Google Profits Surged in Q1

Google shares GOOGL Google reported a $90.2 billion revenue and $2.81 EPS for Q1 2025, a 12% and 49% YoY increase. The EPS figure is somewhat inflated, as $8 billion of the net income is resulted from the unrealized gain of its SpaceX investment. The adjusted EPS should be $2.16 excluding the unrealized gain, representing a YoY growth of 14%, and a TTM price-to-earnings ratio of 19.7. The company has also improved its profitability, with operating margin grew 2% to 34%.

Google continues to deliver substantial growth among most of its business lines, despite the popular belief that the company is “losing” market share in the search business because of the rise of generative AI. There are definitely more people using AI tools such as ChatGPT to search for information, but the effect on Google’s search business should be limited as long as the overall search market continues to grow. Google also have the resources and technology to continuously develop its own generative AI product, Gemini, to further limit the impact.

Here is a breakdown of YoY revenue growth rates of all business segments:

🟢 Google search (Ads): Up 9% to $50.7 billion

🔴 Google Network (Ads): Down 2.1% to $7.26 billion

🟢 Youtube Ads: Up 10.3% to $8.9 billion

🟢 Subscriptions, platforms and devices (Youtube premium, Google One, Android devices, App fees): Up 18.77% to $10.38 billion

🟢 Google Cloud: Up 28% to $12.26 billion

The market has expressed serious concerns about the recent monopoly lawsuit against Google, which is one of the main reasons why the company is trading at low valuations. I’m personal not worried about this because:

I think Google search is not a monopoly as there are so many other choices to run search queries. (Other search engines, ChatGPT, searching products on Amazon, searching hotels on Booking.com, etc.)
Even though there might be problematic business practices around using Google as default search engine, I think people keep using Google because it is a good product. They can always change their default search engine if they don’t like it. In fact, I always have to change my search engine to Google in the Edge browser because I don’t like Bing.
These cases usually take years if not decades to reach a final ruling, and before that, Google will continue business as usual. It is something too far ahead to worry about.
This lawsuit proves the strength of Google’s business
Even if Google may be broken up in a worst case scenario, I will be happy to hold the businesses spawned from Google, as long as the business continues to do well.

Stock Valuation Estimate

The estimated fair value for Google stock is $203. In this DCF projection, I used operating cash flow instead of free cash flow or net income because both metrics are distorted, either due to ongoing heavy capex or unrealized investment gains. Here are the parameters used:

Latest operating cash flow (OCF) $132.6 billion
Operating cash flow growth rate of 12% (5YR avg of 19.7%)
Annual share repurchase of 2.35% of total shares(5YR avg 2.35%)
Future P/OCF of 15 (5YR avg 17.27)
Discount rate of 10%

The stock is currently trading at $162, which indicates a potential 15% CAGR in the next 5 years. I personally plan to continue holding the stock for the long term.

You can also see my past Google stock analysis using this link.

Holdings Disclosure

SoloFIRE GOOGL & GOOG ownership: 14.6% of portfolio
SoloFIRE GOOGL Average Cost Paid: $131.79
Holding time: 3 years

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DISCLAIMER: Solofire is not a registered financial advisor. This post contains author's personal opinion only and it should NOT be considered financial advice.