Alphabet (NASDAQ:GOOG), Google’s parent company, saw its stock price rise by almost 85% over the last three years, from $820 in February 2017 to about $1519 in February 2020. This rise was primarily driven by a significant increase in Total Revenue, and a slight decrease in shares outstanding. This was partly offset by a lower Net Income margin and price-to-earnings (P/E) multiple.
We break down the movement in Alphabet’s stock price into four factors: growth in revenue, growth in net income margin, a slight decrease in share count, and reduction of P/E multiple. View our interactive dashboard analysis What Factors Drove The 85% Growth In Alphabet’s Stock In The Last 3 Years?
A] Revenue Growth
- Alphabet has seen an increase of $71 billion in revenues over recent years, with net revenue growing from $90.3 billion in 2016 to $161.9 billion in 2019.
- The growth primarily came from the company’s Google Search segment, which makes up more than 70% of Alphabet’s total revenue.
- In comparison, Network members’ properties contribute nearly 13% of Total Revenue.
View the Trefis interactive dashboard on Alphabet’s Revenues for more details on the company’s revenue segments and performance.
B] Net Income Rise
- Net income increased from $19.5 billion in 2016 to $34.3 billion in 2019.
- Net income margin reached 22.5% in 2018, primarily due to a better effective tax rate. The margin fell slightly to 21.2% in 2019.
- Total expenses as a % of revenue increased from 78.4% in 2016 to 88.6% in 2017 and fell back to 77.5% in 2018. There was a small rise in this figure for 2019 to 78.8%.
- Notable changes can be seen in the effective tax rate and a decrease in General & Administrative expenses in 2019, which led to a sizable rise in profitability.
C] EPS rise
- EPS has nearly tripled from $26.06 in 2016 to $49.16 in 2019.
- The sharp jump in EPS in 2018 was due to the reduction in the tax rate.
- A gradual decline in the number of shares outstanding also helped in driving the EPS figure higher.
D] Reduction of P/E Multiple
- Alphabet’s P/E multiple reduced from almost 31.5x in 2017 to 30.9x in December 2019.
- Amazon, in the same period, saw its P/E multiple decrease from 169.4x to 93.7x during the same period.
Though we have seen an 85%-jump in stock price for the company in the last three years, Trefis believes that there is still sizable room for growth and maintains a price estimate of $1621 per share for Google’s stock, which is roughly 10% ahead of the current stock price.
View our interactive dashboard on Alphabet’s Valuation to understand what is driving a higher price estimate for the stock.
Additionally, you can also check ‘What Factors Drove The 290% Growth In Amazon’s Stock In The Last 4 Years?’ to understand the stock price movement and the drivers behind it.
See all Trefis Price Estimates and Download Trefis Data here
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.