Fundamental Analysis | April 29, 2021 1 GOOG-US's Share Price Performance of 80.83% Over the Last 12 Months Is Above Peer Median of 55.69%

April 29, 2021 Alphabet Inc

GOOG-US USD 2,307.12 Peer Group Industry Group: Online Services Microsoft Corporation (MSFT-US) 52 Week Range: USD 1,232.20 - USD 2,341.26 Apple Inc (AAPL-US) Market Cap: USD 748685.82 Mil. eBay Inc (EBAY-US) Facebook Inc (FB-US) Data as of Last Available Filing Yandex NV (YNDX-US) Annual: 2020-12-31 Baidu Inc (ADR) (BIDU-US) Semi Annual: N/A Akamai Technologies, Inc. (AKAM-US) Adobe Inc (ADBE-US) Quarterly: 2021-03-31 Amazon.com, Inc. (AMZN-US) Blucora Inc (BCOR-US) Alphabet Inc (GOOG-US)

Company numbers are TTM (trailing twelve months) or latest available. Share price data is previous day's close unless otherwise stated.

Overview

• It trades at a lower Price/Book multiple (3.25) than its peer median (5.69). • The market expects GOOG-US to grow more slowly than its peers and for its median ROE to decline. • GOOG-US has relatively high profit margins while operating with median asset turns. • Changes in annual revenues are in line with its chosen peers but lags in terms of earnings suggesting that the company is less cost conscious and may be spending for growth. • GOOG-US's return on assets currently and over the past five years is around the peer median and suggest that it does not have any particular operational advantages versus peers. • The company's relatively high pre-tax margin suggests tight control on operating costs versus peers. • While GOOG-US's revenue growth in recent years has been above the peer median, the stock's P/E ratio is less than the peer median suggesting that the company's earnings may be peaking and the market expects a decline in its growth expectations. • The company's capital investment seems appropriate for a business with peer median returns. • GOOG-US has the financial and operating capacity to borrow quickly. Share Price Performance

Considering peers, relative outperformance over the last year and the last month suggest a leading position.

CapitalCube 2021. All Rights Reserved Alphabet Inc | Fundamental Analysis | April 29, 2021 1 GOOG-US's share price performance of 80.83% over the last 12 months is above peer median of 55.69%. The 30-day trend in its share price performance of 13.34% is also above the peer median of 8.69% suggesting that this company is a leading performer relative to its peers.

Share Price Performance

200

150 Fading Leading

BIDU-US

100 AAPL-US GOOG-US YNDX-US FB-US EBAY-US ADBE-USMSFT-US 50 AMZN-US

BCOR-US AKAM-US 0 Lagging Rising hr rc hne12 n hs ont m 2 Change:1 % Price Share -50 -10 -5 0 5 10 15 Share Price % Change:30 days

Share Price Performance Peer Median 30 Day Share Price Change % Peer Median 12 Month Share Price Change % www.capitalcube.com

Drivers of Valuation: Operations or Expectations?

Valuation (P/B) = Operating Advantage (ROE) * Growth Expectations (P/E)

Price/Book or P/B valuation is a function of the observed operating performance of the company as measured by ROE multiplied by the market's current implied growth expectation as measured by the P/E. We define Valuation Premium as the difference between the Market Capitalization and Book Value of Equity, and as a proxy for the NPV of cash-flow associated to the Book Equity investment.

Based on the analysis of the relative contribution to the P/B valuation of "Operations ROE" vs. "Expectations P/E", we quickly garner insight into peers comparative performance and the market's assessment of their strategies - are they just "Harvesting" the current business pipeline or are investors betting on a strategic "Turnaround"?

The market expects GOOG-US's curre nt median rates of return to decline.

The market expects less growth from GOOG-US than the median of its chosen peers (P/E of 14.58 compared to peer median of 33.63) and for its current rates of return that are around peer median (ROE of 23.69%) to decline.

The company trades at a lower Price/Book multiple of 3.25 compared to its peer median of 5.69.

200

150 Harvest ing Outperforming

EBAY-US

100 AAPL-US

ADBE-US 50 MSFT-US GOOG-US FB-US AMZN-US BIDU-US AKAM-US YNDX-US 0 Challenged Turnaround Operat ing Advant age: ROE % ROE age: Advant ing Operat

-50 20 40 60 80 Growth Advantage: P/E

Valuation Drivers Peer Median P/E Peer Median ROE % www.capitalcube.com

GOOG-US has moved to a relatively low P/E from a Challenged profile at the recent year-end.

