Google Inc. (GOOG)

Discount cash flow analysis

Buy Undervalued by 27.3%

5% margin of safety What's this?

close

How does this work?

This is an interactive analyst report for Google Inc., based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

Spacer
Values in $ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $1049.36 $1001.15 $957.35
Terminal Growth% 0 $1090.98 $1038.75 $991.50
  +1% $1090.98 $1038.75 $991.50

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $145.58 (overvalued by 82.16%) - over 4 years ago
  • XtremeGator created a new valuation of $891.01 (undervalued by 49.63%) - over 10 years ago
  • XtremeGator created a new valuation of $577.98 (overvalued by 2.94%) - over 10 years ago
  • XtremeGator created a new valuation of $713.61 (undervalued by 19.84%) - over 10 years ago
  • XtremeGator created a new valuation of $636.32 (undervalued by 6.86%) - over 10 years ago
  • XtremeGator created a new valuation of $641.59 (undervalued by 7.75%) - over 10 years ago
  • XtremeGator created a new valuation of $772.34 (undervalued by 29.7%) - over 10 years ago
  • XtremeGator created a new valuation of $1508.36 (undervalued by 153.31%) - over 10 years ago
  • XtremeGator created a new valuation of $738.88 (undervalued by 22.48%) - over 10 years ago
  • XtremeGator created a new valuation of $850.90 (undervalued by 41.04%) - over 10 years ago
  • XtremeGator created a new valuation of $910.17 (undervalued by 50.87%) - over 10 years ago
  • XtremeGator created a new valuation of $910.17 (undervalued by 50.87%) - over 10 years ago
  • XtremeGator created a new valuation of $1037.49 (undervalued by 71.97%) - over 10 years ago
  • XtremeGator created a new valuation of $1084.84 (undervalued by 79.82%) - over 10 years ago
  • XtremeGator created a new valuation of $956.12 (undervalued by 58.48%) - over 10 years ago
  • XtremeGator created a new valuation of $723.92 (undervalued by 20.0%) - over 10 years ago
  • XtremeGator created a new valuation of $1073.62 (undervalued by 77.96%) - over 10 years ago
  • XtremeGator created a new valuation of $1449.61 (undervalued by 140.28%) - over 10 years ago
  • ab747x created a new valuation of $947.29 (undervalued by 53.14%) - over 10 years ago
  • GordonGekko created a new valuation of $583.84 (undervalued by 14.94%) - almost 11 years ago
  • SethWellbourne created a new valuation of $414.38 (overvalued by 26.82%) - almost 11 years ago
  • GordonGekko created a new valuation of $589.34 (undervalued by 7.15%) - 11 years ago
  • GordonGekko created a new valuation of $542.07 (overvalued by 7.73%) - 11 years ago
  • sundjn created a new valuation of $402.92 (overvalued by 30.5%) - 11 years ago
  • kuangxiaohui created a new valuation of $456.49 (overvalued by 19.91%) - over 11 years ago
  • ensayofr created a new valuation of $232.04 (overvalued by 57.97%) - over 11 years ago
  • ensayofr created a new valuation of $270.60 (overvalued by 50.99%) - over 11 years ago
  • mobajwa created a new valuation of $456.35 (undervalued by 3.0%) - over 11 years ago
  • GordonGekko created a new valuation of $448.59 (undervalued by 3.92%) - over 11 years ago
  • tekne created a new valuation of $558.16 (undervalued by 39.93%) - almost 12 years ago
  • tekne created a new valuation of $312.92 (overvalued by 21.55%) - almost 12 years ago
  • Lespe959 created a new valuation of $412.53 (undervalued by 3.42%) - almost 12 years ago
  • GordonGekko created a new valuation of $412.09 (undervalued by 2.14%) - almost 12 years ago
  • SethWellbourne created a new valuation of $392.92 (undervalued by 3.0%) - almost 12 years ago
  • SethWellbourne created a new valuation of $521.71 (undervalued by 52.24%) - almost 12 years ago
  • rthwrm created a new valuation of $370.11 (undervalued by 12.1%) - almost 12 years ago
  • mlongval created a new valuation of $370.11 (undervalued by 12.1%) - almost 12 years ago
  • GordonGekko created a new valuation of $369.98 (undervalued by 12.06%) - almost 12 years ago
  • GordonGekko created a new valuation of $369.64 (undervalued by 16.27%) - almost 12 years ago
  • rs12345 created a new valuation of $253.99 (overvalued by 16.9%) - almost 12 years ago
  • rs12345 created a new valuation of $283.27 (overvalued by 7.32%) - almost 12 years ago
  • nzvikram created a new valuation of $616.76 (undervalued by 74.67%) - 12 years ago
  • tiger created a new valuation of $279.25 (overvalued by 0.06%) - 12 years ago
  • rjbullock created a new valuation of $260.06 (overvalued by 0.9%) - over 12 years ago
  • dweis created a new valuation of $273.41 (overvalued by 8.07%) - over 12 years ago
  • KiwiEMH created a new valuation of $318.88 (undervalued by 2.86%) - over 12 years ago
  • anoop249 created a new valuation of $472.63 (undervalued by 26.87%) - over 12 years ago
  • TheCrunchBlog created a new valuation of $416.73 (undervalued by 22.87%) - over 12 years ago
  • KiwiEMH created a new valuation of $337.31 (undervalued by 1.6%) - over 12 years ago
  • TheCrunchBlog created a new valuation of $352.67 (overvalued by 7.44%) - over 12 years ago
  • TheCrunchBlog created a new valuation of $304.96 (overvalued by 29.25%) - over 12 years ago
  • TheCrunchBlog created a new valuation of $493.88 (undervalued by 9.96%) - over 12 years ago
  • GordonGekko created a new valuation of $438.65 (undervalued by 5.91%) - over 12 years ago
  • veter created a new valuation of $175.18 (overvalued by 58.29%) - over 12 years ago
  • KiwiEMH created a new valuation of $479.36 (overvalued by 0.78%) - over 12 years ago
  • GordonGekko created a new valuation of $606.64 (undervalued by 9.3%) - almost 13 years ago
  • Sam created a new valuation of $473.45 (overvalued by 14.69%) - almost 13 years ago
  • MarkC created a new valuation of $528.69 (overvalued by 4.74%) - almost 13 years ago
  • andrew created a new valuation of $260.15 (overvalued by 54.61%) - almost 13 years ago
  • benkepes created a new valuation of $346.02 (overvalued by 39.96%) - almost 13 years ago
  • acoy created a new valuation of $487.70 (overvalued by 16.06%) - almost 13 years ago
  • andrew created a new valuation of $285.51 (overvalued by 47.58%) - almost 13 years ago
  • TheCrunchBlog created a new valuation of $481.94 (overvalued by 11.13%) - almost 13 years ago
  • TheCrunchBlog created a new valuation of $590.39 (undervalued by 8.87%) - almost 13 years ago
  • TheCrunchBlog created a new valuation of $363.22 (overvalued by 33.02%) - almost 13 years ago
  • TheCrunchBlog created a new valuation of $507.85 (overvalued by 6.35%) - almost 13 years ago
  • sthapit created a new valuation of $456.39 (overvalued by 15.84%) - almost 13 years ago
  • GordonGekko created a new valuation of $1038.75 (undervalued by 97.32%) - almost 13 years ago
  • TheCrunchBlog created a new valuation of $1038.75 (undervalued by 97.32%) - almost 13 years ago
  • ffarin created a new valuation of $476.03 (overvalued by 9.57%) - almost 13 years ago
  • matrixxx created a new valuation of $220.11 (overvalued by 54.74%) - almost 13 years ago
  • DART created a new valuation of $223.63 (overvalued by 55.51%) - almost 13 years ago

