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Killexams : Google Fundamentals approach - BingNews Search results Killexams : Google Fundamentals approach - BingNews Killexams : Is Google Cheap? 3 Ways To Value The Company
Google Announces EUR 1 Billion Investment In Germany, Including Renewable Energies

Sean Gallup


Is Google (NASDAQ:GOOGL, NASDAQ:GOOG) cheap? This is an interesting question and one that is arguably hard to answer. Different investors might come to different conclusions. But in the end, I argue, it is all about valuation.

In this article, I will present three ways how investors could value Google: a relative multiple comparison (1), a sum-of-the-parts valuation (2) and a residual earnings model (3).

My analysis finds that Google is a strong buying opportunity, no matter the valuation method.

Google share price performance

Seeking Alpha

Relative Multiple Comparison

Arguably, the easiest --but also the most superficial and ineffective-- way to value Google is through a simple multiple analysis. According data compiled by Seeking Alpha, Google currently trades at a one-year forward P/E of x22, a P/ of x5.5 and P/S of x5.3.

As compared to the company industry peers, Google is valued at an approximate premium between 20% and 300%, depending on the relevant multiple.

Google valuation

Seeking Alpha

Given the initial multiple introductions above, an investor might argue that Google is expensive and this would be the end of the story. However, I argue that there is much more to the story. In order to accurately reflect a multiple valuation, one must account for a company's growth. Moreover, as investing is a relative discipline (finding the best pick in an opportunity set), a relative comparison is necessary.

That said, I advise to use the PEG ratio, which is broadly accepted as an informative valuation metric to capture the relative tradeoff between a company's current stock price, current earnings and the expected growth. The PEG ratio is calculated by dividing a stock's one-year forward P/E by the three-year CAGR expectation as estimated by analyst consensus.

Google is currently valued at $118.22/share and based on analyst consensus EPS, the one-year forward P/E is x22.5. Given that analyst estimate a 3-year CAGR of about 14%, I divide 22.5 by 14 to calculate a PEG of x1.6. The same calculation for FAAMG peers returns x2.4 for Meta Platforms (META), x3 for Apple (AAPL), x3.2 for Amazon (AMZN) and x1.56 for Microsoft (MSFT). Thus, on a relative comparison, Google is valued second cheapest amongst the FAAMG universe, only Microsoft is slightly cheaper.

If we compare Google's PEG to the PEG metric of the broad market of x4.5 (reference S&P 500), the company looks like an absolute bargain.

PEG ratios FAAMG

Analyst Consensus EPS; Author's Calculation

All that said, an investor could say that Google should reasonably trade at the average FAAMG's PEG multiple, which is x2.37. Based on this multiple, we can reverse engineer the company's implied P/E, given that growth expectations are firm. This will deliver an implied P/E of x33. Accordingly, the fair price per share should be somewhere around $173.

Sum-of-the-parts Valuation

I am not the greatest fan of the Sum-of-the-parts valuation, as I argue it is unreasonable to assume that a company's business units could be spun-off without friction and/or investors have adequate insights to allocate a company's fundamentals to various units. But I am aware that many investors like to anchor their thinking on the SOTP, so here you go.

Google operates three key business units: Google Services (Advertising), Google Cloud and Other Bets. The idea is that if we can find a reasonable independent valuation for all these segments, and add up the numbers, we would derive the company's valuation.

The challenge is in finding a reasonable valuation. But here is how I would value the segments:

Google Services: For Google Services, given that the segment is the most established, I propose to use a DCF model. According to my estimations, incorporating analyst consensus estimates, will likely generate operating cash-flow of $97 billion in 2022 and approximately $112 billion in 2023. I assume a 4.5% terminal value growth rate and a very reasonable cost of capital equal to 10%. Based on these assumptions, I calculate an enterprise value of 1,863 billion.

Google Cloud: The cloud business unit is expected to generate 2022 revenues of $26.9 billion and an operating loss of approximately $3.7 billion. I believe an EV/Sales multiple would be best to anchor a valuation. Given that high-growth and high-potential software firms often trade at x15 sales, I argue a x10 sales would arguably be a reasonable anchor. Thus, I estimate an enterprise value of $269 billion.

Other Bets: This segment is the most speculative and difficult to value, given that other bets generate little revenues and fundamentals of specific bets are not transparent. For example, we know that Waymo was valued at about $30 billion in 2021. Previously the self-driving arm was reportedly valued as high as $200 billion. Given the risk and lack of anchor for valuing 'Other Bets', I advocate a very prudent approach: value at zero.

So, to calculate Google's combined enterprise value, we add 1,863 billion for Google Services, $269 billion for Google Cloud and $0 for Other Bets. To derive the company's shareholder value, I further add Google's $96.19 billion of net-cash.

Divided by shares outstanding, the calculation will return a fair price/share of about $187.

Residual Earnings Model

The residual earnings model is my favorite tool to value a company, but arguably also the most complex. As per the CFA Institute:

Conceptually, residual income is net income less a charge (deduction) for common shareholders’ opportunity cost in generating net income. It is the residual or remaining income after considering the costs of all of a company’s capital.

Accordingly, I have constructed a RE model with the following assumptions:

  • To forecast revenues and EPS, I anchor on consensus analyst forecast as available on the Bloomberg Terminal. I project the consensus until 2025. Everything thereafter, in my opinion, is too speculative.
  • In the estimate of the cost of capital, I use the WACC framework. I model a three-year regression against the S&P to find the stock's beta. For the risk-free rate, I used the U.S. 10-year Treasury yield as of August 01, 2022. My calculation indicates a fair WACC of 9%.
  • For the terminal growth rate, I apply expected nominal GDP growth at 3.5%. Although I think that growth equal to the estimated nominal long-term GDP growth is strongly understating the company's growth potential, I advocate a conservative approach.
  • I do not model any share buyback - further supporting a conservative valuation.

Based on the above assumptions, my calculation returns a base-case target price for Google of $156.24/share, implying upside of more than 30%.

