Alphabet shares may be more valuable if company is broken up

The Motley Fool Take

Some tech giants are so big that regulators are looking to break them up. Google parent company Alphabet is a prime example.

Even if it’s broken up one day, though, long-term shareholders could come out ahead because the total value of Alphabet’s parts may be greater than the whole.

Several of Alphabet’s businesses can stand on their own — and likely could compete well against rivals. If Google Search were its own business, it would still dominate searches. 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.

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.)

Ask the Fool

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…

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