GOOG Stock Forecast: A Tale of Thriving Revenue

Meiru ZhongThis GOOG Stock Forecast article was written by Meiru Zhong – Financial Analyst at I Know First.


  • Alphabet earned revenue of US$76.7 billion, growing by 11% in Q3 2023 compared to Q3 2022. The operating income also grew by 24.6% to $21.3 billion because of strong demands for products and services and robust cost control.
  • Google advertising had grown by 9% to $59,647 million in Q3’23 compared to last year. The growth was primarily driven by the increase in the number of users’ engagement and the average amount charged for advertisers for each click in Google Search & other properties (including YouTube) and offset by the decrease in the number of impressions and the average amount charged for each impression in Google Network.
  • Alphabet’s cost structure was robust, and its cost of revenue and operating costs had a stable proportion of the total revenue, about 44% and 29% respectively in Q3’23.
  • GOOG repurchased US$15.9 billion shares in the third quarter and invested $8.1 billion capital expenditure in technical infrastructure for business expansion, signaling managers’ strong confidence.
  • DCF valued GOOG at $142, a 4% upside potential compared to $136.94 on November 18, 2023.


Alphabet, Inc. (GOOG), as the parent company of Google and various subsidiaries, is an American multinational company operating in three segments: Google Services, Google Cloud, and Other Bets. Specifically, Google Services include ads, Android, Chrome, hardware, Google Maps, Google Photos, Google Play, Search, and YouTube. Google Cloud encompasses Google Cloud Platform and Google Workspace, like Gmail, Drive, Calendar, Meet, and more. Other Bets consists of all non-Google businesses at various development stages. Advertising is the company’s primary revenue source, contributing 81.3% of the total revenue in 2022. As the world’s third-largest technology company by revenue, GOOG generated annual sales of US$282.8 billion and net income of $59.97 billion at the end of 2022.


Strategic Excellence: Optimal Performance and Smart Cost Control

Alphabet is a collection of businesses that generate revenues by delivering online advertising, cloud-based solutions, other products and services, and subscription-based products. The business can be segmented into three parts: Google Services (taking up 88.6% of the total revenue), Google Cloud (11.0%), and Other Bets (0.4%). 

High-performing Google Services and Growing Google Cloud

The table below shows that Alphabet, Inc. had a weak performance in the first quarter but a strong performance in the second and third quarters in 2023 compared with the same period in 2022. The increase was primarily due to the rise in revenue from Google Services and Google Cloud. Notably, the operating income from Google Cloud had turned from negative to positive and remained stable in 2023.

(Source: company data)

Google Services revenues are comprised of Google advertising and Google other revenues. Specifically, Google advertising is generated from Google Search, Gmail, Google Maps, Google Play, YouTube, and Google Network (primarily in AdMob, AdSense, and Google Ad Manager). Google’s other revenues include sales of apps and in-app purchases in Google Play, hardware sales (such as Fitbit wearable devices, Pixel devices, and Google Nest home products), and YouTube non-advertising revenue, which is about subscription revenues from YouTube Premium and YouTube TV.

There are three reasons behind the change in segments within Google advertising revenue, which accounted for 78% of total revenue in Q3’23:

  • Google Search & other revenue increased by 11.3%, and the growth was driven by the increase in search queries resulting from growth in user adoption, usage on mobile devices, and advertiser spending. 
  • YouTube ads revenue rose by 12.5%, and the growth was fueled by brand advertising products and direct response advertising products, both of which benefited from increased spending by advertisers.
  • Google Network revenue was decreased by 2.6% due to the reduced demand for Google Ad Manager and AdSense.

To measure monetization of traffic across various properties, the company has used paid clicks and cost-per-click to value traffic on Google Search & other properties, including YouTube, while impressions and cost-per-impression to evaluate traffic on Google Network properties. The table shows the year-over-year analysis of these metrics.