GOOG-US's ROE is its highest relative to the last five years and compares to a low of 15.02% in 2016.

Though its ROE increased to 23.69% from 19.00% (in 2020), its peer median remained relatively stable during this period at 25.42%.

Relative to peers, ROE rose 4.69 percentage points.

GOOG-US's current P/E is upward trending and is above its average year-end P/E of 13.88 over the last year- end.

P/E has remained relatively stable at 14.58 (compared to recent year-end) unlike its peer median, which has increased to 33.63 from 31.58.

Combining both ROE and P/E implies that GOOG-US's current P/B (price/book) of 3.25 has touched a new high (relative to the last year-end), which compares to a 2016 year-end low of 1.93.

30 40

23.69 30

20 19 18.62 18.12

15.02 15.43 20 16.26 14.3 14.58 13.74 13.32 10 11.78 10

0 0

2016 2017 2018 2019 2020 TTM 2016 2017 2018 2019 2020 TTM

GOOG-US Peer Median GOOG-US Peer Median www.capitalcube.com www.capitalcube.com

Operations Diagnostic

GOOG-US has relatively high profit margins while operating with median asset turns.

The company attempts to achieve high profit margins (currently 26.11% vs. peer median of 21.73%) through differentiated products. It currently operates with peer median asset turns of 0.66x.

Operating Advantage

Volume Driven Dom inant

1.5 AMZN-US

1 AAPL-USEBAY-US BCOR-US GOOG-US ADBE-USFB-US YNDX-US MSFT-US 0.5 AKAM-US BIDU-US

Problematic Margin Driven se Efcec:SlsTta se s Asset al Sales/Tot Efficiency: Asset 0 -40 -20 0 20 40 Net Margin %: NI/Sales

Operating Advantage Peer Median Net Margin % Peer Median Sales/Total Assets (x) www.capitalcube.com

GOOG-US has moved to a relatively high net margin from a median asset turnover and net margin profile at the recent year-end.

GOOG-US's net margin is its highest relative to the last five years and compares to a low of 20.28% in 2017.

CapitalCube 2021. All Rights Reserved Alphabet Inc | Fundamental Analysis | April 29, 2021 4 The increase in its net margin to 26.11% from 22.06% (in 2020) was also accompanied by an increase in its peer median during this period to 21.73% from 20.91%.

Net margin rose 3.23 percentage points relative to peers.

GOOG-US's asset turnover is its highest relative to the last five years and compares to a low of 0.57 in 2016.

Compared to 2020, asset turnover has remained relatively stable for both the company (0.66) and the peer median (0.59).

Overall, asset turnover and net margin trends suggest that GOOG-US's ROA at 17.11% is its highest relative to the last five years and compares to a low of 12.33% in 2017.

Net Margin % Sales/Total Assets (x)

30 0.8

26.11 0.66 25 0.64 0.64 0.61 0.61 22.46 22.06 21.58 21.22 0.6 0.57 20.28 20

15 0.4

0.2

0 0

2016 2017 2018 2019 2020 TTM 2016 2017 2018 2019 2020 TTM

GOOG-US Peer Median GOOG-US Peer Median www.capitalcube.com www.capitalcube.com

Earnings Leverage

GOOG-US seems to have less control over costs relative to peers.

GOOG-US's revenues have changed in-line with its peers (year-on-year change in revenues is 12.77%) but its earnings have lagged (annual reported earnings have changed by 17.26% compared to the peer median of 57.67%), implying that the company has less control over its costs relative to its peers. GOOG-US is currently converting every 1% of change in revenue into 1.35% change in annual reported earnings.

Earnings Focus Leader

BIDU-US 1k

YNDX-US AAPL-US AKAM-USGOOG-USMSFT-USADBE-USEBAY-USFB-US AMZN-US 0k

BCOR-US -1k Laggard Revenues Focus Earnings Grow t h %: YoY %: h t Grow Earnings

-2k 0 10 20 30 40 Revenue Growth %: YoY

Earnings Leverage Peer Median Revenue Growth (% YOY) Peer Median Earnings Growth (% YOY) www.capitalcube.com

Sustainability of Returns

GOOG-US's around median returns suggest no particular relative operational advantage.

GOOG-US's return on assets currently is around peer median (17.11% vs. peer median 17.11%) -- similar to its returns over the past five years (13.20% vs. peer median 12.17%). This performance suggests that the company has no specific competitive advantages relative to its peers.

