Welcome back everyone today on the Joseph Carlson Show as
companies like Google, major companies today.
Trade off at the. Beginning of September, as they
often do, we have Google hair down 2. .44.
Percent. The company is now at a.
Market cap of around. 2 1/2 trillion dollars, but we have
reason to believe that Google could be worth much more in the
very. Near future, in fact, just.
Around a week ago, CNBC. Shared this graphic this.
Breakdown of all the various businesses of Google.
We know that Google's not just doing one thing, they have their
hands in many different things, and those things are worth
different amounts of money. CNBC mapped out what the average
annual assessment is. For all of these various
businesses. Each on a business level and the
estimates from the analysts are much higher in aggregate than
where. Google trades today.
So we'll be going through each of these.
Businesses from Google the. Average annual assessments for
the business and breaking down what?
The true value is today. To try to determine.
What Google's actually worth now, of course.
We have a lot of other news to get to in this.
Episode, For example, the whole stock market's falling.
This is common in September. We see it in the data.
Why is September such? A bad month for.
Stocks. Well, we can talk.
About it, especially what investors should do in
September. We have people like Jeremy
Siegel that thinks that we should remain optimistic, even
if we. Have a rough start.
To this month. And then we also have news that
Kraft Heinz is breaking up and this is bumming out Warren
Buffett. He's spoken on the subject,
saying that he's deeply disappointed in the separation.
We'll be talking about. That as well.
So like. Always.
We have a ton to get to in this episode and we start things off
with the. Breakdown of Google.
Now before we jump into that, just a quick mention.
It's the beginning of the month, which means if you join the
Patreon today, you'll have the entire.
Month as a free trial. So now's the time.
Try it out. After the free trial.
It's only 10 bucks a month and I think you'll love.
It we have a lot of people that love it.
We are. Past 10,000 members now and it's
growing quickly. So try it.
Out if you haven't. Now let's go ahead and talk a
little bit. About Google here.
First of all, Google. Is a main position in my.
Portfolio, in fact it's. Steadily.
Grown as a position. Overtime and in the passive
income portfolio in. Particular Google's rather new
position. It's around. 68. $1000 in total.
Value with $10,000 of it being gains.
Even after today's losses. When we look at it in the story
fund. I can also bring that up and
show you real quick I have a more.
Google in this. Portfolio as well.
The story fund is my smaller, more concentrated more.
Aggressive growth focused portfolio.
And Google has been here. For quite a while.
So the gains are far more substantial in this one with a
total position. Size of 45. 1021 thousand if
that's gains. So this one has done a lot.
Better. I've just owned it for longer.
I bought it at. Really good times and Google.
Has helped this portfolio. Outperform Now when we're
looking at Google and the valuation of the company, it's.
Important to address specific. Concerns and the trading
patterns of this stock Google has been.
Underperforming its pairs for. Quite some time, in fact, even
today, the valuation. Multiples are far below Meta.
They're below Microsoft. They're below Apple.
They're below virtually every other big.
Tech company around it. Google's by far the cheapest 1.
And part of the reason is because of the concerns that
have centered around this company in.
Particular the transformation with AI information gathering.
And this was the big problem with.
Google the fact that. There's new ways to gather
information. Many people have made huge
claims that this is going to dramatically challenge Google.
That it's a big disruptive risk that it's.
Changing the ways. That people interact with Google
search. And it might lower the margins.
Of the company or make the company worse overall.
But what we've seen over time, and what I've become
increasingly convinced of, is that it's not being.
Disrupted Google search is. Simply not being.
Disrupted in the. Way that we.
Thought it might be in fact the data.
That's come in. Quarter after quarter after
quarter after quarter. Show that.
Google search is actually. Growing Google's.
Also done a very good job. Adapting with the times.
With the threat of. Chachi, PT and Grok and many.
Other AI searches. Google implemented something.
Called AI Mode AI. Mode is the benefits of.
Both worlds. It has LLM technology.
As well as relevant search information.
It's always up to date. It works almost instantly.
It's a really new technology in Google search.
And users love it. AI mode is being.
Used everywhere now. And on top of that, Google has
the more dedicated Gemini for longer, more complex
conversations. So Google has adapted to this
new challenge, to this new. Disruptive threat.
They showed that a technology that could have potentially
disrupted. Them actually grew their market.