GOOG valuation

Analyst Consensus EPS; Author's Calculation

I understand that investors might have different assumptions with regards to Google's required return and terminal business growth. Thus, I also enclose a sensitivity table to test varying assumptions. For reference, red cells imply an overvaluation as compared to the current market price, and green cells imply an undervaluation.

GOOG sensitivity table valuation

Analyst Consensus EPS; Author's Calculation


In this article, I have presented three ways to value Google, and arguably I have been quite conservative in my assumptions. Notably, all valuation techniques discussed point to considerable upside for the stock.

For the relative multiple comparison, I calculate a $173 target price, for the sum-of-the-parts valuation I view $187 as fair, and for the residual earnings model an investor could assume a $156.24 anchor.

Mon, 08 Aug 2022 16:52:00 -0500 en text/html
Killexams : Google: The Bottom Is In
Name sign above the entrance of Google offices in London, UK.

Alena Kravchenko

Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) announced its 2Q-22 earnings report two days ago, and while the stock rose as a result, the valuation is so low in comparison to Google's long-term potential that I have doubled my investment.

The post-earnings bounce also signals that the stock has bottomed and that market sentiment toward mega-cap corporations may alter in the future.

Google's cloud division is benefiting from strong demand and serves as a counterweight to the search/advertising division.

Even though Google's search platform is not growing as quickly as some may have hoped, the company is well capitalized and will weather the storm.

Google’s 2Q-22 Earnings And Sales Double-Missed

Google released its 2Q-22 earnings and sales figures two days ago and, sadly, failed to achieve the slightly higher earnings-per-share and sales projections.

Earnings per share fell by 6% in the second quarter, although revenues fell by a smaller margin. It was Google's second earnings shortfall in a row, despite fundamentally strong cloud performance.

Alphabet Q2 2022 earnings

Earnings Calls (Alphabet Inc)

While Google's advertising sales growth slowed (+12% YoY in 2Q-22), the results for the second quarter were still quite impressive.

Sales for the second quarter totaled $69.7 billion, representing a 13% YoY increase in a slow market. Currency fluctuations reduced Google's sales growth rate by 3.7 percentage points in the second quarter.

Google's 1Q-21 comparisons were extremely unfavorable. Google's advertising businesses benefited from increased advertiser expenditure in the prior quarter across all of Google's ad delivery services, including Google Search & other, YouTube, and Google Network. There were also widespread Covid-19 limitations in force at the time, limiting consumers' shopping alternatives.

For the time being, the majority of Google's sales are generated by Google search sites, YouTube properties, and the Google Network, which includes AdSense and Google Ad Manager.

Approximately 81% of Google's 2Q-22 sales come from its various advertising services, implying that a broad-scale decline in advertising spending will have a significant impact on Google. Cloud computing is one approach for Google to mitigate this risk.

Sales in Google's largest business, search, surged 14% YoY, but no business grew as steadily as cloud. Cloud revenues increased by 36% YoY, indicating that investors should place a greater emphasis on this section for future sales growth rather than Google's extremely profitable search business.

Cloud has the potential to become a true behemoth and cash cow for Google, with a growth rate roughly three times that of search. In the second quarter, sales were $6.3 billion, but the division is still not profitable for Google. This is expected to change once Google approaches critical mass and segment economics improve. Google Services generated a $22.3 billion operational profit for Google, and the business has been profitable for the corporation on a constant basis.

Google Operating Income

Operating Income (Alphabet Inc)

Google's profits for the fiscal quarter ended June 30, 2022 were $16.0 billion, or $1.22 per share, a 12% decrease YoY. Even if profits fell $2.5 billion YoY due to slower growth and increased expenses, I find it difficult to blame Google given that $16.0 billion in profits is a pretty figure. The majority of this money will also be allocated to shareholders.

Alphabet Income Statement Q2 2022

Consolidated Statements Of Income (Alphabet Inc)

Going Toe-To-Toe With Amazon

Google is launching a new battleground with Amazon, the unchallenged leader in the eCommerce space. Google-owned YouTube is teaming up with Shopify to take on Amazon in the eCommerce industry while also tapping into the massive creator community that uses YouTube as a primary marketing tool.

Why not take a share of creators' revenues directly through the YouTube platform instead of merely running paid ads on YouTube? The concept is brilliant, and I covered the collaboration in my earlier piece, 'Google Stock Is a Steal'.

Why Stock Buybacks Are So Crucial For Alphabet

I'm increasing my stake in Google because I expect management to increase stock buybacks. Google may divide its huge wealth by buying back stock in the market and then retiring it.

Alphabet's board of directors authorized a $70 billion buyback of Class A and Class C shares in April. At the end of the second quarter, $58.9 billion remained available for share repurchases. Google could repurchase 513 million shares at the current price of $114.81, representing approximately 4% of outstanding shares. Alphabet had approximately 13.0 billion shares outstanding at the end of 2Q-22, after adjusting for the 20-for-one stock split.

Alphabet repurchased 132.8 million Class A and Class C shares for a total of $15.2 billion in 1Q-21. In 2022, the repurchases are expected to total 231.1 million shares and $28.5 billion.

Google Stock Buybacks

Stock Buybacks (Alphabet Inc)

Google has historically been very shareholder friendly, which was a key criterion for me to double down on Google following the post-earnings rally.

Knowing that management is monitoring my investment and repurchasing shares allows me to sleep soundly at night. Given its track record of stock repurchases, the company expects to repurchase a significant amount of stock each quarter.

Alphabet stock price and buyback
GOOG data by YCharts

A Recession Is Here

If you haven't heard, the United States appears to be in a recession. The U.S. economy shrank by 0.9% in the second quarter, marking the second consecutive quarter of negative economic growth.

What better company to own than one whose management has demonstrated that it buys back stock in the market on a regular basis, especially when the price is low?

The Bottom Is In

I believe Google stock has reached its bottom, and $105 is a strong support level for GOOG, and the stock has bounced off it several times. Though the Relative Strength Index and the MACD do not indicate that GOOG is oversold, I believe the setup here is promising.

Despite a double-miss, 2Q'22 results were well-received in the market and jolted higher on strong cloud execution. If GOOG can break through the $120 resistance level, we could see a quick return to $145-150.