Eroding Sustainable FB-US 20 ADBE-USAAPL-US GOOG-USMSFT-USEBAY-US YNDX-US 10 AKAM-US BIDU-USAMZN-US

0 BCOR-US

ROA %: 5 Year Avg Year 5 %: ROA Questionable Im proving -10

-20 -30 -20 -10 0 10 20 30 ROA %: Latest

Sustainable Operating Advantage Peer Median 1Y ROA % Peer Median 5Y ROA % www.capitalcube.com

Drivers of Margin

Relatively high pre-tax margin suggests tight control on operating costs versus peers.

The company's gross margin of 54.32% is around peer median suggesting that GOOG-US's operations do not benefit from any differentiating pricing advantage. However, GOOG-US's pre-tax margin is more than the peer median (31.32% compared to 22.05%) suggesting relatively tight control on operating costs.

120

Differentiated; High Cost Differentiated; Low Cost 100

ADBE-US FB-US 80 MSFT-US AKAM-USBIDU-US YNDX-US 60 GOOG-US EBAY-US BCOR-US AMZN-US AAPL-US 40

ifrn a o GosMargin%) M (Gross ion iat Different Commodity; High Cost Commodity; Low Cost 20 -40 -20 0 20 40 Cost Controls (Pre Tax Margin%)

Margin Drivers Peer Median Pre-Tax Margin % Peer Median Gross Margin % www.capitalcube.com

GOOG-US has moved to a relatively high pre-tax margin from a median gross margin and pre-tax margin profile at the recent year-end.

GOOG-US's gross margin has increased 0.74 percentage points from last year's low but is still below its five-year average gross margin of 57.12.

While its gross margin increased to 54.32% from 53.58% (in 2020), its peer median decreased during this period to 60.73% from 64.15%.

Gross margin rose 4.15 percentage points relative to peers.

GOOG-US's pre-tax margin is its highest relative to the last five years and compares to a low of 24.48% in 2019.

Like the gross margin trend, while its pre-tax margin also increased (to 31.32% from 26.34%), its peer median decreased during this period (to 22.05% from 24.44%).

Relative to peers, pre-tax margin rose 7.37 percentage points.

80 40

31.32 61.08 60 58.88 30 56.48 55.58 53.58 54.32 26.75 25.52 26.34 24.53 24.48

40 20

20 10

0 0

2016 2017 2018 2019 2020 TTM 2016 2017 2018 2019 2020 TTM

GOOG-US Peer Median GOOG-US Peer Median www.capitalcube.com www.capitalcube.com

Growth Expectations

The company's earnings may be peaking.

While GOOG-US's revenues growth has been above the peer median (18.08% vs. 14.00% respectively for the past three years), the stock's P/E ratio of 14.58 is less than the peer median. This implies that the company's earnings are peaking and the market expects a decline in its growth expectations.

Growth Expectations

Expected Decline Superior 40

YNDX-US AMZN-US 30 FB-US

ADBE-US 20 GOOG-US MSFT-US

10 BIDU-US AKAM-US AAPL-US

EBAY-US 0 Substandard Strategic Play

-10

Hist orical Grow t h: 3 Year Revenue Grow t h % h t Grow Revenue Year 3 h: t Grow orical Hist 20 40 60 80 Investor Expectations: P/E

Growth Expectations Peer Median P/E Peer Median 3Y Revenue Growth (CAGR %) www.capitalcube.com

Capital Investment Strategy

GOOG-US's capital investment seems appropriate in a business with peer median returns.

CapitalCube 2021. All Rights Reserved Alphabet Inc | Fundamental Analysis | April 29, 2021 9 GOOG-US's annualized rate of change in capital of 14.93% over the past three years is around its peer median of 15.22%. This median investment has likewise generated a peer median return on capital of 18.02% averaged over the same three years. This median return on investment implies that company is investing appropriately.

Capital Investment Strategy

Milking the Business Supporting Growth AAPL-US ADBE-US FB-US MSFT-US 20 GOOG-US EBAY-US YNDX-US AMZN-US AKAM-US BIDU-US

ROIC %: 3 Year Avg Year 3 %: ROIC BCOR-US

Maintenance Mode Betting on Future

-20 -20 0 20 40 60 Capital Growth % (3 Year)

Capex Strategy Peer Median 3Y Capital Growth (CAGR %) Peer Median 3Y Average ROIC % www.capitalcube.com

Leverage & Liquidity

GOOG-US has the financial and operating capacity to borrow quickly.

With debt at a relatively low 2.52% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 4.97%), and a well-cushioned interest coverage level of 261.49x, GOOG-US can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.

