GOOG stock

Google's relatively weak performance in Q4 is not that big of a deal in my opinion. Click here to read my analysis and why GOOG stock is a buy.

The world is in disarray and it's time to build a portfolio that will weather all the systemic shocks that will come your way. I see two major risks to Google’s dominance in the digital advertising market which could undermine the company’s business model and lead to the destruction of value. While Google is likely to face greater regulatory scrutiny in the following years, we’re unlikely to see a major monetary impact on its financials anytime soon. The only question is how much upside its stock offers at the current levels and my updated DCF model below would be able to give an understanding of what to expect in the future. This updated model shows that Google’s enterprise value is $1.35 trillion while its fair value is $110.11 per share which represents an upside of around 7% from the current levels. As such, it’s likely that currency risks would no longer negatively affect Google at the same level as in Q4 which gives reasons to be more optimistic about the company’s performance in the following quarters. While it makes no sense to forecast the growth of the business by looking at its performance only in a perfect environment, such a foreign exchange impact gives an understanding of how Google could perform when the macroeconomic situation improves and the dollar begins to weaken to its pre-tightening levels. The capital expenditures are aligned with the management forecast which aims to achieve a similar CapEx in FY23 as it was in FY22. As a result, even if the advertising spending is cut, the search business would be the last to feel it which gives Google an edge against its peers that are dominant in other non-search segments. At the same time, all of Google’s divisions also experienced Q/Q growth during the last three months of 2022 which shows that the company’s portfolio of products and services continues to be in high demand primarily amongst advertisers and subscribers. A similar thing is true for EBIT as a percentage of revenue which is also close to the street assumptions in the model. The fact that the company managed to grow its revenues at all while its competitors experienced Y/Y declines indicates the strength of Google’s digital advertising portfolio and gives reasons for optimism for the company’s future.