GOOG Share Price

GOOG Share Price (Stockcharts)

Why Google Could See A Lower Valuation

Google is in the process of expanding into new business areas, such as the creator/eCommerce market. Google is diversifying its business in the process, making it less reliant on the overarching advertising segment, which is cyclical and unpredictable even for a company with Alphabet's clout.

A recession is likely to have a significant impact on the advertising market, posing a risk to Google's core businesses. Right now, I see a recession and a corresponding drop in advertising sales as the defining risk in the Google trade.

My Conclusion

I doubled my investment in Google after the company released its 2Q-22 earnings report because the company's push into the creator community and aggressive use of cash for stock buybacks show that management is a good steward of investor capital.

In a recession, Google's transition away from its dominant advertising business creates upside while limiting downside.

Last but not least, I believe GOOG has bottomed and that the market will begin to reward Alphabet for its cloud growth and generous stock buybacks.

Sun, 31 Jul 2022 02:41:00 -0500 en text/html
Killexams : What Is Google Workspace for Education?

The University of Hawai‘i was looking for something new.

More than 10 years ago, IT administrators at the sprawling public university were hosting their own email server, provisioning on-premises and running into increasing storage demands from a community of between 75,000 and 100,000 users, according to Garret Yoshimi, the university’s vice president for IT and CIO.

To ease the IT burden internally, UH decided to take what was, at the time, a somewhat unprecedented step: It became one of the first universities in the country to contract with Google and take large chunks of its operation — including email and storage — into the cloud with a service that, at the time, came to it free of charge.

Fast-forward to 2022: UH is still a Google partner, using some of the free services offered by Google Workspace for Education (formerly called G Suite for Education) and some at its now paid tier, and the university been joined by scores of higher education institutions around the world using the broad suite of tools Google offers.

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Along the way, the Google suite has evolved as has its relationship with higher education institutions like UH. One of those evolutions came in 2021, when Google announced it would be imposing storage limits on users for the first time, including higher education institutions. Colleges and universities now have 100 terabytes of pooled storage among their users, a number that doesn’t match demand at a place like UH. Still, after conversations with Google and internally, Yoshimi says the decision to stay with Google is a sensible one.

“We do understand that if we had to do this internally, it’s a heavy lift,” he says. “We don’t want to go back there. We were there before, a bunch of us doing our email and storage. If the number is reasonable, then it totally makes sense for us to stay with Google and not have to flip this stuff back to on-prem.”

So, what is Google Workspace for Education, what makes it a value, and what applications, storage and security features does it offer? Here’s a closer look.

READ MORE: What efficiencies can tech consolidation bring to higher ed?

What’s Included with Google Workspace for Education in Higher Ed?

Every tier of Google Workspace for Education, including the free Fundamentals tier, is made up of 15 Google applications including Gmail, Calendar, Docs, Sheets, Classroom, Jamboard, Drive, Meet and more. Additional security and analytics features are introduced at the Education Standard tier. The Teaching and Learning tier includes additional functionality like polls and breakout rooms on the Meet video platform. The premium Education Plus tier adds on more security features and learning tools.

At UH, administrators have decided to use a combination of offerings. All university users have access to the Fundamentals tier and full suite of applications. Faculty and staff, meanwhile, are signed up at the Education Plus level.

The tools all interact seamlessly and match much, if not all, of what students have been using before they reach a higher education institution, as Google platforms are the norm in K–12 schools.

Google’s tools are also, for the most part, able to integrate with other platforms, like Microsoft, which Yoshimi says is still widely used at UH.

“We’re not 100 percent Google tools by any stretch of the imagination; we do a bunch of other stuff,” he says. “One of the good things is, over time, they’ve made improvements to the product. I won’t say it’s 100 percent feature-compatible now, but it’s pretty close.”

What to Know About Google Workspace for Education’s Storage Limits

Google’s storage limit (100TB) may seem like a lot, Yoshimi says, but when he and others dug into the storage needs at the UH, it was far from sufficient. Yoshimi estimates the university is currently storing a little under 2 petabytes (2,000TB) of data.

None of us are interested in going back to the ‘we do everything on-prem’ days. It’s just not how it works anymore.”

Garret Yoshimi Vice President for IT and CIO, University of Hawai‘i

In response, Yoshimi says, UH and dozens of other institutions banded together to approach Google and discuss their concerns.

“They were really good about meeting us at the table and committing to help us figure it out,” he says. “We are continuing in conversations with Google about what happens when we need five more petabytes on the storage side, which is getting to be more and more of a requirement for large research institutions.”

Among the solutions the group has come up with, according to Yoshimi, is a runway for when the storage quotas become hard quotas and an agreement to work together with universities as they try to find alternate storage options, including purchasing cloud storage through a platform like Google Cloud.

“None of us are interested in going back to the ‘we do everything on-prem’ days. It’s just not how it works anymore,” says Yoshimi. “First, the economics don’t work, and you also tie up valuable technical resources that we have a need for in other places.”

LEARN MORE: 5 security myths about Google Workspace for Education.

Is Google Workspace for Education FERPA-Compliant and Secure?

Among the many changes Google has made to the Google Workspace for Education suite over the years, Yoshimi says, the available security features have stood out to his team with “a lot of good capabilities.” And he says his team has had no concerns about compliance with any government regulations, including the Family Educational Rights and Privacy Act, or FERPA.

“With FERPA and other acronyms that the various state and federal statutes impose on us, a big part of that is the applications that sit on top, and our policies and procedures sit on top of those,” says Yoshimi. “With the Google platform, we’re pretty comfortable in terms of compliance in those spaces.”

Security, meanwhile, has been a focus of the Google Workspace for Education suite in latest years, as cyberattacks on colleges and universities have been on the rise.

Those security features include Google Workspace for Education’s security center dashboard, available only at the paid tiers, and the ability to intercept malicious emails through the Google Security Sandbox.

fizkes/Getty Images

Wed, 03 Aug 2022 06:58:00 -0500 Andy Viano en text/html
Killexams : CEOs Ditch Kinder Approach as Economy Shows Signs of Chilling

The era of the kinder, gentler CEO is fading.

