Motley Fool Money Podcast Summary: "How Do You Value Alphabet?" Release Date: February 5, 2025
Host(s): Dylan Lewis, Ricky Mulvey, Mary Long
Guests: David Meyer, Jordan Harper

Introduction to Alphabet's Recent Earnings

Mary Long opens the episode by shifting focus from recent tariff discussions to corporate performance, spotlighting Alphabet's latest earnings report.

• Cloud Revenue Analysis:

  • Mary Long (00:21): Highlights Alphabet's cloud segment achieving 30% revenue growth to $12 billion in Q4, up from $9 billion the previous year. Despite this growth, Alphabet's cloud revenue fell short of Wall Street's analyst expectations, reflecting the market's obsession with meeting forecasts.

  • David Meyer (01:24): Assures long-term investors that a 30% growth is substantial and not a cause for concern. He emphasizes that the cloud market is expanding, and occasional shortfalls are normal and often offset by other areas of growth.

    "Cloud is not going away... sometimes you gain a little more here and gain a little more there along the way." (01:29)

Capital Expenditures: Comparing Tech Giants

Mary Long brings attention to Alphabet's significant increase in capital expenditures (CapEx), planning to spend $75 billion by fiscal year-end, up from $52.5 billion the previous year.

• Comparison with Peers:

  • Mary Long (03:48): Compares Alphabet's CapEx with Meta's $60-$65 billion and Microsoft's $80 billion, questioning whether higher spending equates to better performance.

  • David Meyer (03:48): Advises against comparing absolute CapEx figures. Instead, he advocates evaluating Return on Invested Capital (ROIC) to assess the effectiveness of these investments.

    "What we're looking for is not how much did you spend, but it's actually how much did you earn on the capital that you invested." (04:12)

YouTube's Dominance in Advertising and Streaming

Mary Long shifts the discussion to YouTube's impressive performance within Alphabet, particularly its advertising revenue and streaming dominance.

• YouTube Ad Revenue:

  • Mary Long (05:12): Notes that YouTube ad sales reached a record $10.5 billion, surpassing competitors like Netflix in connected TV usage.

• Viewer Insights:

  • David Meyer (06:05): Explains YouTube's success by its sophisticated algorithms that understand and predict viewer preferences, creating a feedback loop that benefits both the platform and content creators.

    "YouTube knows what their viewer wants... that's why they have the algorithms that know how to see what people are viewing." (07:08)

Valuing Alphabet: Sum-of-the-Parts Approach

Mary Long raises the question of valuing a multifaceted company like Alphabet, which encompasses more than just Google.

• David Meyer's Valuation Strategy (08:46):

  • Advocates for a sum-of-the-parts valuation, assessing each of Alphabet's significant properties (e.g., Google, YouTube, Waymo) individually.

  • Emphasizes evaluating mature, revenue-generating segments separately from “moonshot” projects, attributing option value to long-term investments.

    "It's the value of the mature properties plus whatever option value you assign to the ultra long term investments that are making." (10:09)

Market Reaction and Investment Outlook

David Meyer (11:09): Observes that despite Alphabet's strategic direction, the stock experienced a dip, presenting a potential buying opportunity for long-term investors.

"Expecting double digit growth, low teens growth for the next two to five years. That's a pretty incredible opportunity for a business this size." (11:14)

Spotlight on Palantir: Understanding the Hype

Mary Long transitions to discuss Palantir's recent stock surge, prompting an explanation of the company's operations.

• Palantir's Business Model (12:36):

  • David Meyer: Describes Palantir as a technology platform that helps organizations analyze vast amounts of data to improve decision-making and operational efficiency.

    "Palantir has developed a technology platform that essentially helps companies analyze their data for a fee at a 30,000 foot level." (12:36)

• Valuation Concerns:

  • David Meyer (15:23): Cautions investors about Palantir's high valuation (170x forward earnings), suggesting that the current stock price may already embed high future growth expectations, increasing investment risk.

    "The risk of potentially losing money is probably higher than the returns right now given these prices." (15:23)

Interview with Jordan Harper: The World of Crisis PR

The episode features an insightful conversation with Jordan Harper, a television writer and novelist, delving into the intricacies of crisis public relations (PR).

• Background and Interest (18:22):

  • Jordan Harper: Shares her experience in Hollywood, witnessing firsthand how crisis PR shapes public narratives, inspired by events surrounding figures like Les Moonves.

• Tools of Crisis PR (21:16):

  • Jordan Harper: Explains that crisis PR involves building strong relationships with journalists, controlling the narrative through strategic information dissemination, and utilizing the lead steer theory to set the story's direction.

    "Find a lead steer, tell your story to that lead steer... That's a big part of what they do." (21:16)

• Manipulation in Media (24:44):

  • Jordan Harper: Discusses how major industries, such as food, use crisis PR to influence public perception and scientific discourse, often prioritizing corporate interests over factual reporting.

    "Look for the agendas that aren't being stated... Who benefits from this article at this moment?" (28:47)

Recognizing Crisis PR in the News

Jordan Harper (28:47): Offers listeners strategies to identify crisis PR tactics in media consumption, emphasizing critical thinking and skepticism.

"Look for things that sound like PR speak... Look for the agendas that aren't being stated." (28:47)

Conclusion and Final Thoughts

Mary Long wraps up the episode by reminding listeners to approach stock decisions with informed judgment and not solely rely on podcast discussions.

• Mary Long (31:10):

  "Don't buy or sell stocks based solely on what you hear... Motley Fool only picks products that it would personally recommend to friends like you." (31:10)

David Meyer and Ricky Mulby thank the guests and listeners, concluding the episode with a teaser for the next discussion.

Key Takeaways

1. Alphabet's Growth: Despite short-term misses, Alphabet's cloud division shows robust growth, and its overall diverse portfolio presents substantial long-term investment potential.
2. CapEx Strategy: Evaluating tech giants' capital expenditures requires a focus on ROIC rather than absolute spending figures.
3. YouTube's Edge: YouTube's advanced algorithms and strong feedback mechanisms contribute to its dominance in both advertising revenue and TV streaming.
4. Valuation Caution: High valuations, as seen with Palantir, necessitate cautious investment approaches.
5. Crisis PR Insights: Understanding crisis PR is crucial for discerning manipulated narratives in media, empowering investors and consumers to make more informed decisions.

Notable Quotes

• David Meyer (01:29):
  "Cloud is not going away... sometimes you gain a little more here and gain a little more there along the way."

• David Meyer (04:12):
  "What we're looking for is not how much did you spend, but it's actually how much did you earn on the capital that you invested."

• David Meyer (07:08):
  "YouTube knows what their viewer wants... that's why they have the algorithms that know how to see what people are viewing."

• David Meyer (10:09):
  "It's the value of the mature properties plus whatever option value you assign to the ultra long term investments that are making."

• David Meyer (15:23):
  "The risk of potentially losing money is probably higher than the returns right now given these prices."

• Jordan Harper (21:16):
  "Find a lead steer, tell your story to that lead steer... That's a big part of what they do."

• Jordan Harper (28:47):
  "Look for things that sound like PR speak... Look for the agendas that aren't being stated."

This comprehensive summary encapsulates the key discussions and insights from the "Motley Fool Money" podcast episode "How Do You Value Alphabet?", providing listeners and investors with valuable takeaways on Alphabet's valuation, the dynamics of crisis PR, and strategic investment considerations in the tech sector.