Share and speed up the. Growth of Google search.
Now with that challenge behind us, and some people don't think
it's behind us, they still think Google's going to be.
Disrupted by AI, but there's fewer and fewer of those people.
Now most. People realize that artificial.
Intelligence is going to. Benefit Google overall.
And that the search business is not becoming.
Disrupted like people thought it's just evolving over.
Time. Now with that said, where does
that leave? Us What is Google stock
actually? Worth if we assume no major
disruptions to Google. Search well.
That's a more complex question because we.
Look at Google. And this company has many
various business lines when you break it down by revenue.
You have Google search. You have YouTube.
Ads and this is a little bit complicated.
Because YouTube ads. Does not include YouTube
Premium. Which they have over. 120
million premium subscribers. So YouTube also is.
Bigger than just this portion shows.
Then you have Google network. You have subscription which.
Includes things like Google One and YouTube Premium.
You have Google Cloud. Which is a a monster of a
business. Then you have.
Other bets which? Could be renamed Waymo because
the most significant. Other bet by now by far is
Waymo. When we look at Google in their.
Total value it's already. At a decent valuation, but when
we break. This up by different.
Businesses that Google owns if you're looking at.
It as alphabet. A conglomerate of unified
businesses, it's even cheaper, and that's where we get into
this. Chart here this graphic.
Showing all the various. Businesses of Google we have.
Search DeepMind and TPU. We have Google Cloud.
YouTube, Waymo and Network. We have all.
These various businesses with their numbers underneath of what
the analysts think they're worth.
So they've averaged out all. The analysts, they've attached
the numbers and that. Is combined valuation of.
Google, when we look at this business by business, we can
just take a look at what the analysts think of the Business
Today, for example, with Google. Search.
Alone, just the search business, they have a price tag of 1.2. $5
trillion. So the analysts believe that
search alone justifies half the market.
Cap of Google today. Then we get into DeepMind and
TPU. Now this is an interesting way
to break it up, but the analysts believe.
That this part of Google which used to be a.
Cost centre pouring money into. Artificial.
Intelligence in their models. Now it's no longer a cost
centre. DeepMind is making a fortune.
They're licensing all this technology.
You can see that. The tokens being used.
For all these. Different models like Gemini
being used more and more. Google has a 1000 different ways
to monetize this, so DeepMind is a.
Huge part of. Google, it's a it's a massive
part. They have some of the leading
models with distribution for it and then you have TP us.
Which are Google's proprietary chips that they developed.
To help manage all of this, to make it so they're not so
reliant on NVIDIA. When you combine both of those
together, the analysts are saying that it's worth almost
900 billion dollars, 897 billion in terms of the average analysts
estimates. Then we add in Google.
Cloud, they say that this is worth 5. 172.
Billion dollars currently. We add in YouTube.
YouTube. They're estimating to be worth
400 and. $46 billion. Then we add in Waymo.
With Waymo, they're giving it a valuation of $173 billion.
And then the analysts believe that the network.
Business is worth 138 billion. Now what does?
This look like if we add together all these numbers and.
See what it amounts to? Well, I went.
Ahead and did that for you we have all the very assessments
right here from the. Analysts all the different
businesses and it adds to 3.476 trillion.
Dollars. So if you take.
All the average analyst estimates, you combine them.
Together they overall. Believe that the company is
being undervalued by a full trillion.
Dollars. And that means that if you were
to add that trillion dollars to the market.
Cap that would be a 40. Percent increase over today's.
Price. That's what the analysts.
Believe. Now we're going to take.
A look at what I believe I believe.
We can do even better than the average.
Analyst and we start off with Google search.
This is where the analyst had it at 1.25 trillion.
Dollars, and this is. Going to be one that I don't.
Disagree with so I'm going to. Copy in the same.
Number here I think. That you could, you can move it
up or down a little bit, but when you look at the numbers.
This is pretty straightforward. Google search is massive.
It does make up. Around.
Half of the total revenue of Google.
But also more than the operating income because it's so.
Profitable. Then we have DeepMind and TPU.
This is another category. Where I'm going to agree.
With the analysts, it's very. Clear that Google.
Has a massively valuable. Property here with all their
Gemini models. And their TP us they've been
able to out compete and gain new clients.
Because of their TP, us, their processing power, the lower
cost. Of running all their models
while still being. Profitable for Google.