Corporate chiefs who spent much of the pandemic patiently answering questions in town halls, sending reassuring notes to staff members and projecting a softer image are shifting their tone as signs emerge that the economy is worsening.

The CEO of Google's parent company told staff last month to work with "greater urgency, sharper focus, and more hunger than we've shown on sunnier days."

Meta Platforms Inc. CEO Mark Zuckerberg said in late July that the Facebook owner must operate with greater intensity "and I expect us to get more done with fewer resources"; an engineering leader at the company also recently told managers to identify and push out low performers.

Beyond tech, CEOs are warning of tougher times, while others are telling employees to reconsider spending on trips, business meals or even corporate swag such as T-shirts and coffee mugs.

The shift in messaging reflects increasing anxiety in the C-suite about where the economy is headed.

A survey released in June by the Conference Board, a business research firm, found the majority of CEOs think a recession is coming or already here.

When leaders fear a downturn, their talk and actions change, say executives, board members and corporate advisers.

"In the good times, we want to focus people on the growth aspects," said Ellen Kullman, chairwoman of 3D printing company Carbon Inc. and former CEO of DuPont. "But when the economy appears to have the potential for that downturn, it's fundamentals 101. It's: How do I conserve cash? How do I focus the team to emerge from whatever this is stronger?"

CEOs might want to better align teams now or push them to be in the office to set priorities, she said -- a contrast from earlier days in the pandemic when executives preached flexibility, rolled out new benefits to support staffers or repeatedly acknowledged the challenges employees faced.

Now, "I hear from different CEOs that it is a little bit of a tougher talk," Ms. Kullman said.

Many CEOs disliked remote work from the beginning and are tired of hiding it, advisers and executives say.

Privately, some CEOs have said the prospect of an economic downturn will deliver them greater license to order their employees back into offices.

On earnings calls with investors in latest weeks, executives also have emphasized their abilities to hold down costs or dust off tactics used in prior economic downturns, if necessary.

Jeffrey Brown, CEO of online bank and financial-services company Ally Financial Inc., told investors in July that the company is "deeply engaged with our business leaders on ensuring only the most essential projects and hires are prioritized."

General Motors Co. CEO Mary Barra said on a call with analysts last week that the company had "modeled several downturn scenarios" and would cut some hiring and spending.

Meta's head of remote presence and engineering, Maher Saba, told managers this summer to identify and report low performers within the company.

"If a direct report is coasting or a low performer, they are not who we need; they are failing this company," Mr. Saba wrote in a post published in an engineering-managers-only group within the company's internal social network.

A Meta spokesman, Tracy Clayton, said that any company that wants to have a lasting impact "must practice disciplined prioritization and work with a high level of intensity to reach goals."

Sundar Pichai, CEO of Google parent Alphabet Inc., asked employees during a companywide meeting last week for ideas on how to Strengthen focus and raised concerns that productivity hasn't matched employment levels at the company.

Other bosses are urging workers to ease up on the spending.

Axon Enterprise Inc., which sells Taser guns and body cameras to police departments, in July launched an internal campaign to "spend it like it's yours," CEO Rick Smith said, complete with the hashtag #likeitsyours.

Business travel expenses had risen, Mr. Smith said, as teams planned off-site events or multiple people traveled to visit clients.

Teams had gotten accustomed to ordering so many logoed T-shirts, hats and other items that executives decided to name a "swag czar" who now must approve such purchases.

"Sometimes we get to where we need swag detox," Mr. Smith said. "Not every event needs a T-shirt."

Meanwhile, Mr. Smith is urging managers to go on the offensive, hiring engineers away from tech companies that are contracting, for example, or thinking about how Axon can best position itself coming out of a downturn.

"Right now I smell opportunity," he said. "Yes, winter's coming. Now let's embrace it."

CEOs navigated uncertainty at the onset of the Covid-19 pandemic, and many are adjusting again to get ahead of any economic downturn, said Bill George, former chairman and CEO of Medtronic PLC, and the author of a forthcoming book on leadership.

"Focusing on performance isn't harsh,'' he said. "Yes, performance matters more than ever."

Bosses can also take a harder line only so far, executives and coaches say, in an environment in which unemployment remains low and the most talented employees still have plenty of options.

At the educational travel and experiences company WorldStrides, roughly 80% of employees are complying with a policy to return to the office three days a week, CEO Bob Gogel said.

Managers are at times hesitant to strictly enforce the policy for those not complying.

"Because people say, 'You enforce it, I'm going,'" Mr. Gogel said.

Still, as the economic environment changes, some expect the return-to-office dynamic to shift, with bosses more empowered to compel people to come together in-person again.

Office attendance in 10 major U.S. cities has risen slightly in latest weeks and was hovering near 45% as of late July, according to security provider Kastle Systems, which tracks badge swipes.

"Some organizations are kind of trying to take advantage of the macro fear environment and kind of scare people back into the office," said Rich Barton, CEO of Zillow Group Inc., which has embraced flexible work for its employees. "I'm not a big fan of that."

Mr. Barton, who has also led companies such as Expedia through changing economic cycles, said he tries not to shift his message to employees when an economy is in transition.

At Zillow, which last year laid off a quarter of its workforce, managers have been told to look for chances to hire employees from rivals, he said.

"Great leadership is as steady as possible," Mr. Barton said. "It's not very efficient to hit the accelerator and slam on the brakes all the time."

Thu, 04 Aug 2022 10:00:00 -0500 text/html
Killexams : Why AI Can’t Be Fooled By Tesla’s Stock Split

Key takeaways

  • Shareholders will vote for the proposed 3-for-1 Tesla stock split this Thursday
  • Tesla shares gained 32% in July, bringing the stock up 49% from May’s low
  • If the 3-for-1 measure passes, this will be Tesla’s second stock split in two years

Stock splits have been the name of the game for big tech since mid-2020. Major companies like Nvidia, Apple, Amazon and Google have all divided shares following enormous price gains. Now, investors are gearing up for yet another vote – this time, for a repeat offender: Tesla.

