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Google

In: Computers and Technology

Submitted By momnpop
Words 9272
Pages 38
April 13, 2012 Technology

Google Inc.
Ticker: GOOG Current Price: $630.84 Recommendation: Buy Implied Price: $688.77

Investment Thesis
Key Statistics
52 Week Price Range 50-Day Moving Average Estimated Beta Dividend Yield Market Capitalization 3-Year Revenue CAGR $473.02 - $670.25 $XX$XX.XX $624.35 1.09 N/A $205.1 billion 20.26%



Google’s market leading search engine will allow the company to continue to grow their advertising revenues domestically and internationally. As the internet continues to grow in popularity, demand for Google’s advertising services will continue to increase. With over 250 million mobile devices running Google’s Android operating system, and 850,000 being activated each day, any successful monetization of this system will result in substantial profits. Google’s culture of innovation will allow Google to continue to grow and remain a leader of the technology sector.





Trading Statistics
Diluted Shares Outstanding Average Volume (3-Month) Institutional Ownership Insider Ownership EV/EBITDA 325 million 2.647 million 81.80% 0.42% 9.2x

Google Inc. (5- Year)

Margins and Ratios
Gross Margin EBITDA Margin Net Margin Debt to Enterprise Value Leverage Ratio 70.00% 39.25% 27.37% 2.55% 0.2x

Covering Analyst: David Douglas

1

University of Oregon Investment Group

University of Oregon Investment Group

April 13, 2012

Business Overview
Google Inc. was started in 1998 by two Stanford University students attempting to build an internet search engine. Since then, Google has grown to become the most popular search engine in the world, handling billions of internet searches per day. The company focuses their operations in the following four areas:  Search  Advertising  Android Operating System  Enterprise Search Google has built the company around their search engine. The Google search algorithm is regarded as the most efficient and accurate means of searching the internet for content. Google’s search engine is used for approximately 66% of all internet based search queries. In 2011, the company averaged more than 1 billion unique users using the search engine per month. Advertising Advertising is the means by which Google is able to monetize the large amounts of traffic to their search engine. The company offers many different types of advertising services that allow customers to market to the billions of Google users. Advertisements reach customers through Google’s websites, as well as what they consider the “Google Network”. Google Websites are the company’s wholly owned websites. Google’s largest and most popular website is the search engine google.com but others include YouTube™, Gmail, and Google Finance. The “Google Network” is the thousands upon thousands of websites that use Google’s capabilities to sell advertising. Google places advertisements on member’s websites, and the members receive a portion of the revenue that is derived from the advertisement being clicked. Google is one of the most simple and efficient ways for websites and blogs to monetize their traffic, material, and content. The company offers a variety of advertising services. The most popular is Google AdWords. AdWords is an auction based advertising program that allows customers to create text based advertisements that can be targeted to user searches, content, geographic regions, and much more. Customers pay for the amount of times an advertisement is clicked. A customer pays a higher amount per click for higher traffic words and the most popular searches. AdWords advertisements are found on Google and Google Network sites. AdSense is the company’s advertising service that allows AdWords advertisements to be featured on Google Network Members websites. This allows websites and blogs to place Google AdWords advertisements on their sites. Network Members receive a portion of the revenues derived from the advertisements being clicked. Google also offers more advanced advertisements services such as Google Display. Display allows companies to create video, text, image, and other interactive advertisements that are featured on Google Network websites.