So they have a lot of ways to monetize.
This for this. One, I'm just going to keep the
analysts estimates then we get. To Google Cloud.
This is 1 where they. Have it at 5:00. 170. $2
billion. And I think this is a low
estimate now having a business in and of.
Itself at this. Scale growing this quickly.
Is already a big win. Even if the margins don't look
good, even if it's not profitable, having a business
grow this quickly is a huge thing in and of itself, but at
the same time it's growing that. Quickly the operating.
Margins are also. Ticking up very quickly.
So this. Is growing super fast.
But it's also now at a 20.7% operating margin, which is just
incredible. And this is not the ceiling.
I believe that's going to happen over the next five years.
And that's why I'm going to put. Google Cloud as worth. 700 and.
$50 billion today. So I believe there's even more
upside with Google Cloud. Now next we get to.
YouTube The average annual assessment for YouTube was $446
billion. And I believe.
That's a little low. What I would give as a
comparison here is Netflix. Netflix is a company that I'm
incredibly bullish on. I think it has an incredible
fundamentals. It has a huge.
Total addressable market. It's going to continue growing,
gaining subscribers, having operating leverage.
Being in digital media is one of the best.
Categories that. You can be in.
So this is a company that I think is incredibly well
positioned for the future. I think it's.
Appropriately valued today. And Netflix currently.
Trades at A5. $113 billion market cap, so around $60
billion more than what? YouTube's currently at.
They think that Netflix. Is worth that much more than
YouTube today? Well, there's a couple different
things you could highlight here. First of all, Netflix.
Likely has better profitability and cost structure than.
YouTube. YouTube.
Has to pay their ad revenue, 50% of it to the creators.
So anytime a video makes more. Views.
The creators make more. Money.
It scales indefinitely that way. Netflix doesn't have that issue.
They pay for their. Content upfront once and then no
matter how much money they make from it, they.
Keep all the profits. But while.
Netflix is more profitable and has better.
Operating leverage than YouTube. YouTube is bigger.
YouTube is gaining. More market share.
When we look. At the data.
Here we can see. The market share of all these
streaming services over. Time and the only one out of
this list that continues to gain like a compound machine year.
After year, After year. Is that one on the?
Very bottom that black. Line on the bottom that is
YouTube you can see it go from 8% to 9.
Percent market share to 10%. To 11% to 12.
Percent to 13%. While almost having no
seasonality, not giving up. Market share there's.
Almost no months that are really bad.
For for. YouTube the other.
Streaming services are highly. Seasonal, they have a.
Little bit cyclicality, they give up market share, they gain
it back and. Even Netflix is dominant as it
is and as good of cost. Structure as it has.
Has not been growing a market. Share as fast as.
YouTube YouTube is the only standout 1 here.
That is really. Destroying everyone else.
YouTube is something that people are just watching more and more.
There's more high quality content.
And now they're getting. Into sports rights as well.
So when I look at. YouTube I have every.
Reason to. Believe that overall it.
Should be comped to Netflix and I believe I could put a.
Valuation today of five. 110 billion.
Dollars. Now, of course, we have.
Waymo we. Don't want to leave that out.
The analysts have 173. Billion dollars for Waymo.
So the valuation of Waymo at 173.
Is pretty good it. Shows that waymo's.
Actually, a big part of. Google Now it's actually
meaningful. It's showing up on earnings
calls even though it's not. Really a creative.
To the company, it's not. Profitable.
It's not generating. A ton of revenue.
Waymo's kind of. Proving a path today.
It's showing that it's successful.
And again, I believe that this estimate is low when we look at
the best comparison you can come up with today.
It's likely Tesla. Tesla's a company that trades
off the promise, the promise of a robotaxi network.
And even though Tesla hasn't succeeded in having a robotaxi.
Network without a driver or an employee in the vehicle at all.
Times It's still kind of In this testing beta phase, the
company's trading at a trillion. Dollar market cap today.
Most of that, in fact, I'd say around half of that is only
justified by their promises of a robotaxi network.
So you have around $500 billion out of a trillion.
That's just based on the. Robotaxi network, at least.
Because a humanoid. Robot stuff is way.
Out in the future, The thing that's right around the corner
for. Tesla is the robotaxi.