Tesla stock split: what to know

Tesla first announced intentions for another stock split back in March as part of its annual proxy statement.

At the time, Tesla noted that “the stock split would help reset the market price” of its common stock. As a result, Tesla could deliver employees “more flexibility in managing their equity” and “make [its] common stock more accessible to [its] retail shareholders.”

In June, Tesla revealed concrete hopes for a 3-for-1 stock split. Shareholders will vote on the proposal during Tesla’s annual shareholder meeting this Thursday (4 August). If it passes, this will be Tesla’s second split in as many years. (Tesla stock completed a 5-for-1 split in August 2020.)

Already, Tesla shares have trended higher in anticipation of the meeting, with Friday seeing a 5% price jump. On Monday, Tesla rose 1% in premarket trading and as high as 5% in intraday trading, peaking around $935.63. By close, shares sat up just 0.04% for the session, closing at $891.93.

These numbers represent a 49% mark-up from May’s lows, with July alone seeing a 32% gain. This exuberance comes amid broader optimism in the U.S. stock market – and of course, a bit of buzz about the potential stock split, too.

What is a stock split?

So far, we’ve discussed Tesla’s plan for the stock split. Now, let’s take a quick peek at the logistics of what they want to do.

When a company generates wealth and value for investors, that often crops up in its share price. (I.e., price appreciation.) In some cases – especially in profitable tech firms – shares rise into the upper hundreds or thousands of dollars. Such high values can price out retail investors and leave little room for further future appreciation.

To solve this problem, companies may conduct a stock split.

A stock split occurs when a company divides its existing shares to create new shares. The split effectively lowers the price of each individual share without changing the value of an investor’s holdings or the firm’s market cap.

For instance, take Tesla stock, which is trading near $900. If the company were to execute a 3-for-1 split tomorrow, each $900 share would split into three shares worth $300 apiece.

The purpose of a stock split

Technically, stock splits don’t add value – the split itself is cosmetic. The company’s valuation remains the same, as does the value of investors’ holdings. So, why do it?

The answers: affordability, liquidity, growth and psychology.

Increased affordability

One reason companies split stock is to lower per-share prices. In doing so, retail investors can more easily afford whole shares without breaking the bank.

Take Google’s latest stock split. The Friday before the split, shares closed near $2,200 – far out of reach for many investors. But when shares split 20-for-1, Google opened around $112 the following Monday.

These kinds of stock splits also deliver employees who receive stock-based compensation – as many at Tesla do – more flexibility in enacting their benefits.

Increased liquidity

Stock splits can also help with liquidity in a company’s shares. While the split doesn’t directly add value, it does increase the number of shares in circulation. That provides more “lubrication” and allows investors to trade more freely.

Room for growth

Companies may also split stock to deliver shares more room to grow, especially if they see increase profits ahead. At a more affordable entry price, more investors may pile in, increasing demand – and appreciation – over time.

Plus, as the company innovates and grows, cheaper shares have more upside wiggle room, allowing it to benefit organically from regular operations.

Investor psychology

Firms may also split stock (at least in part) to benefit from investor psychology.

All else aside, companies that have enough growth to warrant a split are often viewed as having more upside potential. Stock splits also create situations that lead to higher demand, thus boosting a company’s desirability, share price or both.

(Some analysts speculate that played a role in GameStop’s latest 4-for-1 stock split.)

What Tesla’s stock split means for investors

Stock splits don’t greatly impact market value – theoretically, at least. After all, the goal of a stock split is to increase outstanding shares without affecting value or market cap.

But in reality, stock splits can lead to short-term increased price volatility and investor expectations. And in the long-term, stocks that split gain an average of 25% over the next year compared to a 9% average gain in non-split stocks.

While the additional gains may be due to organic growth (since companies that split often consider likely future success), it’s also possible that investor psychology and lower starting share prices play a role, too.

But with Tesla, we can look at its past to clue into its potential future performance.

In August 2020, Tesla completed a 5-for-1 stock split. Between the announcement to the execution date, Tesla stock soared 60%, jumping from $1,300 to $2,000 per share. After the split, the stock grew fast from its $460 “reset” value, nearly doubling in a year.

Now, two years later, the stock still sits at nearly $900. (Tesla has lost some share price thanks to financial results stemming from pandemic factors like Covid lockdowns and supply chain issues. CEO Elon Musk’s Twitter habits – both his tweets and his desire to buy the social media company – may have also played a role.)

With Tesla remaining at nearly double its post-split valuation, Tesla investors could be in for good news. While past performance doesn’t predict future results, if Tesla’s trend holds, it’s possible that this stock split could see investors holding twice the stock at twice the value in a few years – again.

Why AI can’t be fooled by Tesla’s stock split

If Tesla’s measure passes on Thursday, it will make the company’s second stock split in two years. And admittedly, it’s tempting to view the frequency of stock splits as testament to the firm’s operational success.

But, as we discussed above, stock splits are primarily cosmetic. They don’t increase a company’s value, share price or fundamentals. (At least not directly – though stock splits can lead to share volatility, price appreciation and increased trading volume.)

Additionally, we’ve established that investor psychology can play a role, either in the company’s decision to split or in the post-split aftermath. Investors may view split stocks as a sign that the company sees future profits, flocking to the stock and thereby fulfilling their own prophecies.

In other words, stock splits don’t change anything but the number of shares floating around. But for some investors, this fact alone drives the perception that the stock is a better “value.”

That’s where’s AI comes in.

By definition, AI is unemotional – after all, it’s artificial intelligence. That means it doesn’t get caught up in the buzz and hullaballoo surrounding events that could impact your portfolio. Instead, AI analyzes situations through a numbers- and pattern-based lens to establish trends and probabilities.

By using this data-based approach, our AI can easily sift through the hype of a stock split to look at cold, hard facts. In practice, that means our investing AI rides trends when the momentum can back it up – but doesn’t get stuck on false narratives when the hype is overblown.

Invest when the trend is right with

Stock splits often draw investors to high-growth companies. But falling for buzz alone is a good way to get into a bad investment. Just because a company (or its CEO) is expensive or famous enough to split doesn’t mean it’s a profitable long-term prospect.