Comments

Google (GOOG) worth US$1,000+ a share today – you must be dreaming

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/07/google-goog-worth-1000-a-share-today-you-must-be-dreaming/

A US fund manager Manning & Napier has come out with an amazing call in Barron’s that their current view of the Google (GOOG) share price equates to US$950-1,050. Henry Blodget works through some of the assumptions and is not convinced.

Neither are we.

We took the assumptions from Henry Blodget’s analysis in Silicon Alley Insider and ran these through the Valuecruncher on-line valuation tool to see what sort of numbers are required to justify a US$1,000 a share valuation for GOOG.

Assumptions – for a US$1,000 a share valuation for Google today

We started with a 2008 revenue number of US$22.5 billion – and then grew that at 30% per annum to 2010. We used a 40% EBITDA margin on these revenues. We used a US$4.25 billion terminal capital expenditure figure. For a discount rate (WACC) we used 10%.

These are aggressive projections for the period to the end of 2010. But where things get really wild is in determining the terminal growth rate. This is the rate that reflects the growth potential beyond 2010. To achieve a valuation over US$1,000 a share we have needed an 8% terminal growth rate. This is a big number. How big. To get to an 8% terminal growth rate requires a 30% growth rate from 2010 to 2011 then dropping to 6% in perpetuity from 2015. The growth numbers look like 24% in 2012, 18% in 2013, 12% in 2014 and 6% in 2015 and beyond. 6% is a big perpetuity number – 8% is huge. Play with the assumptions and see the impact. Note: in our model the terminal growth rate must be more than 2% below the discount rate. In this example we come up against this constraint.

By TheCrunchBlog, over 12 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 242,065
Net Debt (Long-term borrowings less cash): -14,218
Equity Value: 165,344
Number of Shares Outstanding: 314,000,000
Calculated value per share: $1038.75

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.