These are not going away and these not priced into the stock.
why has googl been trading at less than goog ? shouldnt it be other way around ?
Briar profile picture
@gutcheck They should trade in close range, depending on the value placed upon voting a share, which normally should be nearing zero. A few years ago investors were valuing a vote as high as $30 a share, which made no sense. I sold our voting shares and bought non-voting—and pocketed the difference.
@Briar agree ... but makes no sense voting shares consistently trading at -5 to -10 discount
Briar profile picture
@gutcheck We agree: that’s why I haven’t bothered to compare the two shares in quite sometime. But, if you are right that the voting shares currently trade at a discount, that really makes no sense. The market might be efficient, it doesn’t know the left and right hands are doing.
HiSell profile picture
Great analysis, I still think YouTube has more upside which you have not identified. I think Google is worth picking up in the dips. I have held it for three years and will keep adding
crrj profile picture
Will Dems and the "woke/PC" tech crowd ever protest or ban business from China since they just ruled being gay is a mental disorder?
How will that impact supposed woke tech stocks? Or is censorship only reserved for legal US citizens??
Holding since 2018 no regrets and intend to go long
davel profile picture
As you point out google makes close to 100% of profits ( if not more ) from ads. The only possible profitable segment is the play store where they accrue 30% of charges by applications.

So the parts are greater than the sum argument is false. All revenue really comes from ads. To spin off a segment would lower revenue and profits. So valuation of the company is as is. A company that is very good at driving traffic to ads on which it makes money. YouTube included..
I like Google stock. But their cloud business will fall behind Microsoft and AWS I believe.
Thanks for the analysis Gleb. For me the above valuation hinges on the value of Google cloud. Crowdstrike, Datadog, Zscaler, Cloudflare are all additional cloud services(security, CDN etc) with high growth rates(50%+) and relatively small base of revenues(less than 750mn in 2020) to grow from. Excluding the above the valuation of cloud halfs and takes it close to 200bn below estimate.

In the current market environment of higher rates, I am looking for a pullback below a Forward P/E 20x as happened in end 2018 and early 2020 to initiate new positioning around 1550-1600 (2021 Earning estimate: 77.42$). Maybe it doesn't happen and you are right, we will see.
davel profile picture
Cloud loses money. The company says so. How much is a money losing venture worth?
ATS Investment profile picture
The Problem is here that the marke especially for tech stocks is over inflated that means that you can not just put a multiple of the overpriced or bubbled stocks like snap etc. to each of Googles sub companies. In the end if that were the right thing than IBM or INTC would be the top pick..Right now would say Googl is a hold never a sell. Thanks
Greenhorn Investor profile picture
Thank you for the article. If this tech correction continues, GOOGL may be offered at more of a discount.
@Greenhorn Investor not yet a significant discount on alphabet score
Gary Fitts profile picture
Why not a position if is is so undervalued? Articles where the author does not own the stock it writes about mean nothing. Eat what you cook.. Long Google - 10% of portfolio.
The Wealth Architect profile picture
@Gary Fitts what is wrong with someone publishing their research from a potentially unbiased position?

If you only read articles from authors that own what you own you essentially live in an echo chamber as most articles published here are long oriented.
davel profile picture
@Gary Fitts

I agree. I want to be influenced by someone with a stake in the game.
You know like the guests on the financial shows that talk down a stock because they have already heavily shorted it.
Gary Fitts profile picture
@The Wealth Architect and just think if author of the article put his money in Google / eat what he was cooking - be up over 30% since he wrote this article.
I think that you meant “real value” instead of “real costs” here?:

“The evaluation of Alphabet's segments separately shows that the real cost of all projects can be significantly higher than the market estimates them.”
why don't you have a position in it?
Very good!
I do not know if GOOGL is selling with a huge discount now, but I have been holding GOOGLE since 2018.
I never come to mind to sell it. LONG GOOGL!
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