Professional Documents
Culture Documents
What is Google?
Company Overview
We invest the vast majority of our resources and time in our big bets. Larry Page1
Business Description
Worlds largest internet display ad company
with 4 key business segments:
Search and display advertising
Market Cap:
LTM Revenue:
LTM Net Income:
Key Financials
$373.7bn
$67.9bn
$13.1bn
$13.5bn
$60.1bn
$8.6bn
Mobile
Home Entertainment
Fiber Optics
Investment Thesis
Growth at a Reasonable Price
Agenda of Topics
Search
Ads
Consumer
R&D
Valuation
Introduction to Search
How It Works: Search
Innovations
Yahoo Vs Google
Knowledge Graph:
Googles Moat
Googles Moat: Network Effects
Googles Moat
Googles Moat: Product Differentiation
Product Differentiation
Page Rank: Algorithm to determine page importance
Knowledge Graph:
https://www.youtube.com/watch?v=mg91_trV4hY
10
quarter
spend almost a
of their media time on mobile
devices, eMarketer estimates, yet this year's spending
growth will raise mobile's share of the ad market to only
9.8%. By contrast, American adults spend only 2% of
their media time reading newspapers but ad spending for
the sector hangs just under 10% of the overall market,
eMarketer estimates.
one person
used by only
, which is a great help to
advertisers who want to target specific users.
11
Mobile Growth
12
Mobile Growth
13
Company Overview
Advertising Why Its Here To Stay
Google has double-digit Y/Y growth in revenue over past few years impressive given a
company with $60 billion annual revenue
Grew 32.4% in 2012, 19.2% in 2013, and is expected to be 17.2% in 2014 we assume
12%
Largest potential is from mobile ads growth in gross advertising sales
Eroding margin and threat of declines in ad revenue are legitimate concerns but are
extreme long run issues
Rate of decline in average CPC actually beat analysts expectations in Q3:2014
As long as Google is the king of search engines, its advertising business is here to stay
Because of Googles competitive advantages, it is has a lot of power over advertising
parties
Googles ad revenues are steady and are growing stable cash flow for Google to further
develop or pursue other projects that may be hits: optionality
14
Company Overview
Advertising Breakdown of Services
Advertising is responsible for roughly 90% of Googles total gross revenue and is divided up into 2 categories
Google Websites: (68.2%) ads on Googles search (AdWords) and other Google related sites (YouTube,
Google Maps)
Google Network Members Sites: (21.4%) aka AdSense: ads on websites Google pays to have ads space
With AdSense, content provider gets 68% of the click price
Three different payment plans:
Cost-per-click (CPC) model Google charges advertising party $ per click
Cost per-thousand-impressions model (CPI) cost per display of ad
Cost per engagement model (CPE) cost for a defined action
DoubleClick provides display advertising services for Google Websites and Network Members Sites
DoubleClick provides Interactive Ads
Software integrates well with AdSense
15
Company Overview
AdWords How It Works
Company Overview
Advertising Why Its Here To Stay Part 2
Company Overview
Case Study: Rap Genius
Yooo waddup! Here is how it works: If you have a dope post that you would like us tweet outget you MASSIVE traffic- then put this html (below) at the bottom of your post and send me
the URL along with the EXACT text you want tweeted. I will send that sh*t out and it will
bloooowwwww up!