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Google recently introduced Google Mobile. Mobile focuses on delivering advertisements to mobile devices such as cell phones and tablets. This service allows customers to run ad campaigns on mobile devices through Google applications, as well as the Google mobile search browser. In 2010, Google acquired AdMob, Inc. which is now integrated as a part of Mobile. AdMob offers advertising services for application developers and advertisers. Mobile is Google’s fastest growing advertising segments as more and more customers use mobile devices for internet searches and to access content. Operating System and Other Platforms One of Google’s most successful areas of business is the Android operating system. Android is an open source operating system for mobile devices. Being open source, the operating system code is open for all to see. Any mobile device manufacturer can install the operating system on a device at no cost. Android is the most popular mobile based operating system, with a 51.1% share of the total smartphone market in the U.S., compared to 30.2% for Apple’s iOS. Google does not currently generate significant revenues through Android as it is licensed at no cost. However, the company does generate revenues through paid application downloads, and is currently exploring other ways to monetize Android. Google also offers Chrome OS, an open source operating system that is designed around their Chrome web browser. Chrome OS allows a computer to run primarily through the internet but is only used by a limited amount of computer manufacturers. Google Chrome, the company’s web browser is highly successful and owns an 18.5% market share of the web browser market. Other Google platforms include Google+, a social media platform, Google TV, a platform that integrates television viewing and internet browsing on a single screen, as well as Google Books, which allows users to purchase and download electronic books to a computer or mobile device. Enterprise Google also offers enterprise products meant for business purposes. These products include Gmail, Google Docs, Google Calendar, and many other applications that are hosted by Google. The company also offers enterprise search systems for corporate websites, and enterprise versions of Google Maps and Google Earth. This is one of Google’s fast growing segments as Google offers these services at a substantially lower cost than full enterprise services for e-mail and word processing.

Business Growth Strategies
Expanding Beyond Search While Google has been able to grow based on the success of their search engine, the company is looking for other ways to grow. One of the company’s key philosophies is to “launch innovative products early and often”. Google spends large amounts of R&D attempting to develop new technologies and products that will allow the company to continue to be profitable. While the company will continue to focus on remaining the most popular and effective search engine, Google will constantly be investing in innovative new products. Monetizing Android While Android is the most popular mobile operating system in the world, Android currently amounts for a small portion of the company’s overall revenues. Android revenues primarily consist of the fee that Google takes from

Source: Robert Pogson

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April 13, 2012 paid application downloads from the Android Marketplace. The Android operating system is used on more than 250 million mobile devices throughout the world and there are 850,000 new Android based devices being activated each day. With so many devices running the Android system, this presents a significant opportunity for Google. The company is aggressively investing in R&D to devise ways to generate revenue from this thriving operating system. Mobile As the internet continues to become the key medium to access content, the way in which users access the internet is shifting towards mobile access through smartphones and tablets. In 2011, 31% of Americans accessed the internet through their mobile device, a 25% increase from the year prior, and is estimated to increase roughly 60% by 2015 (eMarketer). Google’s advertisements are primarily aimed at users that access the internet via a traditional computer connection. The company understands this trend and continues to look for ways to expand advertising services through Google Mobile. Google dominates mobile search, with an over 99% market share, and the company continues to look for ways to monetize this.

Source: comScore

Motorola Mobility Acquisition
In August 2011, Google announced the acquisition of Motorola Mobility (MMI). MMI is a subsidiary of Motorola USA that manufactures mobile devices such as smartphones, tablets, wireless accessories, video and data delivery devices, and many other electronics. Google agreed to purchase MMI at $40 per share, a 63% premium to what the shares were trading at on August 12 th. The total value of the acquisition is worth roughly $12.5 billion. MMI will be wholly owned by Google but will operate as a distinctly separate business. There are two primary benefits that Google has pointed to with regards to this acquisition. The first is that MMI has a portfolio of 17,000 patents. These will be important as the Android operating system continues to come under fire from other technology companies such as Apple and Samsung. These patents would better allow Google to legally defend their technologies. The other benefit Google pointed out is the ability to enhance the Android operating system. Most likely this will come in the form of a Google developed tablet running off Android. However, it is important to note that Android will remain an open source operating system. MMI will license Android from Google and will not receive preferential treatment from MMI’s competitors such as Samsung and Nokia. This acquisition has had a mixed review from Wall Street Analysts. Many believe that Google overpaid considerably for this acquisition. MMI is not a profitable company, and based on the purchase price, Google is paying roughly 26x expected 2012 EBITDA. There is also concern that Google is alienating many of their Android customers such as Samsung. Google is one of Samsung’s largest suppliers of their mobile devices, however, now Google will own one of Samsung’s competitors. Proponents of the acquisition believe the portfolio of patents the company is well worth the acquisition price. As of April 2011, the MMI acquisition is on pace to be completed between the 2nd and 3rd quarter. U.S. and European regulators have approved the acquisition, and the company is currently waiting for Chinese and Taiwanese approval before the deal can be closed.

