DCF Studio

    GOOGL · NMS · Communication Services

    Alphabet Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 123.95

    Market price

    USD 349.54

    Implied upside

    -64.5%

    5-year forecast · Perpetuity growth terminal value · 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 28.0x 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 123.95-64.5%
    Exit multiple
    USD 279.11-20.2%
    Market price
    USD 349.54

    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 factor0.94820.85250.76640.68900.6195-
    Present valueUSD 54.7bnUSD 55.3bnUSD 56.0bnUSD 56.6bnUSD 57.3bn+1.2%
    Present Value Of The ForecastUSD 279.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.151Reported 1.225, pulled toward 1.0 (Blume)
    Cost of equity11.33%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 4274.9bn98.6% of capital
    Total debtUSD 59.3bn1.4% of capital, book value as a proxy
    Tax rate16.2%Effective, capped at statutory
    WACC11.23%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 123.95

    81% of EV

    Forecast FCFF, final year
    USD 92.4bn
    Capex at depreciation, working capital in reinvestment
    USD 179.6bn
    Less reinvestment at g/ROIC (10.6% of NOPAT)
    USD -19.0bn
    Capitalised
    USD 160.7bn
    ROIC (reported)
    23.7%
    Terminal value, undiscounted
    USD 1886.5bn
    Terminal value, discounted
    USD 1168.6bn
    Enterprise value
    USD 1448.4bn
    Less net debt
    USD -67.6bn
    Equity value
    USD 1516.0bn

    Exit at 20.0x EBITDA

    Value per shareUSD 279.11

    92% of EV

    Terminal value, undiscounted
    USD 4949.6bn
    Terminal value, discounted
    USD 3066.1bn
    Enterprise value
    USD 3345.9bn
    Less net debt
    USD -67.6bn
    Equity value
    USD 3413.5bn

    Spread between methods: 77%.

    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%
    9.23%150.91157.01163.98172.03181.46
    10.23%132.13136.46141.32146.83153.13
    11.23%117.31120.46123.95127.85132.22
    12.23%105.33107.67110.24113.06116.19
    13.23%95.4697.2399.15101.24103.53

    Outlined: this model. Green text: above today's price of 349.54. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year12.5%42.0%+29.5pp
    EBIT margin29.5%77.0%+47.5pp
    Discount rate11.2%5.8%-5.4pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

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