Running The Numbers – Revisiting Google ($GOOG). Cheap Below US$370
We last looked at Google ($GOOG) in mid-December. We decided to run some numbers and have a look at the intrinsic value of the company. $GOOG is currently trading at US$330.16 – how does this compare with an estimate of the underlying value of the shares?
Valuecruncher Interactive Analyst Report For $GOOG – New Format
Valuecruncher produces a valuation of US$369.98 for $GOOG. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 12.1% above the current share price of US$330.16.
Assumptions
- Revenue: Reuters aggregates 25 analysts covering $GOOG and the mean estimates of 2009 and 2010 revenues are US$23.3 billion and US$26.6 billion respectively. For our analysis we have used US$23.3 billion in 2009, US$26.5 billion in 2010 and US$31.0 billion in 2011.
- Profitability: We have used an EBITDA margin of 40.0% to 2011. Reuters has $GOOG‘s EBITD margin at 32.25% last year and an average of 34.8% over the last five-years. Reuters use EBITD not EBITDA that we at Valuecruncher use and this explains the difference between our numbers and Reuters. The missing “A” is amortization – the accounting treatment of the acquisition cost of intangible assets (depreciation is the same for tangible assets). For a technology company like $GOOG this is material – for $GOOG amortization was US$270 million in 2008.
- Capital Expenditure: We have assumed capital expenditures of US$2.75 billion in 2009 then US$3.0 billion per annum moving forward.
- Discount Rate: 10.5%.
- Terminal Growth Rate: 5.0%. In our assumptions we have 2010/11 revenue growth at 17.0% – we have assumed that growth eventually slows to a 4.0% long-term stable growth rate.
Our analysis incorporates the cash on the $GOOG balance sheet – Valuecruncher calculates a net debt number.
Play with our assumptions – what does your analysis say? Our model is interactive – you can change any of our assumptions.
Disclosure: None
Tags: GOOG