Google’s position as a tech giant is undeniable, but is it still the invincible powerhouse it once was? While this may not be a 10x investment opportunity for me, I find Google fascinating to analyze. Its business segments are uniquely structured, with each contributing differently to growth and profitability.
To better understand Google’s current position and future prospects, I’ve conducted a quantitative analysis to estimate its intrinsic value. This involves breaking down Google’s revenue into its core segments—Google Services (Google Search, YouTube Ads, & Google Network), Google Cloud, and Other Bets—and projecting their growth over the next four years. By using a sum-of-the-parts approach, I aim to uncover the company’s true worth in today’s competitive landscape.
Why a Napkin Math Approach?
For this analysis, I’ve deliberately chosen a Napkin Math approach to simplify the process. The rationale is twofold:
1. Accessibility: This method keeps the analysis straightforward and easy to follow, even for readers without a deep financial background.
2. Revisiting Made Easy: Simplified calculations make it easier for me (or anyone revisiting this analysis in the future) to understand the logic and assumptions without needing to sift through overly detailed models. This approach ensures that the analysis remains practical, actionable, and adaptable—key traits for any valuation exercise. Let’s dive in.
The Steps of the Analysis
To simplify the process, I’ve broken the analysis into five key steps:
- Breakdown and Segment Analysis: I begin by analyzing Google’s individual segments to project Q4 2024 revenue. This allows me to calculate the full-year 2024 financials as the baseline for future projections.
- 4-Year Revenue Projection: Using the FY 2024 financials and historical data, I project revenue for the next four years, applying growth rates that reflect the competitive and evolving landscape.
- Assigning Operating Multiples for 2028: For each segment, I assign an operating profit margin and valuation multiple based on its growth trajectory and profitability. This helps estimate the intrinsic value of each segment by the end of 2028.
- Discounting to Present Value: The 2028 valuation is brought back to the present value using an 8% discount rate, reflecting the time value of money and investment risks.
- Applying a Margin of Safety: Finally, I apply a margin of safety to account for uncertainties in the projections. This provides a conservative estimate of Google’s intrinsic value today.
With this framework in place, let’s begin by breaking down Google’s revenue segments and projecting Q4 2024 financials.
1. Breakdown and Segment Analysis
i. Google Search
This includes revenue generated from Google’s search engine, primarily through sponsored ads. Whenever users search on Google, sponsored results (displayed prominently at the top) drive significant ad revenue.
Google Search remains Alphabet’s largest revenue contributor. To project Q4 2024 revenue, I examined historical year-on-year growth rates. For example:
- Sep 23 vs. Sep 24: Revenue grew by 12% year-on-year, from $44,090 million in Q3 2023 to $49,385 million in Q3 2024.
- Similarly, Dec 23 vs. Dec 22: Revenue showed a comparable 12% growth year-on-year.
Using this consistent growth pattern, I applied a 12% year-on-year growth for Q4 24 compared to Q4 23, which had revenue of $48,025 mil.
Projected Q4 24 Google Search Revenue:
$48,025 million × 1.12 = $53,782 mil
ii. YouTube Ads
These are the advertisements you see while watching YouTube videos, whether as pre-roll ads, mid-roll interruptions, or discovery ads. In recent years, YouTube has significantly improved its monetization strategy, making ads a critical revenue driver.
YouTube Ads have also maintained a steady growth trajectory. Recent data shows:
- Sep 2023 vs. Sep 2024: Revenue grew by 12% year-on-year, similar to Google Search.
- Dec 2023 revenue: $9,200 mil.
Assuming a consistent 12% year-on-year growth, I project YouTube Ads revenue for Q4 24 as:
$9,200 million × 1.12 = $10,304 mil
iii. Google Network
The Google Network segment generates revenue from Google’s advertising ecosystem, specifically through platforms like AdMob, AdSense, and Google Ad Manager. This segment plays a vital role in connecting advertisers with content creators, including bloggers, app developers, and website owners.
How It Works
For content creators such as bloggers or website owners, Google Network provides tools to monetize their platforms by displaying ads. For example:
- Google AdSense: Allows bloggers and website owners to place Google advertisements on their sites. Revenue is generated when users view or click on these ads, helping creators earn income while continuing to publish content.
- Google Ad Manager: A tool for publishers to manage their ad inventory, optimize placements, and maximize ad revenue.
- AdMob: A platform designed for mobile app developers to monetize their apps through in-app advertising.
