Assessment 1: Individual Assignment

Written Case Study Report

Financial Analysis

1. Use the databases discussed in Tutorial 1 and locate the following information for Google Inc. (5*2 marks = 10 marks):
1.1. Number of outstanding shares for Google Inc. (current stock data): 286, 938, 352
1.2. List of stock exchanges that Google Inc.is listed at: * NASDAQ National Market * Boerse Berlin * Boerse Duesseldorf * Boerse Frankfurt * Boerse Hamburg * Boerse Hannover * Boerse Munchen * Boerse Stuttgart * Bolsa Mexicana de Valores * Bucharest Stock Exchange * Swiss Exchange (SWX) * XETRA Stock Exchange
1.3. The list of top 3 shareholders of Google Inc.: * Mr Lawence Page * Mr Sergey Brin * FMR LLC
1.4. Net income for Google Inc. as at 31/12/2014 (US$): 14, 444, 000
1.5. Total assets for Google Inc. as at 31/12/2014 (US$): 131, 133, 000
Use the information provided in the case and answer the following questions:
2. Identify two key factors behind Google’s early success and provide explanation as to why you believe these factors are Google’s strategic advantages. (2*4 marks =8 marks; word limit: 300 words max) 1. Google decided to implement a modified version of Overture’s cost-per-click model. Google looked at the cost-per-click bids by the relation of an ad’s actual click through rate. This ensured that relevant ad’s got top of the list positions, and ad’s that didn’t receive much exposure incurred less of a bid and was shown less. Google improved revenue. With the use of research based on Google’s competitor, Google was able to find ways to make an adjustable model, very successful for their business. Google also created ways to change the model to strategically benefit themselves for the long-term. This decision helped Google to become a rival and threat to Overture, becoming the ninth largest recognised U.S website. The reason why this stage is one of Google’s strategic advantages is due to the fact that they found a way to become a recognised website contributing to innovative ways to overcome their closest rivalry. This model contributed to AOL switching to Google, while Google market share exceeding Yahoo’s, continually increasing over the years.

2. Google’s second most key success approach involved the advertising and marketing strategy. Google also focused their advertisement strategy to other companies including AOL. The right to show Google ads on AOL search results soon committed to Google buying a 5% stake in AOL and providing AOL with $300 million of credit towards AOL’s purchase of ads at Google in 2005. Google also sought to attract advertisers locally and offered advocates free software to optimise paid item campaigns. In result, Google found itself earning 60% of the U.S paid-listing revenue. By committing to advertisement, Google bounced to attract almost three times more advertisers than their first competitor Overture. Google took the right approaches and marketing segmentation to understand their competitors and advertisers to convey a message that Google could uphold.
3. Use your knowledge of capital markets and discuss 3 benefits (advantages) and 3 costs (disadvantages) of Google IPO. (3*2 points + 3*2 points = 12 points; word limit: 400 words max)
Google Inc. Advantages/Benefits: 1. The online auction process improved management benefits from the high evaluation that the markets placed on Google stock. The process improved the capability of small stakeholders to contribute in the IPO process, and decreased the traditional dominance of large stakeholders who were productive clients of the endorsing bank. 2. Google modified Dutch auction which set a fairly accurate price for the offering, satisfying the company’s business and cultural goals. In this case, Google benefited from price obligation were those stakeholders that bought Google held it until the price increased, and the Google founders, as well as the capital firm, allocated shares earlier on. 3. Google's modified Dutch auction produced a flexible and appropriate opening share price. Google's initial market capitalisation amounted to less than top rival Yahoo. Google was critiqued about the hybrid auction and how it was supposedly inconsistent due to the company resetting its initial price range and distribution of shares post-auction. In saying this, Google’s flexibility was an advantage.
Google Inc. Disadvantages/Costs: 1. Google’s online process was not an efficient pricing mechanism since the increase between Google’s offer price and its open price was much greater than the increase for typical IPO’s. Google's pricing mistake and the early decrease in its target price range may have been made aware on the part of stakeholders over the online auction process in general. 2. Small investors may lack the ability to efficiently price an IPO due to a lack of information. Google did not show how it would use its funds and took little detailed information. Google sought primarily to online advertisement rather than focusing on subscription services, entertainment and news offerings on their sites. The unseen detail of information on uses for the capital to be increased may have been difficult for the smaller investors including Yahoo and Microsoft to evaluate. 3. Leading up to the Dutch auction, Google Inc. and management encountered several hurdles including allegations of disclosure which costed them time and money. A payment of an awaiting clear violation suit by rival Yahoo, steered Google management to shift to a modified Dutch auction. This altered the number of shares offered, and sunk the IPO price. This final price change produced the most controversy in the weeks leading up to the issue.