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Hey everyone, it's Zach from Dividend Data!

Today, I'm breaking down the Q2 Earnings Report From Google stock and explore whether the 10% dip in it’s stock price presents a buying opportunity. Is Google the next great dividend growth stock?

Let’s do this!

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THE KEY STORY

Is Now the Time to Buy Google Stock?

The Powerhouse of Digital Advertising

Alphabet, ticker symbol GOOGL, is the fourth most valuable company in the world, with a market cap of $2.07 trillion. Google’s iconic brand and dominant position in search give it an incredibly wide economic moat. Additionally, Google's fast-growing cloud business, now the number three competitor behind AWS and Azure, adds to its impressive portfolio.

Financial Strength and Recent Performance

Google has delivered great returns for investors, and with $100 billion in cash on hand, the company recently declared its first-ever dividend payment. The quarterly dividend yield is 0.48%, which, though small, is just the start given Google's capacity for high dividend growth in the future.

Despite these strengths, Google stock is down 9% since releasing Q2 earnings this week. Today, I'm examining whether this decline presents a buying opportunity.

Earnings and Valuation

Alphabet's current stock price is $167.28 per share. Over the trailing 12 months, earnings per share (EPS) was $6.97, giving it a P/E ratio of 24. The forward annual dividend is 80 cents per share, or a 0.48% yield. Since the tech recession of fall 2022, Google's EPS has surged back to all-time highs.

Over the past decade, Google's revenue per share has grown at an 18.4% compound annual growth rate (CAGR). Net income per share has grown at a 19.66% CAGR, and free cash flow per share has grown at a 20.55% CAGR. Google's balance sheet remains incredibly strong, with $72 billion in net cash and $100 billion in cash and short-term investments.

Key Business Drivers

In fiscal 2023, Google generated $69.5 billion in annual free cash flow, which it used for significant share buybacks and dividends. Despite these strengths, there are some concerns from the latest earnings report, such as high capital expenditures, particularly on Nvidia GPUs for AI training. However, CEO Sundar Pichai emphasized the importance of investing in AI to maintain competitive advantages.

Google's Q2 2024 results showed revenues of $84.7 billion, a 14% increase year-over-year. Operating income was $27.4 billion, with a 32% operating margin. Net income was $23.6 billion, and diluted EPS was $1.89, a 31% increase year-over-year. Google Services, including Google Search and YouTube ads, continue to be the primary revenue drivers. Google Cloud also showed impressive growth, with revenue increasing by 28.8% year-over-year to $10.3 billion.

Addressing the AI Competition

Yesterday, OpenAI announced a new product aimed at competing with Google Search. While this could pose a threat, I believe Google's extensive market share and ongoing AI integration will help maintain its dominance.

Analyst Projections and Price Target

Analysts project double-digit EPS growth for Google through 2028. By the end of fiscal 2024, EPS is expected to be $7.40, with a 23.7 P/E ratio. In 2025, EPS growth is projected at 23.12%, followed by 14.93% in 2026, 18.56% in 2027, and 21.87% in 2028. This growth could result in an EPS of $14.39 in 2028, making Google stock a potentially great investment at its current price.

The current analyst price target for Google is $167, indicating fair value. The consensus rating is a buy, with 35 analysts recommending a buy, one recommending a strong buy, and four recommending a hold.

Conclusion

I believe Google is a wonderful business trading at a fair valuation. While I haven't added it to my portfolio yet, it remains on my watchlist. If there's a significant buying opportunity, I might consider adding Google to my long-term dividend growth stock portfolio.

Disclaimer: This is not personal financial advice. Please do your own research before making any investment decisions.

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THE NEWS

3M Stock Surges 23%, TROW Earnings, CL Earnings, & More

1. MMM Stock Up 23% After Q2 2024 Earnings Results (3M Investor Relations)

2. Google Q2 2024 Earnings Results (Alphabet Investor Relations)

3. AT&T Stock Up 5% After Reporting Q2 2024 Earnings (AT&T Investor Relations)

4. TROW Stock Down 3% After Q2 2024 Earnings (T Rowe Price Investor Relations)

5. CL Stock Up 3% After Q2 2024 Earnings (Colgate-Palmolive Investor Relations)

Thanks for the read! Let me know what you thought by replying back to this email.

— Zach

Disclaimer: Dividend Dividend Weekly (Dividend Data) is not a professional financial service. All materials released from Dividend Data Weekly (Dividend Data) are for educational and entertainment purposes. Dividend Data Weekly (Dividend Data) is not a replacement for a professional's opinion. Contributors to the Dividend Data Weekly (Dividend Data) might have equities mentioned in the newsletter