Good Evening!

I hope everyone had a great Thanksgiving and that you have overcome your turkey hangover successfully.

One thing that I was definitely thankful for this Thanksgiving was (and still is!) Cleveland Browns QB Jameis Winston. Not only has he made the Browns fun again, but he has also given us all some of the most legendary pre-game interviews in the history of sports — like this one here.

Keep being you Jameis. You are a gem.

Inside Today’s Edition:

• Deep Dive: Alphabet: Quality at a Reasonable Price?

• Buffett Wisdom: Warren Buffett Gets Deep

• Chart of the Week: More $GOOG: Google Cloud is a Beast!

• Golden Nuggets: Golden at Bat, Josh Allen, and Bill Belichick

• Meme of the Week: We found him but at what cost

Showtime!

Three quick housekeeping announcements/reminders before we get started:

1. All opinions in The Crossover are 100% my own.

2. No Artificial Intelligence/ChatGPT is used in writing The Crossover. (Who needs AI when you have AL!)

3. The Crossover is not investment advice and is for education and entertainment purposes solely.

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DEEP DIVE

Alphabet: Quality at a Reasonable Price?

Over the past couple of weeks, I have spent some time looking into Alphabet, the parent company of Google. Below, I spend a few moments sharing my thoughts on the company in a (hopefully!) fun manner.

Q: What would you say your thoughts are currently on Alphabet’s stock?

A: Simply put, the way I see things is that Alphabet’s stock is a very very complicated situation. I really can see the perspective that the stock is cheap as well as the perspective that it is overvalued.

Q: Would you like to extrapolate off of this very high-level, wishy washy opinion? You have 1,000 words to burn here…

A: Absolutely. So maybe I kick things off by sharing the brief overview of the bearish perspective. Fundamentally, the stock looks relatively cheap as it is trading at ~20x PE, the lowest PE compared to other Magnificent Seven peers. Additionally…

Q: Sorry to interrupt, but I thought you were breaking down the bearish perspective, not the bullish perspective.

A: Patience. Stick with me.

As I was saying, there is a clear fundamental backing to argue that the stock is cheap. However, while the market can have its moments of being wrong, for the most part, the market is right. There are a ton of sharp people who dedicate hours a day to these names and industries — this is especially true when it comes to Mag 7 stocks. So why is Google Trading at a discount?

The most obvious reason is the fact that Alphabet’s largest business, Google Search, responsible for more than 50% of company revenue, is facing a possible existential threat with the rise of ChatGPT and other similar tools. Simply put, the way people are searching and receiving information is going through a generational shift.

Additionally, there are anti-trust concerns that could forced Alphabet to sell Chrome and have their dominance in search start slipping away. (For more of the risks around Alphabet, check out this well written article by WSJ. As you can see, the risks are very real.)

Q: So, the risks are real with Alphabet, but I am sensing you actually might have a bullish stance on the company. I am sorry to harp on it, but you did start your bearish thesis by calling the company cheap.

A: Fine. You got me.

Simply put, I think the upside potential outweighs the downside risks and that Dollar-Cost-Averaging at these levels (~$170) could lead to a good outcome.

At the highest level, Alphabet is coming off a really strong Q3 ‘24. The company beat on analyst expectations both on the top & bottom line with revenue of $88.27B (representing +15% YoY growth) & EPS of $2.12 (representing +37% YoY growth). Analysts were expecting $86.30B and $1.85 for revenue and EPS respectively.

Importantly, and also a tough look for the bear case, is that Google Search continued to deliver. In Q3 ‘24, Google Search did $49.39B in revenue compared to $44.03B in revenue in Q3 ‘23. That is about 12% YoY growth, which is not bad at all for a business at this scale and facing an existential threat.

Notably, Google Cloud Revenue continued to grow at a strong clip reporting $11.35B in quarterly revenue versus $8.41B in Q3 of the year prior representing ~35% growth.

Q: Okay. Now this is getting more interesting. Why did you not include anything YouTube related? I feel like that should be covered in any $GOOG write-up.

A: Because I wanted to dedicate a whole paragraph to YouTube.