These services make it easier for creators to earn revenue while providing advertisers with targeted placement opportunities, ensuring a mutually beneficial ecosystem.
Q4 2024 Revenue Trends
Google Network revenue tend to have a strong seasonal boost in Q4, largely driven by increased advertising activity during the holiday season. Businesses ramp up their ad spend to capture consumer attention, especially for shopping and year-end promotions. This seasonal trend consistently results in higher revenue for Google Network during the final quarter of the year.
| in millions | Q1 | Q2 | Q3 | Q4 |
| Yr 2021 | 6,800 | 7,597 | 7,999 | 9,305 |
| Yr 2022 | 8,174 | 8,259 | 7,872 | 8,475 |
| Yr 2023 | 7,496 | 7,850 | 7,669 | 8,297 |
| Yr 2024 | 7,413 | 7,444 | 7,548 | 8,500 (projected) |
For Q4 23, Google Network generated $8,297 mil. Given the consistent seasonality and trends, I project a modest increase to $8,500 mil for Q4 24.
Total Google Advertising Revenue
Summing up the projections for Google Search, YouTube Ads, and Google Network, we get:
Google Search: $53,782 mil
YouTube Ads: $10,304 mil
Google Network: $8,500 mil
Total Projected Q4 2024 Advertising Revenue = $72,586 mil
iv. Google Others: Subscription and Beyond
The Google Others segment encompasses revenue from subscription-based services like YouTube Premium, Google One, and revenue generated through the . Unlike advertising, this segment focuses on direct-to-consumer revenue streams. For example:
- YouTube Premium Subscribers: People like me who subscribe to YouTube Premium contribute to Google Others revenue by paying for an ad-free experience.
- App Subscriptions via Google Play Store: Apps like Roblox generate revenue through in-app purchases or subscription such as Duolingo, from which Google takes a cut.
- Hardware Sales: Revenue from devices like Pixel phones and Nest products also contributes to this segment.
Growth Trends
Historically, Google Others has shown steady growth. Notably, the final quarter of each year tends to outperform the rest, likely due to:
- Seasonal Factors: Increased spending during the holiday season on hardware and apps.
- Subscription Uptake: A rise in new subscriptions for services like YouTube Premium and Google One.
For instance, in Dec 23, Google Others revenue grew by 29% q-o-q, from Q3 23 to Q4 23. This year, with Sep 2024 already outperforming Dec 2023, I project a more conservative 22% growth for December 2024, factoring in both subscription and hardware sales.
Q4 24 Revenue Projection
Sep 2024 (Q3 24) Revenue: $10,656 million
Projected Growth Rate: 22%
Projected Dec 2024 (Q4 24) Revenue:
$10,656 mil × 1.22 = $13,000 mil
Total Google Services Revenue
Now, let’s sum up the revenue for all components under Google Services:
Google Search: $53,782 mil
YouTube Ads: $10,304 mil
Google Network: $8,500 mil
Google Others: $13,000 mil
Total Projected Q4 2024 Google Services Revenue: $85,586 million
v. Google Cloud
Google Cloud: Driving Enterprise Growth
Google Cloud operates as a separate segment from Google Services, focusing on enterprise solutions and cloud infrastructure. Its revenue primarily comes from two sources:
- Google Cloud Platform (GCP):
A leading infrastructure and platform services provider, GCP is the largest driver of growth in this segment. It offers robust solutions for data storage, analytics, and AI model training, making it a preferred choice for large enterprises. - Google Workspace:
A suite of productivity tools including Gmail, Google Drive, and Google Docs, tailored for business and enterprise customers. This complements GCP’s offerings, making Google Cloud a comprehensive solution for businesses.
Key Customers
Google Cloud’s extensive client base includes some of the world’s biggest companies:
- Apple: Hosts iCloud user data on Google Cloud.
- Facebook, Intel, Yahoo, and Marriott: Among other notable clients that leverage Google’s cloud infrastructure.
Today, Google Cloud boasts close to 1 million enterprise customers, highlighting its competitive edge.
Market Position
Google Cloud is one of the three dominant players in the cloud industry, alongside Amazon Web Services (AWS) and Microsoft Azure. Its strong market position and comprehensive offerings make it a go-to platform for enterprises looking to leverage cloud computing and AI capabilities.
