A Top-Down Approach to Stock Valuation for Google Stock

Topics: Google, Financial ratio, Financial ratios Pages: 8 (3180 words) Published: September 20, 2010
A top-down approach to stock valuation for Google Stock

Section 1: Investment summary
I would recommend the buying of Google stock. The company’s current strategy would probably increase their chances of gaining strategic alliances, and make them a more attractive partner. As other companies see that Google is no longer going head on with partners, they may be more willing to cooperate with Google as well. Especially in developing markets, such strategic partners can offer Google a huge advantage, which will translate to increased value of Google’s stocks .

Section 2: Overview of the company
Google inc. is a company that offers a wide range of products and services to online users. The most popular service the company renders is their search engine named Google. The Google search engine uses PageRank, Algortihms, Link Measurement, and Profiling as part of its objective to deliver the most accurate and most relevant results to the searcher. Google also offers a very successful email product called Gmail. Gmail is unique in that it allows the email account holder much more free space (7GB) than the average free email client. In my experience, Gmail is an exceptional email client as it provides many more services than the standard email. Google Maps is another successful application in that it is not just an average web mapping system. This advanced mapping system offers satellite imagery of most urban cities in the US and around the world. It also can be integrated with many mobile phones, which allows for a GPS mapping system directly on the phone. These features allow its users to find information and easily share it to anyone in the world. With the amount of traffic Google receives on a daily basis, Google has to have some kind of strategy to generate its revenue. One of Google’s main sources of revenue is advertising. In 2007, advertising accounted for 99% of Google’s revenues. Google implements two main advertising products which are AdSense and AdWords. AdWords is Google's flagship advertising product and main source of revenue ($16.4 billion in 2007). AdWords offers pay-per-click advertising, and site-targeted advertising for both text and banner ads. The AdWords program includes local, national, and international distribution.

Section 3: The macroeconomics
Google competes to attract and retain relationships with users, advertisers and Google Network members and other content providers in different strategies. Google competes to attract and retain users of its search and communication products and services. Most of the products and services that Google offer to users are free, so they do not compete on price. Instead, they compete in this area on the basis of the relevance and usefulness of their search results and the features, availability and ease of use of their products and services. Google has been an outstanding company in the marketplace ever since its inception and it continues to be and deliver exceptional service to the global market. The move into public ownership brought about more benefits to its employees as well as present and future shareholders. The founders of Google felt that the standard structure of public ownership might jeopardize the independence and focused objectivity that has been apart of Google's past success. Google's leadership team wanted to preserve this aspect of the organization, so they implemented a corporate structure that is designed to protect Google's ability to introduce and retain its most distinctive characteristics. In 2007 and 2008, cash from Google’s financing activities totaled $403.1 million and $87.6 million (Google Inc. 2009). Cash from financing activities is cash flow that takes place between organizations and stockholders and includes loans from bondholders and other creditors (Financial Education 2007). According to Google’s numbers, the company is under no risk since the company does not rely solely on outside sources to generate its cash flow. Cash...
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