Includes: Alphabet Inc. (GOOGL)
Summary
Google Valuations are historically low.
Waymo has potential to change the transportation industry.
A buy under the 200 Day currently does not factor Waymo into the valuation.
Google is currently below the 200 day moving average, and trades at a PE ratio of 45. Considering the possible revolution of their business model, current valuations are too low.
When compared to companies of relative size, Google is the cheapest on a valuation perspective. Amazon trades at a 127 (PE TTM), Netflix is at 111 (PE TTM), and Microsoft is a 50 (PE TTM).
When considering the revenue streams and diversification of their business models the companies above do not stack up.
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Google has recently (past 5 years) been attempting to diversify away from their main revenue stream (Advertisements), and explore other possible giant industries. Amazon, Facebook, and many others have attempted to explore the lucrative online ad space, and it is impossible to not see the potential of Amazon AWS.
With Waymo being still in early stages, it has yet to produce any revenue, only massive expenses. However, it is easy to see the possibility of having a revenue stream through the installation of Waymo technology on all or most cars. Currently announced Google has partnered with Jaguar and according to their website, " We’ll start testing these vehicles this year and will add up to 20,000 I-PACEs to Waymo’s fleet in the next few years. That’s enough to drive about a million trips in a typical day." However, competition to be a leader in the autonomous space is fierce. With virtually every major car manufacture stepping in, Google needs to separate itself. According to business insider they have, "The company is also building all of its hardware in-house, allowing it to slash the price of its Lidar system by 90%, Waymo says. Lidar is notoriously expensive and high-end systems can cost as much as $75,000 a pop.
Waymo has also announced partnerships with Lyft, Avis, and Intel." By having all the hardware made in house, they are able to undercut the price per unit relative to the competition. This could be the decided edge, as a system costing 75k to purchase on the manufacturing side, would price the vast majority of the population out of the equation. Furthermore, through strategic partnership with companies, most notably Lyft, Google is uniquely positioned to capitalize on the industry juxtaposed to the slower moving auto makers.
Furthermore, by operating simply on the hardware aspect of the market, compared to the actual manufacturing of an automobile, it allows Google to focus on mastering a smaller aspect of a broader design. This would poise them to better master the technological aspect of autonomous driving, and lead to lucrative partnerships down the line.
Lets take a look at the stock chart and implore some technical analysis to find an entry point.
It is very clear to see that Google is below its 200 day moving average (red line), and has found some support around 1050$ (and has sold off in a big way as of late). However, it has found some resistance below the 20 day moving average (blue line). The volume has been heavier than usual, however there is no indication that volume is reliably heavier on the down days, thus sending a neutral sign. The momentum indicator has just broken to the upside (green .44), and most importantly the market forecast (overbought, oversold indicator) is above 20, (green line) and it is pointed towards the upside which is generally the most reliable bullish indicator. Thus, if GOOGL can break the 20 day moving average and close above that mark, that would indicate that the ceiling of resistance is broken, and would be a good entry point.
On a final note, I would expect some heavy resistance around the 200 day moving average, and it would not be surprising if GOOGL would test the 50 and possibly even the 20 day averages, if it were to fail the test of the 200 day. However if it was to break through the 200 day line, and close above that mark. I would expect a break out and new 52 week highs to follow.
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Disclosure: I am/we are long GOOGL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.