Google Inc. (GOOG)

Discount cash flow analysis

Sell Overvalued by 40.9%

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% $486.55 $475.20 $464.47
Terminal Growth% 0 $493.66 $481.94 $470.86
  +1% $501.01 $488.90 $477.47

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%) - 7 months ago
  • XtremeGator created a new valuation of $891.01 (undervalued by 49.63%) - over 6 years ago
  • XtremeGator created a new valuation of $577.98 (overvalued by 2.94%) - over 6 years ago
  • XtremeGator created a new valuation of $713.61 (undervalued by 19.84%) - over 6 years ago
  • XtremeGator created a new valuation of $636.32 (undervalued by 6.86%) - over 6 years ago
  • XtremeGator created a new valuation of $641.59 (undervalued by 7.75%) - over 6 years ago
  • XtremeGator created a new valuation of $772.34 (undervalued by 29.7%) - over 6 years ago
  • XtremeGator created a new valuation of $1508.36 (undervalued by 153.31%) - over 6 years ago
  • XtremeGator created a new valuation of $738.88 (undervalued by 22.48%) - over 6 years ago
  • XtremeGator created a new valuation of $850.90 (undervalued by 41.04%) - over 6 years ago
  • XtremeGator created a new valuation of $910.17 (undervalued by 50.87%) - over 6 years ago
  • XtremeGator created a new valuation of $910.17 (undervalued by 50.87%) - over 6 years ago
  • XtremeGator created a new valuation of $1037.49 (undervalued by 71.97%) - over 6 years ago
  • XtremeGator created a new valuation of $1084.84 (undervalued by 79.82%) - over 6 years ago
  • XtremeGator created a new valuation of $956.12 (undervalued by 58.48%) - over 6 years ago
  • XtremeGator created a new valuation of $723.92 (undervalued by 20.0%) - over 6 years ago
  • XtremeGator created a new valuation of $1073.62 (undervalued by 77.96%) - over 6 years ago
  • XtremeGator created a new valuation of $1449.61 (undervalued by 140.28%) - over 6 years ago
  • ab747x created a new valuation of $947.29 (undervalued by 53.14%) - over 6 years ago
  • GordonGekko created a new valuation of $583.84 (undervalued by 14.94%) - almost 7 years ago
  • SethWellbourne created a new valuation of $414.38 (overvalued by 26.82%) - 7 years ago
  • GordonGekko created a new valuation of $589.34 (undervalued by 7.15%) - over 7 years ago
  • GordonGekko created a new valuation of $542.07 (overvalued by 7.73%) - over 7 years ago
  • sundjn created a new valuation of $402.92 (overvalued by 30.5%) - over 7 years ago
  • kuangxiaohui created a new valuation of $456.49 (overvalued by 19.91%) - over 7 years ago
  • ensayofr created a new valuation of $232.04 (overvalued by 57.97%) - over 7 years ago
  • ensayofr created a new valuation of $270.60 (overvalued by 50.99%) - over 7 years ago
  • mobajwa created a new valuation of $456.35 (undervalued by 3.0%) - over 7 years ago
  • GordonGekko created a new valuation of $448.59 (undervalued by 3.92%) - almost 8 years ago
  • tekne created a new valuation of $558.16 (undervalued by 39.93%) - almost 8 years ago
  • tekne created a new valuation of $312.92 (overvalued by 21.55%) - almost 8 years ago
  • Lespe959 created a new valuation of $412.53 (undervalued by 3.42%) - almost 8 years ago
  • GordonGekko created a new valuation of $412.09 (undervalued by 2.14%) - almost 8 years ago
  • SethWellbourne created a new valuation of $392.92 (undervalued by 3.0%) - 8 years ago
  • SethWellbourne created a new valuation of $521.71 (undervalued by 52.24%) - 8 years ago
  • rthwrm created a new valuation of $370.11 (undervalued by 12.1%) - 8 years ago
  • mlongval created a new valuation of $370.11 (undervalued by 12.1%) - 8 years ago
  • GordonGekko created a new valuation of $369.98 (undervalued by 12.06%) - 8 years ago
  • GordonGekko created a new valuation of $369.64 (undervalued by 16.27%) - 8 years ago
  • rs12345 created a new valuation of $253.99 (overvalued by 16.9%) - 8 years ago
  • rs12345 created a new valuation of $283.27 (overvalued by 7.32%) - 8 years ago
  • nzvikram created a new valuation of $616.76 (undervalued by 74.67%) - 8 years ago
  • tiger created a new valuation of $279.25 (overvalued by 0.06%) - over 8 years ago
  • rjbullock created a new valuation of $260.06 (overvalued by 0.9%) - over 8 years ago
  • dweis created a new valuation of $273.41 (overvalued by 8.07%) - over 8 years ago
  • KiwiEMH created a new valuation of $318.88 (undervalued by 2.86%) - over 8 years ago
  • anoop249 created a new valuation of $472.63 (undervalued by 26.87%) - over 8 years ago
  • TheCrunchBlog created a new valuation of $416.73 (undervalued by 22.87%) - over 8 years ago
  • KiwiEMH created a new valuation of $337.31 (undervalued by 1.6%) - over 8 years ago
  • TheCrunchBlog created a new valuation of $352.67 (overvalued by 7.44%) - over 8 years ago
  • TheCrunchBlog created a new valuation of $304.96 (overvalued by 29.25%) - over 8 years ago
  • TheCrunchBlog created a new valuation of $493.88 (undervalued by 9.96%) - over 8 years ago
  • GordonGekko created a new valuation of $438.65 (undervalued by 5.91%) - over 8 years ago
  • veter created a new valuation of $175.18 (overvalued by 58.29%) - over 8 years ago
  • KiwiEMH created a new valuation of $479.36 (overvalued by 0.78%) - over 8 years ago
  • GordonGekko created a new valuation of $606.64 (undervalued by 9.3%) - 9 years ago
  • Sam created a new valuation of $473.45 (overvalued by 14.69%) - 9 years ago
  • MarkC created a new valuation of $528.69 (overvalued by 4.74%) - 9 years ago
  • andrew created a new valuation of $260.15 (overvalued by 54.61%) - 9 years ago
  • benkepes created a new valuation of $346.02 (overvalued by 39.96%) - 9 years ago
  • acoy created a new valuation of $487.70 (overvalued by 16.06%) - 9 years ago
  • andrew created a new valuation of $285.51 (overvalued by 47.58%) - 9 years ago
  • TheCrunchBlog created a new valuation of $481.94 (overvalued by 11.13%) - 9 years ago
  • TheCrunchBlog created a new valuation of $590.39 (undervalued by 8.87%) - 9 years ago
  • TheCrunchBlog created a new valuation of $363.22 (overvalued by 33.02%) - 9 years ago
  • TheCrunchBlog created a new valuation of $507.85 (overvalued by 6.35%) - 9 years ago
  • sthapit created a new valuation of $456.39 (overvalued by 15.84%) - 9 years ago
  • GordonGekko created a new valuation of $1038.75 (undervalued by 97.32%) - 9 years ago
  • TheCrunchBlog created a new valuation of $1038.75 (undervalued by 97.32%) - 9 years ago
  • ffarin created a new valuation of $476.03 (overvalued by 9.57%) - 9 years ago
  • matrixxx created a new valuation of $220.11 (overvalued by 54.74%) - 9 years ago
  • DART created a new valuation of $223.63 (overvalued by 55.51%) - 9 years ago