All 10 peers for the company have an outstanding debt balance.

1500

Quick and Able Some Capacity

FB-USAMZN-USYNDX-USAKAM-US EBAY-USBIDU-US BCOR-US 1000

500 GOOG-US

ADBE-USMSFT-USAAPL-US 0 Limited Flexibility Constrained Liquidit y: EBIT/Int erest Expense (x) Expense erest EBIT/Int y: Liquidit -500 0 10 20 30 40 50 Leverage: Debt/Enterprise Value (%)

Debt Capacity Leverage Threshold Interest Coverage Threshold www.capitalcube.com

GOOG-US has maintained its Quick & Able profile from the recent year-end.

GOOG-US's interest coverage is its lowest relative to the last five years and compares to a high of 999x in 2020.

Though its interest coverage decreased to 261.49x from 999x (in 2020), its peer median remained relatively stable during this period at 999x.

Interest coverage fell 737.51 points relative to peers.

GOOG-US's debt-EV has declined 0.79 percentage points from last year's high but remains above its five-year average debt-EV of 1.96.

The decrease in its debt-EV to 2.52% from 3.31% (in 2020) was also accompanied by a decrease in its peer median during this period to 4.97% from 5.75%.

1000 999 999 999 999 999 25

20 750

500 10

261.49 250 5 3.31 2.12 2.52 1.48 1.56 1.33 0 0

2016 2017 2018 2019 2020 TTM 2016 2017 2018 2019 2020 TTM

GOOG-US Peer Median Threshold (2.5x) GOOG-US Peer Median Threshold (25%) www.capitalcube.com www.capitalcube.com

Key Valuation Items

Dividend Yield Company Market Cap(mn) Price / Book Price / Earnings (%) Microsoft Corporation 1975834.26 15.17 38.51 0.8 Apple Inc 2256152.22 34.07 35.29 0.6 eBay Inc 42033.85 11.8 11.16 1.04 Facebook Inc 730221.97 5.69 25.05 0 Yandex NV 20186.65 0.06 61.89 0 Baidu Inc (ADR) N/A 0.31 20.15 N/A Akamai Technologies, Inc. 18223.31 4.29 31.96 0 Adobe Inc 247278.96 18.25 44.43 0 Amazon.com, Inc. 1722783.3 18.44 80.82 0 Blucora Inc 697.78 2.23 N/A 0 Alphabet Inc 748685.82 3.25 14.58 0 Peer Median 488750.47 5.69 33.63 0 Best In Class 2256152.22 34.07 80.82 1.04

Pre-Tax Margin Company Revenues (mn) Gross Margin (%) Net Margin (%) (%) Microsoft Corporation 153284 68.35 39.62 33.47 Apple Inc 294135 38.78 25.41 21.73 eBay Inc 15510 50.28 22.05 24.29 Facebook Inc 85966 80.58 38.6 33.9 Yandex NV 2948.96 60.73 17.04 11.06 Baidu Inc (ADR) 15909.51 64.15 21.56 17.77 Akamai Technologies, Inc. 3198.15 64.58 19.26 17.83 Adobe Inc 13682 87.45 34.28 40.68 Amazon.com, Inc. 386064 39.57 6.26 5.52 Blucora Inc 754.95 47.24 -39.79 -45.4 Alphabet Inc 196682 54.32 31.32 26.11 Peer Median 15909.51 60.73 22.05 21.73 Best In Class 386064 87.45 39.62 40.68

Key Assets (% of Revenues)

Goodwill & Working Capital Cash & Company Capital (%) Intangibles(%) (%) Equivalents (%) Microsoft Corporation 131.96 33.12 69.78 86.09 Apple Inc 60.61 0 14.05 26.12 eBay Inc 73.01 30.22 12.34 23.75 Facebook Inc 149.84 22.88 65.06 72.07 Yandex NV 188.9 61.1 69.25 108.94 Baidu Inc (ADR) 248.91 35.92 104.2 156.33 Akamai Technologies, Inc. 192.55 59.69 42.36 34.33 Adobe Inc 129.11 99.21 10.25 36.27 Amazon.com, Inc. 37.41 5.18 1.93 21.86 Blucora Inc 114.79 102.92 9.61 19.97 Alphabet Inc 124.01 12.29 56.82 68.69

