This ‘hidden asset’ is about to deliver the next trillion-dollar company, analyst says

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This ‘hidden asset’ is about to deliver the next trillion-dollar company, analyst says

With a price-to-earnings ratio of 42 and a market cap topping $760 billion, Google-parent Alphabet GOOG, +1.58%  doesn’t typically spring to mind as an underappreciated asset.

But don’t tell that to The Daily Reckoning blog’s Jody Chudley, who says the market still doesn’t love Alphabet nearly enough.

“The market is missing something huge about Alphabet,” he said. “Investors are completely ignoring a hidden asset that Alphabet owns which alone is worth more than most publicly traded companies.”

That asset: Android, the operating system used in Samsung, LG and all sorts of other non-Apple AAPL, -0.61%  phones all over the world.

“ ‘Android… the most valuable hidden asset on the planet’ ”

“To date, Alphabet has made almost no effort to monetize the value of these 2 billion Android users,” he wrote. “That lack of effort was intentional. The plan all along has been to use Android as a way to drive users to the Google search product.”

That’s about to change, however. Alphabet announced late last year that it will begin charging smartphone manufacturers in Europe a licensing fee to pre-install the bundle of Gmail, YouTube, Maps, Play Store, Search and Chrome.

So how much does Alphabet stand to pocket?

“I don’t think $15 per installation… is an unrealistic number relative to the total cost of a smartphone and importance of these apps,” Chudley explained. “With 1.2 billion Androids sold annually at $15 per installation, we are looking at $18 billion of incremental revenue for Alphabet!! Wow.”

Chudley referred to a 2010 foreshadowing quote from then-CEO Eric Schmidt.

“If we have a billion people using Android, you think we can’t make money from that?” he said. “All it would take is $10 per user per year.”

With 2 billion users, he projects, that would be a hefty infusion.

“Even for Alphabet a $20 billion increase in cash flow is a very big deal,” Chudely said, pointing to this chart for some perspective:

“I believe that makes Android the most valuable hidden asset on the planet,” he said, “which is why this tech giant deserves a place in your portfolio.”

Chudley isn’t the only one high on Alphabet’s prospects.

KeyBanc’s Andy Hargreaves just reiterated his overweight rating and $1,430 price target on the stock, with robust fourth-quarter results on the way.

“We believe Alphabet retains compelling opportunities to continue driving strong advertising growth in Search, YouTube, and Maps, and retains significant growth opportunities in cloud, hardware, and Other Bets,” he told investors.

At last check, Alphabet shares were up more than 2% to $1,113.16, helping to push the Nasdaq COMP, +0.36%  and the S&P SPX, +0.34%  nicely higher. The Dow DJIA, -0.09%  , however, was in the red.


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This ‘hidden asset’ is about to deliver the next trillion-dollar company, analyst says

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