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Industry
Overview
Google operates in a highly competitive market dominated by large technology firms. Their main operating industry is search engines. Competition in this area includes Microsoft, Yahoo, AOL, and Baidu. The majority of market share is concentrated upon this small group of firms, making it difficult for new competition to enter the market. Similar to this market, Google also competes with other mobile based operating systems. Market share in this area is primarily between Google, Apple, and Microsoft. With such concentration amongst large firms, competition will be fierce as each company attempts to increase market share.

Macro factors
Google can be affected by the overall global economic climate. As the company relies on advertisement spending, downturns in consumer spending can result in decreased spending by corporations. Google’s advertising services do not require long term contracts or commitments. Therefore, if a company decides to cut marketing their marketing budget, Google ad campaigns are some of the easiest to end. Google is also highly affected by foreign exchange rates. Over 50% of the company’s revenues come from outside the United States and changes in currency exchange rates can have adverse effects on the company’s financial results. In order to hedge their exchange rate risk, the company currently has currency hedges against the Euro, British Pound, and Canadian dollar.

Source: Google 2011 10K

Competition
Amongst search engines, Google continues to dominate the competition. However, competition is becoming more concentrated as Microsoft’s Bing vies to take market share from Google. Microsoft has partnered with Yahoo! to take over the company’s entire search offerings. This will roughly double Bing’s current market share in the industry. While competition is increasing, Google still remains well ahead of Microsoft. Google’s advertising services are unmatched by Microsoft and it is unlikely that Microsoft is able to take share away from Google in the near term future. Also, in terms of mobile search, Google is used for 99% of searches, and there is currently no real competitive threat in this area. Similar to the oligopoly that exists within the search engine market, the same exists with regards to mobile operating systems. The dominant systems include Google’s Android, Apple’s iOS, and multiple operating systems from Microsoft. Microsoft has high hopes for their new Windows 8 based operating system; however, it will be difficult for them to compete with Android. As Android is free for manufacturers to use, it is the preferred operating system for smartphones. iOS can only be used in Apple products and Microsoft charges licensing fees for their system’s use. It will be difficult for competitors to compete with open source Android. With the acquisition of MMI, Google is now entering the highly competitive mobile device manufacturing market. The five main firms that compete in this market include Samsung, LG, Apple, Motorola, and HTC. Samsung and Apple
Source: comScore

Source: S&P NetAdvantage

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April 13, 2012 continue to increase market share while other manufacturers are struggling to keep up. Manufacturers such as Nokia and RIM are being pushed out of the industry as the top two continue to gain market share.

Management and Employee Relations
Larry Page, Founder and CEO
Mr. Page founded Google in 1998 as a Ph.D. student at Stanford University. Paige holds a bachelor’s degree in engineering from the University of Michigan, and a master’s degree in computer science from Stanford. Page served as CEO until 2001, and then acted as president of products from 2001 to 2011. In 2011, Page again became CEO and is in charge of all day to day operations, product development, and technological strategy.

Eric Schmidt, Executive Chairman
Mr. Schmidt joined Google in 2001 as CEO. He holds a bachelor’s degree in electrical engineering from Princeton University, and a master’s degree and Ph.D. in computer Science from the University of California, Berkeley. Prior to Google, Schmidt served as CEO of Novell and CEO of Sun Microsystems. Schmidt served as CEO from 2001 until 2011 when he took over the job of Executive Chairman. He is responsible for building partnerships, relationships, government outreach, and advising company leadership on business and strategic matters.
Larry Page, CEO

Nikesh Arora, Senior VP and Chief Business Officer
Mr. Arora joined Google in 2004. At Google, he has headed global direct sale operations, management European, Middle Eastern, and African operations, and now is in charge of the company’s business strategy. He holds a master’s degree from Boston College, MBA from Northeastern University, bachelor’s degree in electrical engineering from India’s Institute of Technology, and the CFA designation.

Recent News
“850,000 Android Devices Activated Each Day” 4/6/2012 -CNN
Google CEO Larry Page announced that 850,000 Android devices are being activated daily, Google Chrome has over 200 million users, and Gmail has over 350 million users with more than 5,000 new business and education establishments signing up each day. This shows Google’s opportunity outside of search. With the Android market growing so quickly, if Google can find ways to monetize this operating system, it presents a substantial revenue growth opportunity. Chrome and Gmail should also continue to help advertising revenue growth as the company has incorporated advertising services into these product offerings.