If you want to invest in high-value tech firms without worrying about the hype – or price – has the answer. Our data-backed Investment Kits, like our Emerging Tech and Clean Energy Kits, invest in green, high-performance and/or breakthrough technology (like Tesla) worthy of your portfolio.

At the same time, you can rest easy knowing that we never invest on hype alone. Sure, we go where the momentum takes us – but only if the fundamentals and performance are there to prop us up.

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Tue, 02 Aug 2022 02:28:00 -0500 - Powering a Personal Wealth Movement en text/html
Killexams : Canada’s Online News Act shows how other countries are learning from Australia’s news bill

Aug. 9, 2022, 8:27 a.m.

The potential here is for democratic governments to evolve their digital policy models based on each other’s experiences.

While many governments around the world have begun to more actively engage in the journalism policy space in latest years, few efforts have garnered as much attention as Australia’s media bargaining code. Designed by the country’s competition authority to address a perceived market imbalance between platforms and Australian publishers, it has also become a lightning rod for wider debates over the state of journalism, the role of Facebook and Google in journalism’s decline, and whether and how governments should step in.

Enter Canada. In early April, the government introduced the Online News Act, a bill that, similar to the Australian model, would compel large platforms to negotiate with publishers about payment for the use of their content, or be forced into arbitration.

This isn’t the first time the Trudeau government has stepped into the journalism policy domain. In the last three years, it has passed legislation that allows qualified journalism organizations to receive a 25% tax credit toward editorial labor, issued a 15% tax credit on the purchase of digital subscriptions, and created a new charitable status for journalism organizations. The public debate over those measures was heated at times, but the new bargaining code has created a firestorm.

As in Australia, the platforms are lobbying aggressively against the bill. A range of academics, media critics, and journalists, including a network of small publishers, has also emerged in opposition. And Google, in particular, has taken an aggressive stance against the bill.

Why does Google care what Canada does? The answer likely lies in how this bill evolves and builds on the model implemented in Australia, and the fact that other countries around the world are watching this evolution and developing their own similar laws. The Canadian code probably won’t have a material financial impact on these platforms, but countries learning from each other, improving on the model, and it spreading globally very could.

So what does the Online News Act do, what does it get right and wrong, and should it be passed, scrapped or improved?

The reality of the Canadian media market

All things being equal, there should be no need for legislation to regulate the financial negotiations of private publishers. The code is a significant intervention in an industry that we rely on to hold governments and platforms to account. But it’s equally important to ground analysis of the code within the current realities of the Canadian media market, rather than an imagined world where publishers don’t already receive money from platforms, governments, or both.

There are four attributes of the current status quo that should be considered when weighing the merits of this legislation.

First, on the fundamentals, it’s clear that large tech platforms have absorbed journalism’s largest source of revenue (advertising), that this has negatively impacted the state of journalism in Canada, and that a healthy journalism industry is important for democratic societies.

While some believe that the journalism industry in Canada can self-correct and should be left to market forces — a view held strongly by many journalists themselves, and one that is supported by some important innovations particularly from smaller publishers — there is public and industry support for government intervention.

The Canadian government is already in the journalism policy game. The tax credit for journalistic labor, a $500 million program launched in 2019, both polarized the public debate about journalism in Canada and has broadly been a financial success. The subsidy helps the industry but, at the same time, has hurt its credibility with some audiences. This reality is further complicated by declining trust in the media in Canada.

Finally, while many, including ourselves, are uncomfortable with platforms funding journalism at all, the reality is that the platforms are already funding journalism in Canada. But the current status quo is one of opaque and unaccountable money for some journalism organizations. These deals are hidden behind NDAs and are not accountable to the Canadian public. They are also very often programmatic grants, casting legitimate questions about the independence and objectivity of the journalism initiatives they support.

Given these realities, the government is faced with several policy options.

The first is to leave the status quo untouched and continue to allow platforms to strike deals with publishers without oversight, transparency, or accountability. Publishers are faced with unequal bargaining power when they negotiate these deals, and the platforms can pick which publishers to cut deals with.

The second option is to use general revenue to further fund journalism through existing programs. But Canada’s labor tax subsidy is already 25% of editorial labor and only goes to qualifying journalism organizations. Deals between platforms and publishers arguably reach a broader range of organizations.

A third option is to create an alternative to ad-hoc platform deals, and instead force platforms to pay into a central fund that would then administer the funding to publishers via some sort of standard formula. This option standardizes payments, removes platforms from the decision of who gets what, allows money to go directly to journalism, and gives the public a clear sense of how money is supporting journalism.

We have previously argued for this model, but it has some real limitations. Though it might be administered by an arm’s-length organization, it inserts the government even further into the business of journalism. It’s also unclear how the amount of money put into the fund would be determined and what the basis would be for taxing platforms in Canada beyond what they already pay.

A fourth option is to regulate the bargaining process itself. Enter the Online News Act.

What the Act does

The Online News Act compels digital platforms to enter into financial agreements with publishers for news.

News outlets — either singularly or collectively — initiate bargaining. Platforms have to participate in the bargaining process, though if they believe the news outlet doesn’t meet the criteria to be subject to the Act, they can contest it. If an agreement can’t be reached by all parties within “a period that the Commission considers reasonable,” mediation occurs; if an agreement is still not reached, a panel of three arbitrators selected by the Canadian Radio Television and Communications Commission (CRTC) chooses a final offer made by one of the parties.

The bill builds on the Australian model in some important ways, most notably around the exemption criteria. Platforms can only be exempted from being designated for arbitration if the deals they have made with publishers meet the following criteria:

  • They provide for fair compensation to the news businesses for the news content.
  • They ensure that an appropriate portion of the compensation will be used by the news businesses to support the production of local, regional, and national news content.
  • They don’t let corporate influence undermine the freedom of expression and journalistic independence enjoyed by news outlets.
  • They contribute to the sustainability of the Canadian news marketplace.
  • They ensure that a significant portion of independent local news businesses benefit from them, they contribute to the sustainability of those businesses, and they encourage innovative business models in the Canadian news marketplace.
  • They involve a range of news outlets that reflect the diversity of the Canadian news marketplace, including diversity with respect to language, race, Indigenous communities, local news, and business models.

