Alphabet Inc (NASDAQ:GOOGL) Model

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    ​Model Tier: Tier 2, Consensus-based model. 
    Modeling Approach: This model breaks down Alphabet’s results by the company’s primary segments, Google and Other Bets, and dis-aggregates the Google Segment by Google Websites and Google Network Member Websites.
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Alphabet Modeling Approach

Revenue Modeling Approach: This model breaks down Alphabet’s results by the company’s primary segments: Google and Other Bets, and disaggregates the Google Segment by Google Websites and Google Network Member Websites, using quarter-over-quarter growth rates to project revenue. Historic paid-clicks and cost per click are included to help inform the estimates of future growth rates. Revenue is show gross and net of Traffic Acquisition Costs (TAC). TAC is projected using the historic TAC-to-ad revenue ratio.

Expense Modeling Approach: We use ratios for the three primary operating expense line items (Research & Development, Sales & Marketing, and General & Administrative Expense) as a percentage of revenue. We use the historic average to estimate Interest & Other Income, and apply an effective tax rate to the future projected income to forecast the Provision for Income Tax.

Non-GAAP Adjustments: We project future Stock-Based Compensation (SBC) expense based on the historic ratio of SBC-to-Revenue, and allocated it between Cost of Revenue, R&D, S&M, and G&A based on the historic allocation. We then calculate the estimate tax impact of non-GAAP adjustments and book the result to non-GAAP Net Income.

Share Count Forecast: To forecast the future share count we calculate the historic change in share count, after removing the impact of share repurchases. We then make estimates for future share repurchase volume and prices, and deduct the resulting share reduction in our forecast periods.

Valuation Approach: We utilize a market multiple based valuation approach, specifically a Price-Earnings Multiple which we apply to the Next Twelve Month consensus EPS estimate, on an exCash basis. In our valuation of cash, we apply an adjustment to the estimated off shore balance of cash to reflect the repatriation tax impact if the cash is brought back to the U.S.

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