DCF Studio

GOOGL · NMS · Communication Services

Alphabet Inc.

Implied value per share

USD 114.17

Market price

USD 373.51

Implied upside

-69.4%

5y forecast · perpetuity growth TV · mid-year discounting · base case

AdjustedCapital expenditure runs at 14.8% of revenue against depreciation of 4.6%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

Current EV/EBITDA of 30.0x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

Value Per Share

Perpetuity growth
USD 114.17-69.4%
Exit multiple
USD 277.37-25.7%
Market price
USD 373.51

Same forecast, different terminal treatment. Percentages vs price.

Forecast Cashflows

Reporting currency (USD). Outflows negative.

0bn46bn92bnFY26FY27FY28FY29FY30
Nominal FCFFDiscounted to todayUSD
LineFY26FY27FY28FY29FY30CAGR
RevenueUSD 453.2bnUSD 509.9bnUSD 573.7bnUSD 645.5bnUSD 726.3bn+12.5%
EBITUSD 133.7bnUSD 150.5bnUSD 169.3bnUSD 190.5bnUSD 214.3bn+12.5%
NOPATUSD 112.1bnUSD 126.1bnUSD 141.9bnUSD 159.7bnUSD 179.6bn+12.5%
Add depreciation & amortisationUSD 20.7bnUSD 23.3bnUSD 26.2bnUSD 29.5bnUSD 33.2bn+12.5%
Less capital expenditureUSD -67.2bnUSD -75.6bnUSD -85.1bnUSD -95.8bnUSD -107.7bn+12.5%
Less increase in working capitalUSD -7.9bnUSD -8.9bnUSD -10.0bnUSD -11.2bnUSD -12.6bn+12.5%
Free cashflow to firmUSD 57.7bnUSD 64.9bnUSD 73.0bnUSD 82.1bnUSD 92.4bn+12.5%
Discount factor0.94750.85060.76360.68550.6154-
Present valueUSD 54.6bnUSD 55.2bnUSD 55.8bnUSD 56.3bnUSD 56.9bn+1.0%
Present Value Of The ForecastUSD 278.8bn

Discount Rate

Source shown per component. All overridable above.

Risk-free rate4.69%US 10-year Treasury (^TNX)
Equity risk premium5.50%Market assumption
Beta1.237As reported
Cost of equity11.49%Risk-free + beta x equity risk premium
Cost of debt4.69%Floored at the risk-free rate (implied cost of debt was lower)
Market capitalisationUSD 4568.0bn98.7% of capital
Total debtUSD 59.3bn1.3% of capital, book value as a proxy
Tax rate16.2%Effective, capped at statutory
WACC11.39%E/V x Re + D/V x Rd x (1 - t)

Terminal Value

Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

Perpetuity growth at 2.50%

Value per shareUSD 114.17

79% of EV

Forecast FCFF, final year
USD 92.4bn
Capex reset to depreciation
USD 167.0bn
Less reinvestment at g/ROIC (10.6% of NOPAT)
USD -19.0bn
Capitalised
USD 148.0bn
ROIC (reported)
23.7%
Terminal value, undiscounted
USD 1706.1bn
Terminal value, discounted
USD 1049.9bn
Enterprise value
USD 1328.7bn
Less net debt
USD -67.6bn
Equity value
USD 1396.3bn

Exit at 20.0x EBITDA

Value per shareUSD 277.37

92% of EV

Terminal value, undiscounted
USD 4949.6bn
Terminal value, discounted
USD 3045.9bn
Enterprise value
USD 3324.7bn
Less net debt
USD -67.6bn
Equity value
USD 3392.3bn

Spread between methods: 83%.

Sensitivity

Value per share (USD) by discount rate and long-run growth.

Long-run growth
Discount rate1.50%2.00%2.50%3.00%3.50%
9.39%138.63143.74149.56156.25164.05
10.39%121.91125.53129.57134.14139.34
11.39%108.65111.27114.17117.38120.98
12.39%97.9099.83101.94104.26106.81
13.39%89.0190.4592.0293.7195.56

Outlined: this model. Green text: above today's price of 373.51. Shading: distance from this model's own value.

Priced In

Each input solved to today's price, holding the others. Alternatives, not a set.

InputModelImpliedGap
Revenue growth, every year12.5%52.6%+40.1pp
EBIT margin29.5%85.2%+55.7pp
Discount rate11.4%5.4%-6.0pp

Yahoo Finance and RBA data. General information, not advice. Methodology.