🗞 5 Quality Companies At Their Cheapest Valuations Ever

Happy Sunday!

Here’s what’s on the docket for this week’s newsletter:

• 📊 5 Quality Companies At Their Cheapest Valuations Ever

• ☁️ Google Gets Acquisitive

Let’s dive in!

5 Quality Companies At Their Cheapest Valuations Ever

Over the last month, the S&P 500 Index dropped by more than 8%.

With that broad market drop, many great businesses have found themselves trading at or near their lowest valuations ever.

Here are 5 that we found:

1. Amazon

Between the rise of low-cost models like DeepSeek and rumors of decreasing AI spending, many investors are concerned about the future growth rate at AWS.

• Current EV/EBIT: 30.6x

• Historical Average: 84.6x

2. Adobe

Concerns around heightened competition from AI have led to a 34% drawdown in Adobe’s stock over the last year.

• Current EV/EBIT: 21x

• Historical Average: 42x

3. Salesforce

For the first time in its history, Salesforce grew revenue by less than 10% this year. The slowing sales growth has led to increased investor selling.

• Current EV/FCF: 20x

• Historical Average: 31x

4. Uber Technologies

With self-driving startup Waymo gaining lots of traction in its approved cities, investors are starting to worry that Uber’s business model is at risk of disruption.

• Current EV/OCF: 21x

• Historical Average: 51x

5. Airbnb

Between cautious guidance, slowing growth, and fears of a consumer slowdown, investors appear worried about AirBnB’s near-term outlook.

• Current EV/OCF: 15.3x

• Historical Average: 26.1x

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Google Gets Acquisitive

On Tuesday, Google announced that it entered into a definitive agreement to buy cloud security provider Wiz for $32 billion in cash.

Wiz, which was founded just 5 years ago, helps prevent companies from security threats by building inventories of its their cloud infrastructure and detecting potential issues in advance. Importantly, they’re able to do this across multiple cloud vendors.

From the looks of it, Wiz will be integrated into Google Cloud, which should help the division continue the remarkable growth it’s already seeing.

In its press release announcing the deal, Google stated “This acquisition represents an investment by Google Cloud to accelerate two large and growing trends in the AI era: improved cloud security and the ability to use multiple clouds (multicloud).”

That second point there (accelerating use of multiple clouds), would favor Google Cloud more so than other hyperscalers, as it’s currently a distant 3rd behind the other public cloud vendors Microsoft Azure and Amazon Web Services.

Though Wiz’s financials aren’t public, estimates have it that Wiz is generating somewhere between $500 million and $1 billion in Annual Recurring Revenue.

While that’s an impressive top line figure for just a 5-year old company, that would mean Google is buying Wiz at more than 40x sales using the mid point of that range. A steep multiple on its face.

Assuming this transaction closed today, it would cut Alphabet’s cash balance by a third.

While base rates would tell you that acquiring a company for more than 40x sales is bad business, it’s worth remembering that Google has a distribution advantage unlike any other company in the world.

Across Alphabet’s entire ecosystem, they have 9 different properties with more than 1 billion users.

• Google Photos: > 1 billion users

• Google Maps: > 1 billion users (MAUs)

• Gmail: > 1.8 billion users (DAUs)

• YouTub: > 2.0 billion users (MAUs)

• Google Play Store: > 2.5 billion users (MAUs)

• Android: > 2.8 billion users (MAUs)

• Google Workspace: > 3 billion users

• Chrome Browser: > 3.3 billion users

Not to mention, Google Cloud itself already has tons of relationships with enterprises which should help for cross-selling Wiz solutions.

This scale helps when it comes to post-acquisition growth, as Google has demonstrated throughout its history.

Meme of the week

This week popular food delivery service DoorDash, announced that it will be accepting payments through the buy-now-pay-later (BNPL) provider Klarna.

BNPL, for those that don’t know, is functionally credit. For consumers, instead of paying the full cost of something up front, you can use Klarna to defer the purchase into 4 separate interest-free installments. Essentially it’s a zero interest loan.

How does Klarna get paid? Since BNPL reportedly increases transactions, the businesses pay a small fee to Klarna for facilitating the transaction. However, this is typically for higher ticket items (furniture, electronics, etc.) and not for a single meal.

As you might expect, the partnership raised plenty of eyebrows. The deal begs the question “if someone can’t can’t afford lunch, are they really an ideal borrower?”