Undoubtedly, Google is one of the names when we monitor stocks. Every household, company, organisation and even individual daily will only function if one clicks on Google. That’s why if you will invest, the top-of-the-mind name is Google. Even Warren Buffett would be amazed to buy stocks in what seems to be the best business in the world. Right now, 30 big investors own Google stocks Class C in the likes of Li Lu, who is known as a Chinese-born American investor. Seth Klarman is an American billionaire author. David Tepper is well-known and one of the highest earners in hedge fund management. Here are some points why big investors buy Google stocks on 2023.
As a value investor, you buy a business when you buy stocks. It is not just a status symbol. When choosing a company, if given a choice of in one room. Which business will you choose? You will select a business that makes money and consistently deliver profits even in the future.
1. Google search
This business knows that search nowadays is a part of daily routine in business and even individually. Thus placing ads on these search activities brings about 58% of their total revenues. So if you want to put ads on Google search, Google will charge premiums as they know the visibility of your business is highly seen on the internet. When you click searches on everything, the first that will pop up are the sponsored websites—links of the companies that paid Google to be the top search to appear on their sites. Businesses like shops, cafes, credit cards, cars, houses, constructions, services, and clothes advertisements of companies to reach their potential customers. These companies are willing to pay Google to be the first in the eyes of their customers in their respective businesses.
2. Network Members
These apps and non-Google websites also show Google ads on their blogs, for example. These accounts give Google 12.3% of its revenue. This is how it goes. The blogger can use Google AdSense and put ads on the blog for the readers. 68% of the money will go to the blogger, and Google will get a share of 32% of the money. What a pretty business model that Google have a passive income in just hosting the platform and doesn’t have to make content to attract viewers.
For your information, Google acquired YouTube for 1.65 billion last 2006. It gives Google 11.2% of revenue. Companies pay YouTube for their ads and videos. The video creators get 55% of the revenue. YouTube passively gets 45%.
4. Play Store
This gives 10.9% of Google’s revenue. Service fees and share in the app sales when it makes a sale.
5. Google Cloud
This gives Google 7.5% of its revenue. The Cloud computing industry is vital, not only now but soon. Today, Cloud computing is worth 450 billion dollars. And by 2030, it is forecasted to be a 1.6 trillion dollar industry. Cloud computing means using other computers to compute power for your business and different needs. Websites can use Google’s broad computing network by paying Google for these services. Three leading players in this cloud computing business. Amazon web services, Microsoft Azure and Google Cloud. Amazon dominates with a 33% market share. Microsoft Azure follows them with a 22% market share. With a 10% market share of Google Cloud, it will be 160 billion dollars by 2030 if the 10% market share is maintained. Google knows cloud computing is a business in the future, and they are now investing money in it as one of the most prominent players in the future. Thirty billion dollars to improve their structure. Then if you buy shares directly, you’ll be a part owner of this vast business.
Year after year, Google shows an upward trend in revenues. Because of search and advertising, it did well last 2020 and 2021. It had slowed down in 2022. But noticeable is last 2008 financial crisis, Google maintained their revenue while others went down. And after the financial crisis, their top-line income goes up and up. Profit is still an essential metric. And Google’s profit is continuously growing up to 2022.
2. Operating Cash Flow Price
Operating cash flow price is another metric to consider why big investors buy Google stocks on 2023. It gives you a gut feeling of the actual stock price in time regarding its value. Stocks price have been lowering tremendously since 2020. Presently it is 20.5 at a price to free cash flow. The last time it was low was in 2016. And a high return on equity of 27%.
3. Cash On Books
The last thing to consider about Google’s financials is the lucrative cash on its books. Presently they have 116 billion dollars of money. So technically, if you buy shares for Google, you get a percentage of that cash. With debt of only 29 billion dollars which is so low compared to cash on books.
Knowing the value of something will be your gauge if it’s expensive or cheap. So you must be a value investor to be aware of the intrinsic value. Warren Buffett’s method of knowing the actual value of stocks is the total discounted cash flows. Get the future cash flows, then discount them back today. Presently, Google’s cash flow per share is 4.71 dollars. As per analysts, expected to grow 9% in five years, with a PE ratio of 15, a 10% discount rate on return, and gives 90 dollars per share intrinsic value. Not bad at all, with 10% returns.
Before buying or not buying, we must know the stocks’ revenues, cash flows, intrinsic values, and other essential metrics. Google is a good choice for getting shares and will be pretty good in the next ten years.
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Recommended books for further reading:
- The Barefoot Investor: The Only Money Guide You’ll Ever Need
- Investing Demystified: How to create the best investment portfolio whatever your risk level
- The Five Rules Successful Stock Investing: Morningstar’s Guide to Building Wealth and Winning in the Market
- The Financial Times Guide to Investing: The Definitive Companion to Investment and the Financial Markets: The Definitive Companion to Investment and the Financial Markets
- Rich Dad’s Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not!
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