Running The Numbers – Google (GOOG) Looks A Buy
Valuecruncher has previously completed a valuation of GOOG using a scenario approach. We started with a base case before looking at growth, disruption, and black swan scenarios. GOOG was trading at US$542.30 when we completed that valuation. Our base case was US$481.94 with our low-end disruption scenario at US$363.22. With GOOG trading at US$430.14 we thought it was time to update our base case valuation.
Valuecruncher valuation model of GOOG with interactive assumptions
Valuecruncher produces a valuation of US$493.88 for GOOG. This is a current valuation not a target price. This valuation is 15% above the current share price of US$430.14 (note our model picks up an earlier price of US$449.15 because we completed the valuation earlier). This isn’t materially different to our earlier base case valuation of US$481.94.
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.
Based on our analysis the current share price looks cheap. It appears a great opportunity to be buying GOOG. Play with our assumptions – what does your analysis say?
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Tags: GOOG