Google Inc. (GOOG)
Discount cash flow analysis
5% margin of safety What's this?
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 $591.92 (undervalued by 2.14%) - 9 hours ago
- GordonGekko created a new valuation of $589.34 (undervalued by 7.15%) - 1 month ago
- GordonGekko created a new valuation of $542.07 (overvalued by 7.73%) - 3 months ago
- sundjn created a new valuation of $402.92 (overvalued by 30.5%) - 3 months ago
- kuangxiaohui created a new valuation of $456.49 (overvalued by 19.91%) - 3 months ago
- ensayofr created a new valuation of $232.04 (overvalued by 57.97%) - 4 months ago
- ensayofr created a new valuation of $270.60 (overvalued by 50.99%) - 4 months ago
- mobajwa created a new valuation of $456.35 (undervalued by 3.0%) - 7 months ago
- GordonGekko created a new valuation of $448.59 (undervalued by 3.92%) - 9 months ago
- tekne created a new valuation of $558.16 (undervalued by 39.93%) - 9 months ago
- tekne created a new valuation of $312.92 (overvalued by 21.55%) - 9 months ago
- Lespe959 created a new valuation of $412.53 (undervalued by 3.42%) - 9 months ago
- GordonGekko created a new valuation of $412.09 (undervalued by 2.14%) - 10 months ago
- SethWellbourne created a new valuation of $392.92 (undervalued by 3.0%) - 10 months ago
- SethWellbourne created a new valuation of $521.71 (undervalued by 52.24%) - 11 months ago
- rthwrm created a new valuation of $370.11 (undervalued by 12.1%) - 11 months ago
- mlongval created a new valuation of $370.11 (undervalued by 12.1%) - 11 months ago
- GordonGekko created a new valuation of $369.98 (undervalued by 12.06%) - 11 months ago
- GordonGekko created a new valuation of $369.64 (undervalued by 16.27%) - 1 year ago
- rs12345 created a new valuation of $253.99 (overvalued by 16.9%) - 1 year ago
- rs12345 created a new valuation of $283.27 (overvalued by 7.32%) - 1 year ago
- nzvikram created a new valuation of $616.76 (undervalued by 74.67%) - 1 year ago
- tiger created a new valuation of $279.25 (overvalued by 0.06%) - 1 year ago
- rjbullock created a new valuation of $260.06 (overvalued by 0.9%) - 1 year ago
- dweis created a new valuation of $273.41 (overvalued by 8.07%) - 1 year ago
- KiwiEMH created a new valuation of $318.88 (undervalued by 2.86%) - 1 year ago
- anoop249 created a new valuation of $472.63 (undervalued by 26.87%) - 1 year ago
- TheCrunchBlog created a new valuation of $416.73 (undervalued by 22.87%) - 1 year ago
- KiwiEMH created a new valuation of $337.31 (undervalued by 1.6%) - 1 year ago
- TheCrunchBlog created a new valuation of $352.67 (overvalued by 7.44%) - 1 year ago
- TheCrunchBlog created a new valuation of $304.96 (overvalued by 29.25%) - 1 year ago
- TheCrunchBlog created a new valuation of $493.88 (undervalued by 9.96%) - 1 year ago
- GordonGekko created a new valuation of $438.65 (undervalued by 5.91%) - 1 year ago
- veter created a new valuation of $175.18 (overvalued by 58.29%) - 1 year ago
- KiwiEMH created a new valuation of $479.36 (overvalued by 0.78%) - 1 year ago
- TheCrunchBlog created a new valuation of $481.94 (overvalued by 11.13%) - 1 year ago
- andrew created a new valuation of $285.51 (overvalued by 47.58%) - 1 year ago
- acoy created a new valuation of $487.70 (overvalued by 16.06%) - 1 year ago
- benkepes created a new valuation of $346.02 (overvalued by 39.96%) - 1 year ago
- andrew created a new valuation of $260.15 (overvalued by 54.61%) - 1 year ago
- MarkC created a new valuation of $528.69 (overvalued by 4.74%) - 1 year ago
- Sam created a new valuation of $473.45 (overvalued by 14.69%) - 1 year ago
- TheCrunchBlog created a new valuation of $590.39 (undervalued by 8.87%) - 1 year ago
- TheCrunchBlog created a new valuation of $363.22 (overvalued by 33.02%) - 1 year ago
- TheCrunchBlog created a new valuation of $507.85 (overvalued by 6.35%) - 1 year ago
- sthapit created a new valuation of $456.39 (overvalued by 15.84%) - 1 year ago
- GordonGekko created a new valuation of $1038.75 (undervalued by 97.32%) - 1 year ago
- TheCrunchBlog created a new valuation of $1038.75 (undervalued by 97.32%) - 1 year ago
- ffarin created a new valuation of $476.03 (overvalued by 9.57%) - 1 year ago
- matrixxx created a new valuation of $220.11 (overvalued by 54.74%) - 1 year ago
- DART created a new valuation of $223.63 (overvalued by 55.51%) - 1 year ago
- GordonGekko created a new valuation of $606.64 (undervalued by 9.3%) - 1 year ago
Comments
The boring details
| All amounts in millions | Figures |
| Enterprise Value: | 167,810 |
| 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.
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.
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.
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.
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.