These criteria are immensely important, because they are the primary regulatory mechanism of the Act.

The bill also provides a degree of transparency into the deals that the Australian code lacked. The CRTC must be provided with details of the deals in order to access exemptions and will issue an annual audit of the aggregated deals and their impact on the journalism market in Canada.


While the Act seems to have public support, it has spurred debate among journalists, academics, politicians, publishers, and platforms.

As during the Australia debate, the claim that this bill will “break the internet” is pervasive. Conflating “the internet” with platforms like Google and Facebook propagates a narrative that platform lobbyists have been trying to craft for years. Platforms are intermediaries whose design shapes the way we experience much of the internet, and that is a deviation from the open web.

A related argument against the Act is that it imposes a “link tax” for hyperlinking to news articles. Google said, “This is what’s known as a ‘link tax’ and it fundamentally breaks the way search (and the internet) have always worked.”

But the term “tax” implies that the money will be collected by the government, which is not the case with the Online News Act. Deals are made between private entities.

More fundamentally, the bill doesn’t necessitate that deals between platforms and publishers ascribe value to links at all. It doesn’t specify how value is determined, only that use of news content be compensated.

Others have claimed that the bill threatens journalistic independence. But tech platforms like Google and Facebook have already signed deals with several publishers in Canada, for undisclosed sums of money, with no oversight or accountability.

Another concern, reflected in a latest statement from a coalition of independent Canadian publishers, is that the bill would disproportionately benefit legacy outlets, stifling innovation in Canadian journalism.

It’s true that in Australia, deals were at least initially skewed in favor of legacy media outlets like Rupert Murdoch’s News Corp. But the Canadian bill has evolved from the Australian model, and allows for small publishers to band together. Organizations can be added to collectives after deals are done. Deal reporting will ensure that they and the regulator know the broad terms of the deals others are getting. Most critically, the exemption criteria specifies that deals must be made with independent publishers.

Again, the status quo is important to consider. Currently, we have left it solely to the whims of the big tech platforms like Facebook and Google to pick the winners and losers in Canadian journalism – The Globe and Mail, Toronto Star, and Postmedia all have deals, the details of which are hidden from the public. The vast majority of independent publishers do not. Ensuring that smaller outlets are included in a system that they are currently largely left out of arguably evens the playing field.

The oft-repeated claim that this bill won’t fix the crisis facing journalism is, of course, true: There is no one silver policy bullet that will save the entirety of the news industry. The decline of journalism and the hollowing out of newsrooms across the country are multi-faceted in nature. The Act addresses one element of the issue.

What should change

There are indeed legitimate and substantive criticisms of the Act that in our view could be addressed in amendments.

For starters, the Act expressly prohibits platforms from providing undue privilege to or discrimination against certain news content or news businesses and sets out a complaint mechanism for publishers to achieve redress. This is included in order to prevent any platform from responding in a retaliatory manner to a news outlet because of coverage that was deemed unfavorable. The problem, however, is that a strict and literal interpretation of the text could potentially prohibit the ability of a platform from ranking higher-quality content such as fact-based reporting or Checked government information over lower-quality content. The legislation would benefit from clearer wording in this section.

Another area of ambiguity is the inclusion criteria. To benefit from the Act, news businesses must be designated as Qualified Canadian Journalism Organizations under the Income Tax Act, or must operate in Canada, produce news content, and regularly employ two or more journalists in Canada.

As the coalition of independent publishers has pointed out, this could mean smaller players are left out of deals altogether. In our view, the bill should err on the side of being maximally inclusive. For example, the wording of the section could be amended to include freelance journalists.

However, in order to ensure a measure of quality control on those that are funded, the definition of eligible news business could be amended to ensure that outlets are adhering to basic journalistic standards — such as fact-based analysis and reporting and having a standard procedure for issuing corrections or clarifications — as well as producing original reported pieces.

Given that one of the key concerns with the Australian model was that it was overly opaque by design, the bill in Canada needs to do a better job of being as transparent as legally possible. Transparency requirements are peppered throughout the Act but could be improved upon by ensuring that the broad metrics used by the platforms to determine the value of the deals is made available to the regulator. Also, the act could require aggregated, audited metric and market data be released at more frequent intervals. particularly in the early stages of the act’s enforcement, so that those making initial deals can benefit from knowledge of pre-existing or earlier negotiated terms.

Concerns regarding fairness and clarity over the funding formula for deals are also valid. Recently, the coalition of independent publishers suggested that the act provide a universal funding formula that would be applied consistently to all news outlets that qualify. The challenge with this is that without collective bargaining and the threat of forced arbitration, it is unclear how the terms of compensation would be established.

Perhaps a better model was proposed by the trade association News Media Canada. It would form a collective of qualified Canadian journalism organizations that would each provide their editorial expenses (total salaries and wages paid to eligible newsroom employees) confidentially to a law firm. The collective would negotiate with the platforms, and any settlements from collective negotiation would be shared among publishers on a pro rata basis.

This is a clear example of how collective bargaining can bring the accountability and equity that many critics of both the status quo and the bill rightly seek. 

The Act needs to be explicit in terms of where the extra revenue generated by these deals with the platforms will go. While the Act requires an annual report by the independent auditor to examine the expenditures on newsrooms, it should be explicit in its aims to reallocate revenues such that it results in more and better public service journalism.

More broadly, proponents of the Act need to be mindful of the fact that there is a distinct possibility the Act will result in Canadian news outlets receiving upwards of 50% of their editorial costs from a combination of government and platforms. This is the most concerning aspect of the Act, and is not a sustainable model. It is particularly worrying because platforms and governments are the two of the principle actors in our society that journalism needs to hold to account. However, the status quo must again be considered. Major publishers in Canada already get a good deal of support from a combination of government grants and deals with platforms, but with little democratic oversight and uneven distribution. This Act will at least provide a measure of equity and transparency to the funding from platforms.

