Google Inc Is a technology company that builds and provides products and services that organize information and make it universally accessible and useful to the general public, and it has arguably become a need in the everyday lives of people. As something that Initially started as a research project for Stanford digital library, the concept began in march 1996 by Larry page and Serge Brin. the goal was to develop the enabling technologies from a single, Integrated and universal digital library.
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Larry Page and Sergey Brin came up an algorithm that would be today used by google to any the importance of pages based on your keywords, called Pagerank. This new algorithm gave google better results than any of their competitors at that time. namely Yahoo! , Excite. com, Lycos, Netcenter, AOL. com, Go. com and MSN. com hence making google unique and favorable to the general public. The domain google. com was not officially registered until the 1 5th of September 1997 and formally incorporated as a company on the 4th of September 1998.
Since then, google has risen to become the largest and leading brand when It comes to software based products such as search engines, online advertising platform (adword), and e. . c. Apart from the search engine google and advertising platform, adword which both account for the majority of google’s revenue, google also own and offer enormous array of services and products to the general public and this has catapulted google from not Just being a search engine but to a software and products service giants.
Since the launch of Google Search, google has acquired and partnered with various companies to develop new products and services. Google have been able to offer things such as Product Listing Ads that offer product information; and Google Now, a predictive search feature. Google also offer AdWord, an auction-based advertising program; AdSense, a program which enables websites in the Google Network to supply ads; DoubleClick Ad Exchange, a marketplace used to trade display of ad space; and YouTube the platform allows sharing and viewing of videos, Interactive, and otherad formats.
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In addition, google also known Motorola mobility this enabled them to extend their products and services to mobile device users. Till today, the acquisition of Motorola is googles biggest investment, costing them $1 2. 5bn. They also own Android, which is an open source mobile software platform thatoperates on
Motorola and other phones produced by other manufacturers such as Samsung; Google Chrome OS, which is an open source operating system for the google chrome book; Google chrome, a web browser; Furthermore, they also offer Google TV, a platform for consumers to access television and internet on one screen; Google Apps, a cloud computing suite of the message and collaboration tools; Google Site Search, a custom search engine; Google Commerce which searches for online retail enterprises; Google Maps; and Google Earth Enterprise, a software solution for Imagery and data visualization of the earth. luring a company of this kind that offer numerous amount of service in an ever so growing and changing industry is going to require some numerical and analytical skill, which will be addresses in this essay. Google have a market capitalization of $345. 86Blllion, and sits as the 2nd largest In Its industry, competing with the likes of apple and Microsoft. Market capitalization is the tors calculated by multiplying a company’s outstanding shares by the current market price of one share. It is a general way to determine a company’s size when it comes to investment as opposed to sales or total asset figures.
A company with a market capitalization of $10 Billion and above is said to have large capitalization. With a market cap of $345. 86 Billion, google can easily be considered a huge corporation. When google first listed its shares they went for $85per share, and since then, the price of google’s shares has risen to $1035. 23per share. This is to show that in less than 10 years, google shares have risen by more that 1100%. An amazing feat for any organization, and an indicator of how quickly google grew as a business, and how valuable the company became over such a short time.
When valuing a company different methods of valuation can be used based on the industry the company operates in and also based on the preference of the investor. The Capital Asset pricing model is used in the pricing of risky assets, it is a model that shows the relationship between risk and expected return. The idea behind CAPM is that investors need to be compensated for time in value of money and risk. The time value of money in the CAPM formula is represented by the risk-free rate(rf) and this compensates investors for investing in business over a period of time. e other part of the formula represents the risk involved. This is calculated by taking a risk measure (џ beta) that compares the returns of the asset to the market over a period of time and to the market premium (rm-rf). In this model, the expected return of a portfolio must be equal to the rate on a risk-free security plus the risk premium. If the expected return is not greater than or equal to the required return, then the investment should not be undertaken. Using information from zacks. com, I was able to get the required return and the expected return for a company like google.
The expected rate of return for google is 12. 59% which is higher that the rate of return for google (9. 66%). Another way of valuing a company is through the enterprise value. The enterprise value is used as an alternative to straightforward market capitalization to value a company. It is calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. Enterprise value can theoretically be the takeover price of a company. In the event of an acquisition, a buyer would have to inherit the company’s debt, but would keep its cash.
Enterprise value is unique from the simple market capitalization in several ways, and it is widely considered being a more accurate representation of a firm’s value. For example, the value of a firm’s debt would need to be paid by the buyer of the company when taking over, thus enterprise value provides a much more accurate valuation when it comes to takeovers because it includes debt in its value calculation. The enterprise value for google is $294. 58bn, comparing this with the market cap of $345. 86bn shows that google is being financed by 14. 8% debt that is $51. 8bn worth of debt. The Price-Earning ratio is a tool used as well in the valuation of larger listed companies such as google. The PIE ratio is the ratio valuation of the company’s equity by comparing the company’s current share price to its per-share earnings. This can be worked out pre or post tax. A higher PIE indicates that investors are expecting However, it is imperative to compare the PIE ratios of one company to other companies in the same industry, or against the company’s own historical PIE in order to establish the true relevance of the companies’ PIE.
It would not be useful for investors using the PIE ratio to compare companies from different industries as each industry sector has different growth prospects. The PIE ratio for google is 23. 37 as at September 2013 this is a 6. 8% increase compared to the years average of 21. 90% hence the investor will be expecting more. Intrinsic value is the actual value of a company based on an underlying perception of its true value, this includes all aspects of the business both in terms of tangible and intangible factors. The value may or may not be the same as the current market value.
Value investors use a variety of analytical techniques in order to estimate the intrinsic value of a company. One way of solving this is Value = (Growth Multiple)*FCF(6 year avg) + 0. 8*Total Equity(most recent). Using this formula, we got an intrinsic value of $596. 37. This method of valuation is a give a fair valuation of the company, and it also considers growth within the business by combining asset and earning power. Another good form of valuation is the peter lynch fair value. it is an earning power based valuation that takes into account the growth with the company.See More on Google