Network. So there's a bit of a disconnect
here. Tesla stock is trading at
extremely high valuations on the promises of doing mostly what
Waymo's already accomplished, which is having a successful,
proven robotaxi network that is rapidly expanding.
Across the globe. When we look at Waymo, however,
it's not really being factored into.
Google stock today at. All investors are getting no
credit for it, but even the annual.
Assessments are rather low if Tesla's.
Trading at the valuation it is today.
Based off of that. Expectation.
I think that Waymo should be trading.
Closer to $300 billion, I think. I think that's.
What it's worth today, like you look at the.
Robotaxi Network. The success they've had.
They've done 10 million rides. The data is very public.
It's incredibly safe. They don't have to have
employees in the passenger seats.
They're accomplishing this. Waymo's actually doing it ahead
of everyone else. When I look at Waymo, I'm going
to give. It a valuation.
Of 250. I think that's appropriate, even
conservative. For what it really is worth
today. And then finally we get to
network which they have an estimate of 130. $8 billion.
For that one, I'm just. Going to use their.
Estimate when I get done with mine.
It's closer to 3. Point $8 trillion, so I'm even
above. Where the analyst estimates are
at 3.47. I'm at 3.8 from where?
Google stock sits today at 2 point. 4-6 trillion to the
three. .8 trillion. That is A50. 2% increase.
So there's my thoughts on the subject.
I think that Google is currently over a.
Trillion dollars undervalued today.
And I think it's going to go up to those valuations overtime.
It'll just take time for the bearish sentiment, the overall
troubled Google to fade away for it to get better treatment in
the market better. Sentiment, which typically
happens. Quarter after quarter and?
I think it's going to happen in this case.
We'll just have to be patient and wait.
Now moving on, we get. To some news here we have first
of. All the news that September.
Is usually just a bad. Month in the market, so I don't
want to start things off with a big bummer, but we have the.
Opening day of September and it's terrible stocks.
Are down like crazy. You can look at your favorite
stocks, many of them are down 3 or 4%.
And you might ask why? And that's a question that
everybody. Tries to answer.
But there's just no good explanation.
There's psychological factors that people have tried to.
Point to to. Try to explain why September's
such a. Bad month.
But overall, people. Don't really know, we just know
that it's typically a bad month. Take a look at this chart.
The S&P 500. Average monthly.
Return since 1928. Most of the time it's great.
September's the one month that on average is -1%.
It's almost incredible. It's incredibly specific and
it's incredibly consistent. Isn't that just interesting?
There's one month out. Of the year where the market
just does terrible every single year.
At this point, it's. Like a self fulfilling prophecy
they believe the psychological aspect is part of.
It people expect. September to be bad?
They talk about September being bad.
And. Therefore it self fulfills.
And makes it bad. There's other thoughts you can
point. To like tax.
Planning there's September quarterly.
Tax payments due on September 15th, so that can affect
businesses as well. But overall, we don't.
Really know. We just have the.
Data now one individual that says to remain optimistic.
Even though we're in September. Is Jeremy Siegel.
Historically really the worst, worst month of the of the year.
Listen, you know, certainly we could have a pullback.
I mean, I still think the, the bull trends are intact.
I know you guys mentioned the Wall Street Journal article this
morning about all time high. So I, I, I took it out and read
it and it said, Oh yeah, it's all time high relative to sales.
Well, I thought we, you know, value stocks on earnings, not
sales and we're way, you know, below any all time high in terms
of earnings. Not that it's not an expensive
market, but once you take out and even that article admitted
once you take out the mag 7, you know, we're only, you know,
slightly above a longer term medium.
So. He points out a couple really
important things there. 1st of. All the people saying that the
market's super expensive. Like this Wall Street Journal?
Article that they're referencing points out that it's based on.
Price to sales. Which is the the net revenue of
the company you're. Dividing that by the market cap
to get the price to. Sales.
In that case, it's not a profitability metric.
It's a revenue proxy, but it's not a profitability metric,
price to earnings. Is a profitability metric, so.
When you're looking at. PE ratios, that's typically what
we've. Used to.
Determine whether or not the stock market is.
Expensive. We look at the price of the
stock. Market compared to its earnings.
Now we're doing that with sales because it sounds more dramatic
when you compare the stock market to.
The price of sales. It looks more expensive than the
PE ratio and the reason why is simple.
Overtime companies are becoming higher.
Margin, we have a lot better. Companies.