  • Paid clicks, representing user engagement, have increased by 7% in Q3 2023 compared with Q3 2022, and this uprising trend has also continued in the first 9 months of 2023. It means more and more users use Google Search & other properties and click on advertisements.
  • Cost-per-click equals click-based revenue divided by the total number of paid clicks, representing the average amount charged advertisers for each user engagement. The figure increased by 4% in Q3 2023 compared with Q3 2022 but decreased by 2% in the first nine months in 2023 compared with that in 2022. Although the average amount charged for advertisers for each engagement had reduced in the first two quarters of 2023 compared with 2022, the downward trend was stopped in the third quarter and reversed to an upward state. This change means GOOG could charge more for advertisers for each user engagement in Google Search & other properties.
  • Impressions means impressions displayed to users on Google Network properties, such as AdMob, AdSense, and Google Ad Manager. It’s apparent that fewer users were using Google Network properties to manage ads in 2023 compared with 2022, and the trend seemed to continue.
  • Cost-per-impression equals impression-based and click-based revenue divided by the total number of impressions, identifying the average amount charged advertisers for each impression displayed to users. The metric had increased in Q3’23 by 1%, which means the number of impressions was down by 3%, and the revenue from click-based and impression-based was down by 2%. From the above analysis, since the click-driven revenue increased in Q3’23, the impression-based revenue dropped more than 2%.
(Source: company data)

Overall, Google Services had increased by 10.8% in Q3’23 compared with Q3’22. Particularly, Google advertising had grown by 9% compared with last year. The growth was primarily driven by the increase in the number of users’ engagement and the average amount charged for advertisers for each click in Google Search & other properties (including YouTube). At the same time, it is offset by the decrease in the number of impressions and the average amount charged for each impression in Google Network. Since revenue from Google Search & other properties occupied about 68% of total revenue and from Google Network about 10%, the overall change in the advertising revenue was positive, and the trend would be consistent in the next few years. Moreover, Google’s other revenues had increased by 21% in Q3’23 compared with Q3’22, mainly driven by YouTube’s non-advertising revenue because of increased paid subscribers.

Google Cloud revenues include fees for infrastructure, platform, and services in Google Cloud Platform and fees for collaboration tools in Google Workspace. The figure had increased by 22.5%, primarily fueled by infrastructure and platform services in Google Cloud Platform, followed by Google Workspace. Although the business’s operating income had turned negative to positive, it’s still a small part of the whole structure, occupying 11% of the total revenue and 1.2% of the total operating income. Moreover, other Bets revenues are generally from health technology and internet services sales. Since the business contained various stages of development, it was still consuming money and didn’t provide profits yet.

The following table presents revenues by geography as the percentage of revenues. It’s clear that the largest market is the United States, making up 47%, followed by EMEA (30%), APAC (17%), and Other Americas (6%). The market structure has been stable and robust with a 1% decrease in the U.S. and a 2% increase in EMEA in Q3’23 compared with Q3’22.

(Source: Alphabet Inc. Q3’23 report)

Robust Cost Management Associated with the Revenue Growth

The cost structure of Alphabet Inc. consists of two parts: cost of revenues and operating expenses. In particular, the cost of revenues comprises traffic acquisition costs (TAC) and other revenue costs. Operating expenses include R&D, sales and marketing, and general and administrative (SG&A).

The table shows changes in the cost of revenues, which had a stable percentage of revenue of about 44%. With the increase in revenue, the cost of revenue had also risen to support the growth.

  • TAC increased by 6.9% in Q3’23 compared with Q3’22, mainly due to the amount paid to distribution partners who make search access points and services available. The change in TAC was aligned with the change in the number of paid clicks and impressions. As more users used applications, the more TAC the company needed to pay to distributors.
  • Other costs of revenues include content acquisition costs, expenses associated with data centers, and inventory costs related to the hardware. Its 6.5% year-over-year increase in Q3’23 was due to increased content acquisition costs, involving payments to content providers for the licensing of video and other content distributed on YouTube. Expenses related to data centers and hardware were also increased but partially offset by a reduction in depreciation expense due to the change in the estimated useful lives of servers and certain network equipment from four years to six years and some network equipment from five years to six years. This assessment was conducted in January 2023, saving $977 million and $2.9 billion for the third quarter and the first nine months of 2023.
(Source: Company data)

Operating expenses had a stable percentage of total revenues, accounting for 29% in Q3’23. It actually increased by 6% compared with Q3’22 because of the increase in stock-based compensation, employee severance charges (12,000 layoffs globally incurring $2.1 billion for the first nine months in 2023), and exit charges for the optimization of global office space ($649 million for the first nine months in 2023), partially offset by the decrease in advertising activities and depreciation costs stated above. We expect GOOG to have fewer operating expenses due to the reduced number of employees and optimized office space.