Q4 2024 Revenue Trends
Google Cloud has demonstrated consistent growth, not just year-on-year but also on a quarter-on-quarter basis. For Q4 2024, I project a 10% quarter-on-quarter growth, reflecting its steady momentum. Based on this:
Projected Q4 2024 Revenue:
$11,353 million × 1.10 = $12,488 million
vi. Other Bets
This category includes Alphabet’s experimental and long-term projects, such as:
- Waymo: Alphabet’s autonomous vehicle division.
- Venture Capital Investments: Includes stakes in innovative companies like SpaceX.
- Healthcare and Life Sciences: Managed through subsidiaries like Verily.
While these projects currently operate at a loss, they represent Alphabet’s commitment to innovation and have the potential to generate substantial value in the future.
While these ventures are innovative, they contribute minimally to Alphabet’s overall revenue. For Q4 2024, I estimate $300 million in revenue, consistent with historical trends where this segment has fluctuated between $200 million and $600 million.
Revenue Projection and Valuation Analysis
| in millions | (1) Rev for Q1-Q3 24 | (2) Rev for Q4 24P | (1+2) FY 2024P |
| Google Search | 144,050 | 53,782 | 197,832 |
| YouTube Ads | 25,674 | 10,304 | 35,978 |
| Google Network | 22,405 | 8,500 | 30,905 |
| Google Other | 28,707 | 13,000 | 41,707 |
| Google Cloud | 31,274 | 12,488 | 43,762 |
| Other Bets | 1,248 | 300 | 1,548 |
| Total Revenue ex.hedging gains/losses | 253,358 | 98,374 | 351,732 |
Having calculated Alphabet’s individual segment revenue for Q4 24, the next step is to project revenue growth for the subsequent four years. By assigning growth rates to each segment based on historical trends, market potential, and competitive dynamics, we can estimate Alphabet’s future revenue and determine its intrinsic value.
2. 4-Year Revenue Projection:
Google Services encompasses several subcategories, each with unique growth dynamics:
Google Search:
| in millions | FY 21 | FY 22 | FY 23 | FY 24F |
| Revenue | 148,951 | 162,450 | 175,033 | 197,832 |
| y-o-y Growth % | 43% (vs 2020) | 9% | 8% | 13% |
Projected Growth Rate: 8% year-on-year for the next four years.
Rationale: While Google Search has performed exceptionally in the past, the competitive landscape is evolving, particularly with the rise of large language model-based search engines. Although Google may maintain its superiority, I forsee that growth rate might slow due to increased competition
YouTube Ads:
| in millions | FY 21 | FY 22 | FY 23 | FY 24F |
| Revenue | 28,845 | 29,243 | 31,510 | 35,978 |
| y-o-y Growth | 46% (vs 2020) | 1% | 8% | 14% |
- Projected Growth Rate: 10% year-on-year.
- Rationale: YouTube continues to benefit from a strong network effect, with creators and advertisers still favoring the platform as the premier destination for video content.
Google Network:
| in millions | FY 21 | FY 22 | FY 23 | FY 24F |
| Revenue | 31,701 | 32,780 | 31,312 | 30,905 |
| y-o-y Growth % | 37% (vs 2020) | 3% | -4% | -1% |
- Projected Growth Rate: 7% year-on-year.
- Rationale: Steady growth is anticipated due to the consistent performance of platforms like AdSense, AdMob, and Google Ad Manager.
Google Others (Subscriptions & Hardware):
| in millions | FY 21 | FY 22 | FY 23 | FY 24F |
| Revenue | 28,032 | 29,055 | 34,688 | 41,707 |
| y-o-y Growth % | 29% | 4% | 19% | 20% |
- Projected Growth Rate: 15% year-on-year.
- Rationale: Strong growth is expected in subscription revenue (e.g., YouTube Premium, Google One) and hardware sales, supported by the increasing adoption of Google’s ecosystem.
Google Cloud is projected to experience substantial growth:
| in millions | FY 21 | FY 22 | FY 23 | FY 24F |
| Revenue | 19,206 | 26,280 | 33,088 | 43,762 |
| y-o-y Growth % | 47% | 34% | 26% | 32% |
- Projected Growth Rate: 30% year-on-year.
- Rationale: Google Cloud is a key growth driver, benefiting from its strong market position alongside AWS and Microsoft Azure. Increasing demand for AI and cloud-based solutions will likely fuel its expansion.
Other Bets is expected to grow at an aggressive rate:
| in millions | FY 21 | FY 22 | FY 23 | FY 24F |
| Revenue | 753 | 1,068 | 1,527 | 1,548 |
| y-o-y Growth % | 15% | 42% | 43% | 1% |
- Projected Growth Rate: 120% year-on-year.
