5. Have Google’s business model and strategy proven to be successful? Should investors be impressed with the company’s financial performance? How does the company’s financial performance compare to that of Microsoft and Yahoo? Please conduct a financial analysis to support your position—you may wish to use the financial ratios presented in the Table 4.1 of the text as a guide in doing your financial analysis of the company.
Throughout the course of its life thus far as an entity, Google has enjoyed great success as one of the world’s leading search engine giants. Although the company’s operations are extremely diversified, Google has taken strides since its initial offering in 2004 to establish its dominance over competitors in Internet advertising. Google continues to add products, services, and features to its arsenal, which in turn increases traffic to their websites and gives them increased opportunities to advertise.
Google’s original stock price on the date of their IPO was $85, fast forward eight years and the stock currently trades at $761.78. Steps such as the acquisition of YouTube in 2006, the introduction of the Android in 2008, their Google TV initiative, and the continuing development and sophistication of Google Apps, have all contributed to this almost 800% appreciation. While all of these strategic maneuvers have been more than satisfying for investors’ pockets, the bulk of Google’s earnings remain in advertising. In 2009, 96.78% of Google’s total revenue came from advertising, over half of which were ads outside the United States.
It is misleading to compare Google’s stock (GOOG) to that of Microsoft (MSFT) and Yahoo (YHOO) solely on the basis of price, since their prices are exponentially lower than Google’s because investors rely on dividend payouts rather than stock appreciation to provide returns. However, a more accurate depiction of performance can be observed when comparing the...