Overall, Alphabet’s cost structure was robust, and its cost of revenue and operating costs had a stable proportion of the total revenue. Its increase in cost of revenue was associated with the increase in revenue, and the growth of revenue (10.8%) outweighed that of operating costs (6.5%) in Q3’23, identifying a healthy financial status and good cost management.

Share Repurchases and Increasing Capital Expenditures to Show Confidence

In Q3’23, Alphabet Inc. invested $15.9 billion in share repurchase, aiming to boost earnings per share by lowering the total shares outstanding. The share buyback program also reflects the company’s strong confidence in sustained revenue growth. Additionally, an $8.1 billion capital expenditure in technical infrastructure in Q3 signifies strategic business expansion. This investment was primarily for servers, followed by data centers, reflecting a meaningful increase in investments in AI computing. These actions delivered a good message that Alphabet is in a strong growing mode, bolstering a positive outlook for its stock.

DCF Values GOOG at $142


The DCF analysis shows that GOOG ’s intrinsic, 1-year, and 2-year stock price should be around $142, $151, and $160 respectively, which is 4%, 10%, and 17% upside potential from the price of $136.94 on November 18, 2023. It’s clear that the GOOG stock price is undervalued and is worth buying.

The DCF model is built based on the following assumptions:

  • The risk-free rate is 3.9% according to US 10-year zero coupon bond as of September, 2023. The risk premium 5.5% comes from the average market risk premium in the U.S. from Statista.
  • Beta 1.05 is calculated based on the slope of the change of monthly GOOG  stock price and S&P500 price from 2018 to 2023.
  • The cost of debt is calculated as a weighted average interest expense of 1.39% and operating lease discount rate of 2.80%, concluding at 2.1%.
  • The tax rate is the effective tax rate 15.4% derived from the 10-K 2022.
  • The terminal growth rate is assumed at 4.0%.

Due to the uncertainties in the macroeconomic environment, it is difficult to accurately predict the impact of relevant risk factors such as epidemics and wars, and the assumption may not be valid. A sensitivity matrix is created to show the impacts on GOOG ’s intrinsic stock price by altering WACC (weighted average cost of capital) and terminal growth rate.

Viewpoints from Analysts Community

Based on Yahoo Finance, there were 31 analysts presenting recommendation trends since Sep 2023, among which 14 recommended Strong Buy, 15 Buy, and 2 Hold. The recommendation rating is 1.7 between Buy and Strong Buy. The average price target is around $146.10, with a low of $130 and a high of $160.



I take a buy-side on GOOG stock because the DCF target price is $142, a 4% upside difference from the current price. The momentum in Google Services and Google Cloud is propelling growth in revenue and stock value. The adept cost control is evident in the stable proportion of the cost of revenue and operating expenses to the total revenue. Share repurchases and huge capital expenditures can serve as indicators of confidence in the company’s future performance, fueling the stock price up.

Worth noting is that the AI-driven stock selection by I Know First indicates a strong bullish signal for GOOG stock on the one-year market trend predictions, aligning with my perspective. The light green for short-term forecasts suggests a mildly bullish stance, while the darker green represents a strong bullish signal for the one-year forecast.

Past Success with GOOG Stock Forecast

I Know First has been bullish on the GOOG stock forecast in the past. On October 17th, 2022 the I Know First algorithm issued a forecast for GOOG stock price and recommended GOOG as one of the best S&P 100 stocks to buy. The AI-driven GOOG stock prediction was successful on a 1-month time horizon resulting in more than 45.08%.

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