Valuation & Investment Analysis of Google Inc.

Jan 12, 2010

ridhoirawan@hotmail.comridho@mmorpg.co.id

About

Google Inc. maintains an index of websites and other online content, and makes this information

freely available through its search engine.

Highlights

• Global Domination

• Rapid Innovations

• Future Business

Investment Risks

• Competition among giants

• New & disruptive technologies

• Subject to intellectual property rights claims

• Relies on advertising revenue

Business Model

±98% of revenue derived from online advertising.

Industry Overview

• More people go online

• People are spending more time online

• Targeted text-based and display ads

Competition

Google consider its primary competitors to be Microsoft Corporation and Yahoo! Inc.

Both are companies that seek to connect people with information on the web and provide them with

relevant advertising.

A broadened search strategy announcement

B profit up 46%

C will slowing economy hit google's ad business?

D microsoft proposes buyout of yahoo

E shares roar

F dow dropped below 9800

G plans to have their own OSH google phone

Stock Price

Valuation

Valuation-Cont.

FCFE

2009 2010 2011 2012 2013Terminal Value-Going Concern

NI 5,398,950 6,143,824 6,784,064 7,382,429 7,828,950 Depresiasi 1,339,864 1,648,032 1,977,639 2,333,614 2,683,656 (perubahan current assets) (2,210,899) (3,434,676) (6,091,911) 714,299 (4,460,569)perubahan current liabilities 1,582,687 388,478 341,860 230,756 145,376 (perubahan aktiva tetap) (1,465,476) (1,540,843) (1,648,032) (1,779,875) (1,750,210)perubahan hutang jangka panjang 0 0 0 0 0 Total FCFE 4,645,125 3,204,814 1,363,619 8,881,223 4,447,203 58,280,559PV $ 4,645,125 $ 2,913,468 $1,126,958 $6,672,594 $ 3,037,499 $39,806,406

Terminal Value – Going Concern= FCFE ( 1+growth) / Cost of Equity – growth= 4,447,202.54 x 1.10 / 0.18 - 0.10= 58,280,559

PV of Terminal Value58,280,559/(1+0.1)^4 = $39,806,406.03

Total PV of FCFE

=$58,202,050 (in thousands) =$58,202,049,887,022

Outstanding Shares 317,270,000,000

Shareholder Value $183.45

Market Price (Des 7, 2009) $585.01

Over-valued? Bubble?

Valuation-Cont.

Comparison

Data of Des 2009P/E 44.06 20.1 35.7

Year 2004 2005 2006 2007 2008 2009

Stock Price (end of year) $ 192 $ 414 $ 460 $ 700 $ 300 $ 590

EPS $1.77 $5.17 $10.08 $13.41 $13.39

PER 233.90 88.97 69.44 22.37 44.06

Optimist

Google’s strong brand and dominant position guaranteesstrong growth and profitability for many years. Onlineadvertising will continue to increase, and Google is wellpositioned to capture those ad dollars.

Google’s valuation is attractive. Even if Google’s growth turnsout to be less than expected, the length of time that growthwill be above average will be longer than expected. This is aprimary point that the market is missing.

-Turley Muller (2008)-Financial Analyst at Regions Mortgage

Pessimist

Google has a market cap, as of writing, of $115 billion.This is equivalent to ten General Motors or almost threeMcDonald's.

Is this valuation supportable? The simple answer is no. Itis, however, a very brave investor who shorts a darling ofthe stock market, and crazy valuations cannot only staycrazy for a long time but can (and do) get crazier still.

-Clem Chambers (2007)-Financial Advisor at Forbes

Valuation Conclusions

• Will Google dominate the online ads?

• Will Google Phone well-penetrate?

• Will Android Marketplace generate significant revenue?

• How does Google compete against competitors?

Recommendation : Hold

Wait and see for those signals