Comments

A scenario approach to valuing Google - Base Case

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/06/a-scenario-approach-to-valuing-google-goog/

Google grew revenues from US$3.2 billion in 2004 to US$16.6 billion in 2007 – a huge 73% compound annual growth rate. Our assumptions of revenues for the next three years are US$22.5 billion in 2008 growing to US$34.5 billion in 2010 – a 27% compound annual growth rate. Year-on-year revenue increases have slowed from 92.5% in 2005 to 56.5% in 2007. We are projecting revenue growth to continue to slow – 35.6% in 2008, 26.7% in 2009 and 21.0% in 2010.

We have projected EBITDA margins at a flat 40%.

We have used a terminal growth rate of 6.5%. We calculated this terminal growth rate based on year three growth (2009 to 2010) of 21% dropping to 18.5% in 2011 and then to a 5% stable growth rate over the next ten years.

We have used a WACC (discount rate) of 10.5%. The WACC (discount rate) has a material impact on a discounted cash flow valuation (as does the terminal growth rate). We think this WACC of 10.5% is reasonable but recognise that the actual number could be as low as 10% or as high as 12-12.5%.

We used a terminal capital expenditure number of US$4.25 billion.

Our analysis incorporates the cash on the Google balance sheet – Valuecruncher calculates a net debt number.

Our analysis gives a valuation of US$481.94 which is 11.1% below the current share price of US$542.30. Our valuation is based on the current share price - it isn’t a target price for the future.

By TheCrunchBlog, almost 9 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: 170,332
Number of Shares Outstanding: 314,000,000
Calculated value per share: $481.94

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.