Google Valuation
Valuecruncher has placed a value on Google of US$325.01 per share with a range of US$257.01 and $402.31. Currently Google is trading at US$509. We believe that the stock is over-valued and appears priced for perfection. The market appears to be valuing the continuation of the current businesses success and placing value on the options the company has generated.
Key Assumptions
Revenue Growth
Although revenue growth has been high for Google over the past three annual periods, with growths of 117.56% and 92.48% in the periods of 03/04 and 04/05, respectively, we forecast the growth of Google to be slowing down. For the current valuation, growth for the 05/06 periods have been estimated at 80%, declining to 60% and 40% for the periods 06/07 and 07/08, which corresponds to a decrease in revenue growth by 20% per year.
EBIT Margins
EBIT margins over the past three years have ranged from 24% in 2003 to 35% in 2005. For 2006, the EBIT margins have been maintained between 35-40%. For the purpose of this valuation we have used EBIT margins of 35%.
Terminal Growth
Terminal growth has been estimated to be 6%.
WACC
WACC has been estimated to be 12%
Aswath Damodaran - a well know finance academic and author - has a valuation of Google on his site. His valuation (completed in September 2006) is below our value at US$217 a share.
November 24th, 2006 at 9:20 am
It’s hard to justify the $500+ valuation based on fundamentals - Google made 1/64th of it’s market cap in the last 12 months, and expects to make 1/37th of its market cap in the next 12 months.
Somehow analysts manage to keep upgrading their valuations as the price rises. I’ve seen this movie before - back in 2000/2001.
But the Google story is a great one, and they are in pole position to take advantage of the increasing importance of online advertising.
The global advertising market is forecast (ZenithOptimedia) to be $US421 billion in 2006, of which online ad spend will be $24 billion.
Already Google’s last 12 months revenue was $9bn, (YHOO made $6bn) so either they have close to half the market, or the online market is growing even more rapidly than expected. Either one of these is great for Google.
$24 billion of online ad spend is a lot, but that’s just 5.7% of global advertising spend. The rest of that spend is increasingly wasted on those valuable 18-35’s.
Sooner rather than later there will be a sharp shift in ad spend, as it moves closer to the split of media time spent by consumers.
If online advertising moves to 40% of global ad spend (a big number, but in the outside realm of possibility ), then it would approach $200 billion in the next few years. If Google had 30% of that market, then their revenue would be $60bn, and their EBITDA (at current rates) over $25bn. Microsoft has EBIT of $19bn, and a value of $265bn - so Google’s current value of $145bn is now vaguely justifiable. vaguely.
I’m not investing - it is too much of a hype stock.
http://elevatorfactoids.wordpress.com/2006/11/23/google-valuation/