Cash Conversion Company Inventory DSO Receivable DSO Payable DSO Cycle* Microsoft Corporation 5.51 60.53 25.69 110.32 Apple Inc 5.61 61.16 67.6 -12.81 eBay Inc 0 20.52 7.08 20.29 Facebook Inc 0 44.27 9.92 34.35 Yandex NV 4.7 52.39 0 57.08 Baidu Inc (ADR) 3.44 39.3 41.48 1.27 Akamai Technologies, Inc. 0 72.4 14.69 57.71 Adobe Inc 0 40.5 6.92 116.37 Amazon.com, Inc. 20.94 21.2 56.59 -14.46 Blucora Inc 0 19.32 4.9 14.42 Alphabet Inc 1.5 48.47 8.26 164.62 Peer Median 1.5 44.27 9.92 34.35 Best In Class 1.5 19.32 67.6 -14.46 * Inventory DSO + Receivable DSO - Payable DSO

Cash Management Indicators

Current Assets Current Excess Cash Company Cash Float DSO* DSO Liabilities DSO DSO** Microsoft Corporation 406.05 151.36 -239.11 314.1 Apple Inc 196.9 145.6 -176.62 96.79 eBay Inc 139.98 94.93 -47.25 69.03 Facebook Inc 301.23 63.76 -10.5 240.68 Yandex NV 343.27 90.49 -20.11 265.59 Baidu Inc (ADR) 594.68 214.36 -145.58 518.6 Akamai Technologies, Inc. 237.45 82.83 4.26 143.07 Adobe Inc 184.59 147.18 -315.13 138.83 Amazon.com, Inc. 108.28 101.26 -58.88 58.61 Blucora Inc 82.14 47.05 -22.25 50.04 Alphabet Inc 296.14 88.75 -124.23 244.9 Peer Median 237.45 94.93 -58.88 143.07 Best In Class 82.14 214.36 -315.13 50.04 * CurrAssetsDSO - CurrLiabDSO - CashDSO ** Excess Cash = Cash & Eqvts - 2%*Revenue

Debt/Enterprise Interest Cash Flow To Company Current Ratio Value (%) Coverage (x) Total Debt (%) Microsoft Corporation 4.45 2.58 24.41 93.34 Apple Inc 4.97 1.16 27.24 78.99 eBay Inc 20.19 1.8 No interest exp 31.17 Facebook Inc 0.09 5.05 No interest exp 7780.52 Yandex NV 5.75 4.71 No interest exp 74.96 Baidu Inc (ADR) 24.7 2.68 No interest exp 34.01 Akamai Technologies, Inc. 10.66 2.54 No interest exp 64.86 Adobe Inc 1.96 1.27 42.07 149.93 Amazon.com, Inc. 3.18 1.05 No interest exp 142.31 Blucora Inc 47.38 1.98 No interest exp 9.31 Alphabet Inc 2.52 3.1 261.49 504.6 Peer Median 4.97 2.54 No interest exp 78.99 Best In Class 0.09 5.05 No interest exp 7780.52

Key Cash Flow Items (% of Revenues)

Operating Cash Interest Expense Company Capex (%) Dividends (%) Flow (%) (%) Microsoft Corporation 44.38 11.48 1.6 9.88 Apple Inc 30.23 2.96 0.93 4.79 eBay Inc 15.6 3.19 -1.97 2.88 Facebook Inc 45.07 17.58 0 0 Yandex NV 15.4 11.6 -1.12 0 Baidu Inc (ADR) 22.06 4.63 -2.83 0 Akamai Technologies, Inc. 37.99 17.22 -2.3 0 Adobe Inc 45.12 2.81 0.83 0 Amazon.com, Inc. 17.11 10.4 -0.43 0 Blucora Inc 5.84 4.77 -3.92 0 Alphabet Inc 37.1 11.3 0.1 0

Company Profile

Alphabet Inc. is a holding company. The Company's businesses include Google Inc. (Google) and its Internet products, such as Access, Calico, CapitalG, GV, Nest, Verily, Waymo and X. The Company's segments include Google and Other Bets. The Google segment includes its Internet products, such as Search, Ads, Commerce, Maps, YouTube, Google Cloud, Android, Chrome and Google Play, as well as its hardware initiatives. The Google segment is engaged in advertising, sales of digital content, applications and cloud offerings, and sales of hardware products. The Other Bets segment is engaged in the sales of Internet and television services through Google Fiber, sales of Nest products and services, and licensing and research and development (R&D) services through Verily. It offers Google Assistant, which allows users to type or talk with Google; Google Maps, which helps users navigate to a store, and Google Photos, which helps users store and organize all of their photos.

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