YouTube continues to be a juggernaut and still has a lot of momentum. Alphabet shared in their quarterly call that for the first time ever “combined ad and subscription revenue over the past four quarters has surpassed $50B.” Remarkable. (It is my understanding that this number includes everything YouTube from the classic platform itself to YouTubeTV, Shorts, YouTube Music Premium, etc.)

Additionally, when many think of YouTube they likely think about its dominance in the mobile space, but what many do not realize is just how big it has become in the classic TV viewing experience.

Check out this chart below from Nielsen’s “The Gauge” which “uncovers how U.S. audiences spend their time watching TV across platforms and media distributors each month.”

Yes. You read this right. More than 10% of TV viewing was YouTube. I am pretty sure this excludes YouTubeTV as well. Remarkable.

As the Cable and Broadcast portion of the chart above continues to shrink, I expect YouTube to continue to grow their fair share. Simply put, I think YouTube has a lot more room to run.

I am not the only that feels strongly about the value of YouTube. Specifically, about a year ago, Laura Martin of Needham Capital was on CNBC discussing the value of YouTube.

Specifically, Laura shared that she thinks YouTube is worth $350-400B on its own. With Alphabet trading ~$2 Trillion market cap, a simple sum-of-parts-analysis might just show you that YouTube’s value is not fully appreciated in the current valuation of the stock.

Q: Okay. After the length of that answer, I think I regret asking about YouTube, but onward we go. I know we won’t be able to cover everything Alphabet here today, but is there anything else you wanted to touch on in particular?

A: Ya. I wanted to share a couple of quick thoughts on Waymo, Alphabet’s self-driving car project. Simply put, Waymo seems much less of a project and more like a real business with serious potential. The autonomous vehichle/EV space is not one I really keep my eye on, but Waymo’s rapid success has gotten my attention. Specifically, Waymo now does over 150,000 rides a week and over 1,000,000 fully autonomous miles — and they are just getting started.

Gene Munster of Deep Water Management (and a CNBC regular!) shared a very interesting analysis on Waymo and what it could mean for Alphabet (which owns a meaningful amount).

Specifically, Gene shared that “I believe Alphabet will spin out Waymo in the next 2-4 years, with a potential valuation of $350B to $850B by 2030, which could add between 12-28% to GOOG's current market cap, depending on Alphabet's ownership percentage.

While there are (obviously) many assumptions in his model and the future is oh so unpredictable, I strongly agree with his sentiment.

Q: Very interesting. In just a few sentences, can you summarize your perspective?

A: Yes. Simply put, I think the risks around Google Search are very real, but that the stock is already taking these into account. It is my opinion that Google Search will look different in the future, but will stay a key player in the search ecosystem. This will allow Waymo and YouTube’s value to shine and ultimately make $GOOG a winner in the long run.

Additional Resources:

Barron’s Article | WSJ Article | Deep Water Article | Alphabet Q3 Press Release

BUFFETT WISDOM

Warren Buffett Gets Deep.

Simply put, Warren Buffett just went off — and I can’t believe how little coverage it has received.

On November 25th, Berkshire Hathaway shared a press release regarding Buffett donating 2,400,000 B shares of Berkshire Hathaway stock to charity, which using quick math is ~$1.1B. In the press release, in vintage Buffett fashion, he reflected on his life, his values, money, charity, and so much more.

I hope to share a full analysis of the letter at a later date, but for now, I just wanted to put it on all of your radars and share a quick quote from the letter:

“Things didn’t look great when I arrived at the beginning of The Great Depression. But the real action from compounding takes place in the final twenty years of a lifetime. By not stepping on any banana peels, I now remain in circulation at 94 with huge sums in savings – call these units of deferred consumption – that can be passed along to others who were given a very short straw at birth.”

Legend.

CHART OF THE WEEK

More $GOOG: Google Cloud is a Beast!

GOLDEN NUGGETS

1. I Do Not Like This Idea at All

2. One of the Craziest Plays I Have Seen

3. No One like Bill!

MEME OF THE WEEK

We Found Him but at What Cost

Thanks for the read! Let me know what you thought by replying back to this email.

— Alan

Disclaimer: The Crossover is not a professional financial service. All materials released from The Crossover are for educational and entertainment purposes. The Crossover is not a replacement for a professional's opinion. Contributors to the Crossover might have positions in the equities mentioned in the newsletter.