A necessary evil?

There is no doubt that this bill is both complicated and controversial. Precisely because journalism is foundational to our democratic society, it is critical that we get it right. One thing is certain, however, the status quo is not serving citizens. We need to have greater accountability and transparency over the deals that are already funding Canadian journalism. While imperfect, an amended version of this bill is in our view necessary.

We saw how far the platforms were willing to go in Australia to avoid frameworks like this. Google publicly threatened to remove its search from Australia and Facebook took down all news from its platform for Australians. In doing so, they received some concessions from the government, but also created a public relations crisis that has spurred other governments, such as Canada to act. And a meaningful consequence of their over-reaction in Australia is that the Canadian bill has evolved considerably. The exemption criteria and the collective bargaining provisions alone will fundamentally change how the platforms can respond. Taking their ball and going home might have been possible in Australia, but it will not be possible if Canada, the UK, and Germany all have codes that each build and learn from each other. And that is the potential here. That democratic governments evolve their digital policy models based on the experiences of each other. This policy snowball effect is likely what worries the platforms most about the Canadian bill.

In our view, a market failure of journalism is not an acceptable risk for democratic societies. This means that journalism may, at least in the short term, need to be subsidized. While there are risks to this particular model, when considered as part of a wider policy package to support journalism in Canada, we think that at least for now, it is a risk worth taking. Perhaps more importantly, by taking many of the concerns of the Australian model seriously, this bill advances a policy approach that other countries can learn from and build on.

Taylor Owen is the Beaverbrook Chair in media, ethics, and communications and the director of the Centre for Media, Technology and Democracy at McGill University. Supriya Dwivedi is the director of policy and engagement there.

Photo of Canadian flag by Lori & Todd used under a Creative Commons license.
Tue, 09 Aug 2022 00:30:00 -0500 text/html
Killexams : Google Meet participants can now ask questions and submit polls anonymously No result found, try new keyword!For users in Google's ecosystem, Forms has long been the go-to choice for collecting opinions and input across teams — even if you want to do so anonymously. While tight integration with other ... Wed, 20 Jul 2022 13:20:00 -0500 Killexams : Google Pixel Buds Pro review: Catching up, tuning out, and rocking on No result found, try new keyword!But the new Pixel Buds Pro, available now for $200, not only deliver on the fundamentals, but also on premium nice-to-haves like multipoint audio and a killer transparency mode. It almost feels ... Thu, 28 Jul 2022 12:01:00 -0500 en-us text/html Killexams : Be the first to know

Stock splits have been making a lot of headlines in the investing world recently. Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOG), Tesla, (NASDAQ: TSLA), and Shopify (NYSE: SHOP) are just a few of the major names that have announced them in 2022.

Research from the Journal of Banking and Finance shows that stock splits historically have had a positive impact on short-term returns. So should you get excited about companies that are splitting their stock? I believe there's one reason to be optimistic about these events, but another serious reason to approach them with caution.

Image source: Getty Images.

People are also reading…

What is a stock split?

First, let's define what a stock split is and why a company might want to perform one.

As a company's share price goes up, eventually it may reach a level where average investors will struggle to afford even a single share. Amazon, for example, was recently trading above $2,000 before it underwent a 20-to-1 stock split, reducing its share price to around $100. Shareholders were given 19 additional shares for every one they owned, and the value of those shares was reduced proportionally, leaving the company's market cap unchanged.

Lower share prices put those stocks more easily in reach of retail investors. One of the main goals of stock splits is to boost liquidity, under the theory that a more reasonable price will entice more investors to buy the stock.

Stock splits can indicate a company is firing on all cylinders

Let's be 100% clear: A stock split should not be the reason you invest in any company. This financial maneuver does absolutely nothing to Strengthen the long-term performance of a business.

That said, I like to see a company undergo a stock split because on most occasions, it follows a considerable share price rise, and thus typically indicates the company has probably been performing quite well.

For example, since Amazon's last split in 1999, its stock price has risen by more than 3,000%. When a stock rises by that magnitude over 23 years, it's usually because the underlying business has been executing incredibly.

Alphabet -- the parent company of Google -- split its stock in 2014, and rose nearly 300% since then to over $2,000 per share. That prompted its 20-to-1 split this month.

Look out for companies taking advantage of stock split mania

Sometimes struggling companies try to leverage the investor excitement that stock splits generate to boost their share prices. For example, consider GameStop's (NYSE: GME) latest 4-to-1 split.

The niche retailer's stock price oscillations made headlines in 2020 as retail investors conducted a short squeeze that sent its share price soaring. Other short squeeze attempts followed, but since it peaked in January 2021, the meme stock is down by more than 60%.

It's possible GameStop management's motivation for the latest split was to attract more retail traders in hopes of sparking another squeeze. Or maybe the low share price of around $30 will confuse investors into thinking it's undervalued. But the important thing to remember is absolutely nothing has changed about GameStop's struggling business. Its financials are still a mess, and its valuation remains quite pricey at a price-to-book ratio of 7.5.

Investors should be on the lookout when struggling businesses try to capitalize on stock split mania to boost their share prices. It's usually a trap.

Remember the pizza analogy

The easiest way to think about stock splits is to imagine a pizza. No matter how many slices you cut the pie into, the overall amount of pizza remains the same size.

It's the same with companies. You can divide the stock as much as you'd like, but the market cap does not change. Neither do the underlying business's fundamentals.

Image Source: Getty Images.

While it's nice to see your portfolio's big winners split their shares, ultimately, you would be better off focusing on the quality of the underlying business when making investment decisions.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Mark Blank has positions in Shopify and Tesla. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Shopify, and Tesla. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

Sun, 31 Jul 2022 02:30:00 -0500 en text/html
Killexams : 1 Reason to Get Excited About Stock Splits and 1 Reason to Be Cautious No result found, try new keyword!Research from the Journal of Banking and Finance shows that stock splits historically have had a positive impact on short-term returns. So should you get excited about companies that are splitting ... Sun, 31 Jul 2022 02:30:00 -0500 text/html
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