What happened in English:
Rap Genius promoted users to tweet posts of links of a new Justin Bieber album to drive
up web traffic for its website
Plan backfired when Google founded out about it and pushed Rap Genius behind other
websites as punishment daily views dropped from 1.37 million to 0.49 million
Rap Genius comes crawling back to Google
Moral of the story:
Google has immense power because its search engine has a huge audience
SEO is another type of advertising in and of itself
Not everyone can be on the first page of Googles results
For everyone else, theres AdWords
18
Company Overview
Risks to Googles Online Advertising
Threat of competitors such as Microsofts Bing doing potential harm to Google by stealing
traffic away from Googles search engine
No Facebook (Google+ is not a successfully endeavor)
19
20
Consumer: Android
Android
Android Activations
Current
2013
Under Google
2012
Domestic
2011
0
200
International
400
Other
Android
Other
Pie graph
Android vs iOS
52% in US
1200
0.50%
0.70%
78% globally
84.70%
Android
21
1000
11.70%
22%
78%
Android
800
Q2 Market Share
2.50%
48% 52%
600
iOS
Windows
BlackBerry
Others
$25 registration fee to register for Google Play on the Google Play Publisher Site, 70/30 revenue split between developer and Google
Play store revenue of $1.3 billion, Estimated to be $5.2 billion in the next 4 years
2016
2012
2014
2011
2012
0.00
22
20.00
40.00
60.00
Total
80.00
100.00
$0
$2
$4
Google
$6
$8
$10
Consumer: Products
Nexus Phones
Nexus Tablets
23
Consumer: Products
Other Products
Developing Products
24
Tablets
42%
42%
58%
Smartphone
58%
No Smartphone
Tablet
No Tablet
International
Smartphone
Tablets
6%
20%
80%
Smartphone
25
94%
No Smartphone
Tablet
No Tablet
26
Intellectual Property
Consumer Wise
27
Valuation
1 Quarter
Ending
12/31/14
Today
9/30/14
2016
2017
2018
2019
2020
2021
2022
2023
$34,827.3
$38,595.5
$42,344.1
$46,021.5
$49,629.8
$52,138.4
$54,968.6
$57,721.8
$60,029.4
$61,829.4
EBIT
( ) Taxes
$27,361.2
(12,193.7)
$30,305.7
(13,534.7)
$33,246.3
(14,872.3)
$36,329.9
(16,189.0)
$39,205.7
(17,484.6)
$41,936.7
(18,398.1)
$44,474.0
(19,424.8)
$46,687.9
(20,426.4)
$48,554.5
(21,273.9)
$50,015.3
(21,945.4)
15,167.5
3,903.7
3,562.4
(6,229.7)
494.2
16,771.0
4,308.6
3,981.2
(6,914.9)
(322.0)
18,373.9
4,698.4
4,399.3
(7,606.4)
(324.9)
20,140.9
4,921.7
4,769.9
(8,291.0)
(321.6)
21,721.1
5,262.1
5,161.9
(8,954.3)
(311.6)
23,538.7
4,676.1
5,525.6
(9,581.1)
(294.5)
25,049.2
4,643.1
5,851.6
(10,156.0)
(270.1)
26,261.6
4,886.7
6,147.2
(10,663.8)
(238.6)
27,280.7
5,081.9
6,393.0
(11,090.3)
(200.4)
28,069.9
5,230.4
6,583.7
(11,423.0)
(156.3)
$16,898.1
$17,823.9
$19,540.4
$21,219.9
$22,879.3
$23,864.8
$25,117.7
$26,393.1
$27,464.8
$28,304.7
Assum ptions
Net debt
(51,444.0)
678.400
Market Cap
WACC
9.7%
Exit Multiple
10.0x
542.09
367,753.86
Sensitivity Analysis
Enterprise Value
Equity Value
##########
8.7%
8.0x
10.0x
(WACC)
12.0x
8.0x
Implied Upside
10.0x
12.0x
$428,373.5
$497,860.4
8.7%
$410,330.6
$479,817.5
$549,304.4
8.7%
11.6%
30.5%
49.4%
9.7%
$358,886.6
$428,373.5
$497,860.4
9.7%
$410,330.6
$479,817.5
$549,304.4
9.7%
11.6%
30.5%
49.4%
10.7%
$346,631.6
$413,464.1
$480,296.6
10.7%
$398,075.6
$464,908.1
$531,740.6
10.7%
8.2%
26.4%
44.6%
10.0x
$358,886.6
Discount
8.0x
12.0x
8.7%
2.8%
4.0%
4.7%
$604.85
$707.28
$809.71
9.7%
3.8%
4.9%
5.7%
$604.85
$707.28
$809.71
10.7%
4.7%
5.9%
6.6%
$586.79
$685.30
$783.82
28