Alphabet Posts Lower Free Cash Flow and FCF Margins.jpeg
ALPHABET (Google) image by Piotr Swat via Shutterstock
Alphabet Inc. (Googand Googl)) I reported the rise of the second quarter revenues on July 23, but the decrease in the operational cash flow and significantly reduced free cash flow (FCF). Based on capital spending plans, FCF Alphabet may decrease by 10 % over the next 12 months (NTM).
As a result, Googl shares may be fully estimated today. The failure outside of money (OTM) may be options for setting a lower purchase point may be a good game here. This article will deepen this.
Googl shares – last 6 months – Barchart – July 25, 2025
Google is closed in 193.18 dollars On Friday, July 25, this rose from July 23 of its closure of $ 190.23, and its 6 -month worry from 206.38 dollars on February 4. This is possible, without a significant increase in several FCF in stocks, Googl can be less than 10 % in 174 dollars For one stock.
Q2 revenues in Alphabet increased 14 % on an annual basis, and its operating income was 14 % higher as well. Moreover, the operating income margin remained 32 % fixed for both periods.
But all of this before the company’s cash flows, and most importantly, the activities of the capital expenses (CEPEX).
The table below shows from the Q1 and Q2 profits that the operating cash flow margins decreased on an annual basis, and their spending exploded in Capex.
Operation margins and FCF in Alphabet – Q1 and Q2 profits and Hake Analysis
As a result, this table shows that the FCF margin in Alphabet explodes to only 5.5 % of salesDecrease from 21 % in the last quarter and 18 % during the past year. This is due to CAPEX spending, which is now 40 % of sales and 80 % of the operating cash flow.
If this continues during the next year, Alphabet may stumble. In fact, Sundar Pichai, CEO of Alphabet, said on the first page of the second quarter profit, that Alphabet will spend $ 85 billion this year on Capex, all driven by its AI’s activities.
Let’s take a look at that. The above table shows that this year CAPEX is $ 39.943 billion. This leaves $ 45.057 billion over the next two, or $ 22.5 billion on average (around Q2).
This means that over the next 12 months (NTM), Capex 90 billion dollars (i.e. $ 22.5 x 4) will be. Let’s use this to predict NTM FCF.
Analysis project sales this year will be 393.38 billion dollars and next year 436.94 billion dollars. This puts the next 12 -month sales expectations (NTM) in 415.16 dollars one billion.
Therefore, if we use the overall cash flow margin (OCF) by 28.8 % and suppose it will continue during the NTM period:
$ 415.1BX 0.288 = 119.57 NTM OCF
In other words, OCF can decrease from $ 133.7 billion over 12 months (TTM) – see the table above – to only $ 120 billion. This is a decrease of 10.2 %. Therefore, only to be conservative, and to improve the future view, suppose the margin remains the same (36 %) like the TTM number above:
415.15BX 0.36 = 149.6 billion dollars OCF
After that, we can deduct $ 90 billion in spending the curse on the run -off, which the CEO implicitly assured that 2025 Capex will be $ 85 billion in 2025:
But this is still less than 10 % less than 66.728 billion dollars from the alphabet that was created in the TTM period (see the table above). In other words, the expectations are not good for FCF alphabet height.
This can significantly affect stocks during the next year.
One way to evaluate the stock is to use its FCF forecasts to use the FCF return scale. This assumes that 100 % of FCF is paid to investors. What will be the return on profits?
For example, given the maximum market today 2.341 trillion dollars Who Yahoo! Funding, TTM FCF 2.85 % of its market value:
This is also the same as FCF double by 35x (i.e. 1/0.0285 = 35.1), using this FCF return scale, applying to $ 60 billion for FCF over the next 12 months:
60.00BX 35.1 = 2,106 billion dollars amputation
This is still 10 % less than the maximum market market of $ 2,341 billion. In other words, the Googl share price is 10 % less than today, or $ 173.86:
$ 193.18 x (1-10) = $ 193.18 x 0.90 = 173.86 dollars The target price
The important point is that Googl shares may be exaggerated. The only way that this may be is if its OCF margin increases by more than 36 % (although it was only 28.8 % in Q2) and/or the market gives the share double above 35x FCF.
Therefore, it may make sense to specify a lower purchase price by selling short mode options (OTM). In this way, the investor can get money waiting for a decrease in Googl shares.
For example, see the expiration period on August 29. This is a little more than one month from now. It shows that the strike price option is $ 175.00, which is 9.4 % less than today, the center point premium is $ 1.23 per contract.
This means that the short seller of this places can lead to a return from 0.70 % (That is, $ 1.23/175.00 dollars). But note that there is only 13 % chance to happen (i.e. Delta is -1294).
Googl ends the validity of August 29 – from July 25, 2025
The important point is that if the Googl share decreases to $ 175.00, the draw point for the appointed investor is $ 173.77 (i.e. $ 175.00-1.23 dollars).
This is just less than our equalizer for $ 173.86 – see above). If the investor is able to repeat this over the next 3 months until the next semester, the expected return is +2.1 % (i.e. 0.70 % x 3).
But at least Googl stock investors can get an additional income here, put Shoping if they already have shares. The bottom line is that if Googl’s arrow stumbles in one way to play, the short sale of OTM that puts it every month.
On the date of publication, Mark R. Hack, CFA parking (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article are only for media purposes. This article was originally published on Barchart.com
