Alphabet: Broad-Based Double-Digit Growth in Q4, Now Even Cheaper

Company Update (GOOG US) (Buy)

Search and YouTube Ads revenues again grew double-digits. Down 6% after results, now less than 25x P/E.

Highlights

• Google Ad revenues grew 11.0% in Q4, accelerating again from Q3

• Search and YouTube revenues grew double-digits; Cloud grew 26%

• EBIT grew faster than revenues, thanks to good cost control

• Valuation is reasonable with a 24.6x P/E; FCF Yield is 2.0%

• At ~$144, we see a return of 72% (20.3% p.a.) by 2026. Buy

Introduction

Alphabet released Q4 2023 results after market close yesterday (January 30); shares fell ~6% in afterhours trading.

We first published our research on Alphabet online with a Buy rating in January 2021, and the stock has gained more than 50% in the 3 years since:

Alphabet Class C Share Price (Last 5 Years)

Source: Google Finance (31-Jan-24).

We have also included Alphabet as a top-5 holding in our “Select 15” model portfolio since inception at the start of 2023. This contributed 500 bps to the portfolio’s total return of 23.3% in 2023.

Q4 2023 results support our belief in…