Current Price --> $597 / Share
Financials --> Below.
PE --> 15 after cash (after the recent quarterly earnings)
Intrinsic Value --> $650 / Share to $730 / share
Business Description --> (from 10-k)
Google is a global technology leader focused on improving the ways people connect with information. Google aspires to build products that improve the lives of billions of people globally. The mission is to organize the world’s information and make it universally accessible and useful. The innovations in web search and advertising have made the website a top internet property and the brand one of the most recognized in the world.
Google generates revenue primarily by delivering relevant, cost-effective online advertising. Businesses use AdWords program to promote their products and services with targeted advertising. In addition, the third parties that comprise the Google Network use the AdSense program to deliver relevant ads that generate revenue and enhance the user experience.
Google's Moat --> A strong brand name with over 65% market share in the US search engine business.
(See here for market share by country (slightly dated (especially China) --> https://spreadsheets.google.com/ccc?key=pLaE9tsVLp_0y1FKWBCKGBA#gid=0) Has a strong network externality working for it. The more people use Google, the more better the search gets. The more better the search gets, the more people will use Google. Microsoft spent tens of billions of dollars in search technologies and lawyer fees but has hardly made a dent into Google's market share. Google has a strong brand name beyond the just the search functionality making it tough for competitors (even if the competition comes up with a better search technology.) Whenever billions of dollars does not allow you to dent a competitor's business, you can safely claim that it has a moat around that business (without sacrificing profitability)
Management --> Brin and Page are still young and top notch engineers and innovators. With Page as CEO, the company is trying to stay in the start-up mode. Very competent and honest management. 'Don't be Evil' is an appropriate tagline to be associated with the company.
Real Option --> At 15 times the search engine business (which makes up more than 90% of the sales), you get thrown a free social networking site (Google+), a video site (Youtube), email services (Gmail), maps, Chrome, Andriod and a whole suite of other services. Also, the company is best suited to adopt to a cloud computing environment. All future growth from these services are embedded options in the stock. A top class business model (probably the most successful business model to monetize a pure internet play) with a good management and real options thrown on top of it!
Risks include --> Anti-trust hearings, start-ups like Facebook (It will be very interesting to see how Facebook reacts to Google+) and dependent on the Economy but no CAT risk.
Intrinsic value Estimates
2012 Consensus Earnings is about $39.2 EPS. --> 13 Times 2012 earnings + $144 dollars in cash = $653 / Share to 15 times 2012 earnings + $144 in Cash = $732 / Share
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