Running The Numbers - Google ($GOOG). When top-down analysis goes wrong.

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/12/running-the-numbers-google-goog-when-top-down-analysis-goes-wrong/

Assumptions

Revenue: Reuters aggregates 26 analysts covering $GOOG and the mean estimates of 2008 and 2009 revenues are US$22.4 billion and US$27.9 billion respectively. For our analysis we have used US$21.5 billion in 2008, US$24.75 billion in 2009 and US$29.0 billion in 2010. Citi analyst Mark Mahaney has some assumptions around revenues that we are broadly in agreement with. Assuming Q4 revenues are in line with Q3 then 2008 revenues come in at US$21.635 billion.

Profitability: We have used an EBITDA margin of 40.0% to 2010. Reuters has $GOOG‘s EBITD margin at 36.4% last year and an average of 36.0% over the last five-years.

Capital Expenditure: We have assumed capital expenditures of US$2.75 billion in 2008 then US$3.0 billion per annum moving forward.

Discount Rate: 11.0%.

Terminal Growth Rate: 5.5%. In our assumptions we have 2009/10 revenue growth at 17.2% - we have assumed that growth eventually slows to a 4.0% long-term stable growth rate.

Running The Numbers – Google trading well below our estimated intrinsic value

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/10/running-the-numbers-google-goog-trading-well-below-our-estimated-intrinsic-value/

Assumptions

In 2007 $GOOG had annual revenues of US$16.6 billion and an EBITDA margin (profits) of 40.7%. Reuters aggregates 26 analysts covering $GOOG and these have mean estimates of 2009 and 2010 revenues of US$22.4 and US$27.9 billion respectively. For our analysis we have used US$22.0 billion in 2008, US$27.0 billion in 2009 and US$32.5 billion in 2010. We have forecast EBITDA margins remaining flat at 40% to 2010. We have estimated capital expenditure in 2008 at US$3.075 billion rising to US$3.75 billion in 2010 and at US$3.25 billion beyond that. Capital expenditure dropped dramatically in quarter three to US$452 million from US$697 million the previous quarter. We don’t believe that capital expenditure will remain at the current level (Q3). All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation.

Other Model Assumptions:

Discount Rate: 11.0%. We believe the discount rate is in the 9-11% range. We have used the upper end of this range to reflect the uncertain market conditions that $GOOG signalled in the announcement.

Terminal Growth Rate: 6.0%. The US economy grew at an average of 3.6% over the last five-years. $GOOG showed that while growth is slowing there is still more to come.

Our analysis incorporates the cash the $GOOG balance sheet – Valuecruncher calculates a net debt number.

Running The Numbers – Henry Blodget’s Negative View On Google ($GOOG) DRAFT

This valuation was initial working for this blog post:

http://blog.valuecruncher.com/2008/10/running-the-numbers-henry-blodgets-negative-view-on-google/

Running The Numbers – Henry Blodget’s Negative View On Google ($GOOG)

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/10/running-the-numbers-henry-blodgets-negative-view-on-google/

Running The Numbers – Google (GOOG) Looks A Buy

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/09/running-the-numbers-google-goog-looks-a-buy/

Assumptions

Our assumptions are revenues of US$22.25 billion in 2008 growing to US$33.75 billion in 2010. We have used a flat EBITDA margin of 40% to 2010. We used a terminal growth rate of 6.0%. We used a terminal capital expenditure number of US$4.0 billion. We have used a WACC (discount rate) of 10.0%. All of these assumptions can be amended in the Valuecruncher on-line model to adjust the valuation.

Our analysis incorporates the cash on the GOOG balance sheet – Valuecruncher calculates a net debt number.