Alphabet shares could become more valuable if the company is divided

Alphabet shares could become more valuable if the company is divided

If YouTube were its own company, it would have a lot going for it, as it’s the world’s most-watched internet streaming app and a social network, and it offers subscriptions to music and video, too. Google Cloud is the third-largest public cloud service provider. It’s not yet profitable, but it’s getting there. Plus, Alphabet is cash-rich, with cash and short-term investments worth nearly $140 billion as of the end of 2021. This kind of war chest could provide lots of funding if the company’s individual entities were set free.

Some tech behemoths are so large that authorities are considering breaking them apart. Alphabet, the parent firm of Google, is a perfect example. Even if Alphabet is divided up one day, long-term owners may benefit since the total worth of Alphabet’s parts may be larger than the whole/. Several Alphabet firms can exist on their own — and are likely to perform well against competitors. Google Search would still dominate searches if it were its own company.

Alphabet shares recently traded at a price-to-earnings ratio of around 21, well below its five-year average of nearly 34 — an attractive level for a company whose 2021 revenue grew 41% year over year. The stock appears already discounted for regulatory risks, and long-term investors should take a closer look. (The Motley Fool owns shares of and has recommended Alphabet.) From L.R. in Carson City, Nev.: Where should I look for estimates of various companies’ upcoming earnings? The Fool responds: You’ll find analysts’ projected earnings at sites such as Yahoo! Finance. (Look up companies via the “Quote Lookup” search box, then click on “Analysis” on the company’s data page.) But don’t put too much importance on the numbers you see there.

Remember that estimates are just that — estimates. Very often, they’re partly or largely based on guidance and information from the company itself. So a company could lowball its guidance, making it easier to exceed expectations when reporting results. Publicly traded companies in the United States report on their performance and financial health in quarterly reports (“10-Q’s”) and an annual report (a “10-K,” providing a much deeper dive). Instead of focusing on analysts’ estimates, review each report closely yourself, noting trends, growth rates and any red flags you might see (such as surging debt). Also check each company’s “investor relations” page: Many companies hold conference calls on their results each quarter.

From M.C. in Sioux Falls, S.D.: I have holdings in several dividend-paying stocks, with dividend yields ranging from around 3% to 8%. The companies all seem to be performing well, so I’m thinking of selling the low-yielders and buying more of the high-yielders. Should I? The Fool responds: Don’t put too many eggs in too few baskets. Even seemingly solid companies can surprise you with bad news and dividend cuts. Also, consider dividend growth rates. If you plan to hold these shares for many years, the companies with low current yields might be growing rapidly and might increase their payouts substantially in coming years, eventually paying more in dividends than the current high yielders are paying.

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