More profitable ones. That have.
Higher margins leading this stock market.
So we have this combination of. Companies that are trading at
higher price to sales but lower PE ratios.
We mock people when they look at sales.
We say that's not the real number.
You're right. If we're looking at earnings,
that seems like the much more important number to bear out.
And the biggest companies you're talking about, the Mag 7 are,
are the richest in terms of of price to sales probably too
because of all the potential. Now there is a.
Solid use case for price to sales.
It does. Become useful when a company's
not. Focused on profits.
So if you have a company that's in a transformation.
It's exercising operating leverage.
It's going for land grab. They're solely focused on
revenue. Then of course that company
should be priced on price to sales, not profitability.
Once a company becomes more profitable, more mature, then
you move on to price to earnings.
But overall, when you're looking at markets and the overall.
Price of a market. It should probably be based.
On earnings, not sales. Because the margins of those
companies are so high, margins of digital tech companies have
always been the highest. So if they're predominant,
you're, you're going to get a result such as this.
And I don't, you know, I, I think that's built into tech.
Tech has very, very high margins because of the way accounting
goes and the way the, you know, globalization and how you can
replicate virtually no cost. All you need is those customers
to come. So it's a very different sort of
a thing than, you know, looking back at a steel company or an
auto company and you know, to put them all together I think
gives a misleading look at the market.
We have the best companies in the world.
Growing. Quickly They're incredibly
profitable, they have robust balance sheets and even looking
at historical terms, the market's not overly expensive.
Today, the Bears have. Simply just lost.
They've lost this. Battle.
They don't have a solid bear case.
And I believe there's a very good chance that the selling in
September. Is short lived.
Now finally we get to the news that Kraft Heinz is breaking up.
They're splitting up their company and Warren Buffett,
who's a major shareholder in Kraft Heinz.
In fact, the. Largest shareholder is not happy
about it. When we look at the way that
they're doing this, Warren Buffett right now.
Berkshire. Is a 27.5% stakeholder in the
company. Warren Buffett is the one that
masterminded the combination of these two companies 10 years.
Ago So Warren Buffett. 'S not happy about.
This after he expressed. His discontent?
The stock. Fell another 5%.
Buffett told CNB CS Becky Quick on.
Tuesday that the merger. Didn't turn out.
To be a brilliant idea. But he does not think that
taking the company. Apart will fix its problems.
They're also not happy about the fact that.
Kraft Heinz didn't even ask their opinion.
They own over 1/4 of the company, almost a third.
And Kraft Heinz management did this.
Without even asking their. Opinion without asking for a
shareholder. Vote or.
Any type of input. Now this is going to be one of
the cases. Where I actually disagree with
Buffett. I think that this separation is
likely good for Kraft Heinz, and it also shows why you shouldn't.
Follow Buffett into every single trade.
A lot of people get very excited when Berkshire.
Buys any company, but there's a couple of them that have not
done great. Kraft Heinz is one of them.
That over the past decade, it just.
Really has not done well. It's down. 63%.
It's been a massive. Loser in the portfolio?
And that's driven. Largely by no growth.
That's the biggest. Problem this company faces.
Kraft Heinz has been the same company at the same size, at the
same saturation and. Scale for a.
Decade and you've seen the. The growth trajectory here.
It's nowhere in fact. If you adjust.
This for inflation. Kraft Heinz is losing market
share and shrinking. Over time.
And I believe the management has good reason to want to split up
the company. Having a company do so much,
have this massive conglomerate control so many.
Different properties is relatively.
Complex and makes the logistics and the marketing.
And all the efforts behind it? Very difficult.
If they split it up into two different portions, which
they're. Doing and they're making one
portion a slower growing portion the other.
Portion that the actual growing. Part of the company.
A separate company that makes it so that you.
Can have more streamlined. Marketing so that you can
actually make acquisitions that move the.
Needle for these different. Businesses and it allows.
Investors to. Pick and choose which company
they want to invest in, a non growing mature portion or a
faster growing younger. Portion.
Investors can now choose so even though I don't think that this
fixes. The problems.
I do think it's a different approach than what's been
happening over the past decade that hasn't been working.
But in any case, management probably should have got Warren.
Buffett's approval, seeing as he's such a big shareholder,
that's going to be for this episode.
Hope you enjoyed, see you in the next one.