- Rationale: While currently loss-making, Other Bets represents Alphabet’s long-term investments in innovative technologies like Waymo and Verily. As these projects mature, they may start contributing meaningfully to revenue.
3. Assigning Operating Multiples for each segment for 2028
Using the growth rates outlined above, here are the revenue and valuation projections for each segment by the end of the four-year period:
1. Google Services
| FY 21 | FY 22 | FY 23 | FY 24 | |
| Revenue | 237,529 | 253,528 | 272,543 | 306,423 |
| Operating Profit Margin | 39% | 34% | 35% | 41% |
Revenue (2028): $432 billion.
Operating Margin: 40% (reflecting economies of scale and operating leverage).
Valuation: Operating profit: $432 billion × 40% = $172.8 billion.
Assigned multiple: 15x operating profit.
Valuation: $172.8 billion × 15 = $2.59 trillion.
2. Google Cloud
| in millions | FY 21 | FY 22 | FY 23 | FY 24F |
| Revenue | 19,206 | 26,280 | 33,088 | 43,762 |
| Operating Profit Margin | -16% | -10% | 5% | 19% |
Revenue (2028): $124 billion.
Operating Margin: 25% (driven by economies of scale in infrastructure and AI services).
Valuation:Operating profit: $124 billion × 25% = $31 billion.
Assigned multiple: 30x operating profit.
Valuation: $31 billion × 30 = $0.93 trillion.
3. Other Bets
| in millions | FY 21 | FY 22 | FY 23 | FY 24F |
| Revenue | 753 | 1,068 | 1,527 | 1,548 |
| Operating Profit Margin | -701% | -514% | -268% | – |
Revenue (2028): $3.2 billion.
Operating Margin: 10% (as these projects begin to stabilize).
Valuation:Operating profit: $3.2 billion × 10% = $0.32 billion.Assigned multiple: 20x operating profit.
Valuation: $0.32 billion × 20 = $0.006 trillion.
Total Valuation (2028):
$2.59 trillion + $0.93 trillion + $0.006 trillion = $3.526 trillion.
4. Discounting to Present Value
To account for the time value of money, I applied an 8% discount rate to the total valuation. Using the formula for discounting, where:
r= 8% (discount rate)
n=4 years
Future Value=.3.526 T
Present Value Calculation:
3.526÷(1.08)4=2.59 T
5. Applying a Margin of Safety
| Margin of Safety | Intrinsic Value |
| 0% | 2.59T |
| 10% | 2.33T |
| 20% | 2.07T |
| 30% | 1.81T |
6. Final Thoughts on Google’s Future
In my view, Alphabet will remain a dominant force in the search engine space for years to come. However, the rise of AI-driven tools such as large language models (LLMs) and AI-based search engines will likely disrupt its core business. As users increasingly turn to AI for research, problem-solving, and content discovery, Google’s revenue from traditional search and advertising may face headwinds.
This changing landscape necessitates a more modest growth projection for Google Services, particularly for Google Search and YouTube Ads. While these segments may still grow, I anticipate a low-teens growth rate at best over the coming years.
The crown jewel of Alphabet, in my opinion, is Google Cloud. This segment is well-positioned to benefit from the explosion of AI and enterprise demand for cloud services. With its proprietary TPU chips and robust infrastructure, Google Cloud is not only growing rapidly but also improving its profitability through economies of scale. I believe Google Cloud will continue to be a key driver of Alphabet’s long-term growth and profitability.
7. Would I Invest in Alphabet?
While Alphabet is undeniably a strong and stable company, it doesn’t align with my personal investment strategy. At its current market cap of $2.1 trillion, and with a 20% margin of safety, Alphabet appears to be fairly valued. However, as an investor, I look for generational companies—businesses with a clear and probable path to achieving a 10x valuation over the next decade.
For Alphabet to achieve a 10x valuation, it would need to grow from $2 trillion to $20 trillion, which is an extremely challenging feat. The law of large numbers makes such exponential growth highly improbable, especially given increasing competition and the maturity of its core business segments. While Alphabet has the resources and leadership to defend its superiority, the likelihood of a 10x return seems slim in this case.
Instead, my focus is on companies with smaller market caps and high-growth potential, where I can see a clearer path to exponential growth. That said, Alphabet remains a safe investment for those seeking stability, backed by its dominant market position and diversified revenue streams. This analysis helps me understand how the market currently values big-cap companies like Alphabet and provides context for evaluating other tech giants.