“Google Begins Testing Augmented Reality Glasses” 4/4/2012 -NY Times
Google Glasses

Google has begun testing their latest product, “Augmented Reality Glasses”. These glasses stream information to the lenses and allow the wearer to send and receive messages through voice commands. While these glasses are far from being released to consumers, and may never even be released, they demonstrate Google’s innovative nature. The company continues to search for innovative products that show the company is not just a search engine.

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“Google Stock Down On Q4 Earnings Miss” 1/19/2012 -Forbes
Google shares fell roughly 9% as the company reported revenue and net income lower than analysts expected. While paid clicks were up over 34%, cost per click was down about 8%. The main reason for this miss was overall weakness in Europe. Cost per click fell primarily due to negative foreign exchange fluctuations and changes in their advertising offerings. While the company missed expectations, the large increase in paid clicks shows that the company is offering more effective ads and the company is seeing success in the mobile advertising market.

Catalysts
Upside
    Any Monetization of the Android Operating System Increased Mobile Advertising Products Successful Introduction of a Google Tablet Motorola Mobility Acquisition Cancelled

Downside
    Substantial Decreases in Search Market Share Failure to Monetize Android Operating System Poor Financial Results from Motorola Mobility Negative Outcome of Any Legal Proceedings

Comparable Analysis
A comparable analysis was performed in order to find the price that Google should be trading in relation to its peer group. This analysis involved choosing companies that operate in similar lines of business and have similar risk and growth to Google. The companies chosen for this analysis were done so based on expected growth rates, similar risks, and lines of business. Comparable companies were found based on multiple characteristics. Screenings included margin comparison, ratios such as debt/equity, current, quick, as well as size. Each company also had to be involved in either search, produce a mobile operating system, or internet based. The companies chosen were believed to be the closest peer group to Google. The multiples chosen to value ESL were EV/Revenue, EV/EBIT, and EV/EBITDA. The bottom line multiples, EV/EBIT and EV/EBITDA were weighted the most.

Forward Multiple EV/Revenue EV/Gross Profit EV/EBIT EV/EBITDA EV/Net Income Price Target Current Price Undervalued

Implied Price Weight $ 578.97 20.00% $ 670.66 0.00% $ 761.93 40.00% $ 629.71 40.00% $ 622.08 0.00% $672.45 630.84 6.60%

Yahoo! Inc.
“Yahoo! Inc., together with its subsidiaries, operates as a digital media company that delivers personalized digital content and experiences through various devices worldwide. It offers online properties and services to users; and a range of marketing services to businesses. Its search products comprise Yahoo! Search and Yahoo! Local, available free to users to navigate the Internet and discover content” –Reuters Yahoo! was chosen primarily due to its similar line of business to Google. The Yahoo! search engine has the 3rd highest market share, the company makes the

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April 13, 2012 majority of its revenues through advertising, and similar product offerings to Google such as Yahoo! Finance and Yahoo! Maps.

Apple Inc.
“Apple Inc., along with its subsidiaries is engaged in designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and sells a range of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and Mac OS X operating systems, iCloud, and a range of accessory, service and support offerings” –Reuters Apple was chosen primarily due to similar expected growth rates and similar line of business. With the acquisition of MMI, Google will directly compete with Apple devices and Google’s Android already competes directly with Apple’s iOS. Apple has both similar risk and growth to that of Google.

Microsoft Corporation
“Microsoft Corporation is engaged in developing, licensing and supporting a range of software products and services. The Company also designs and sells hardware, and delivers online advertising to the customers. The Company’s products include operating systems for personal computers (PCs), servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools; software development tools; video games, and online advertising” –Reuters Microsoft was chosen because of their similar lines of business, margins, and risk. Microsoft’s Bing will be Google’s largest competitor in terms of search, and Microsoft’s new mobile operating systems will directly compete with Android.

Baidu, Inc.
“Baidu, Inc. (Baidu), incorporated on January 18, 2000, is a Chinese-language Internet search provider. Baidu offers a Chinese-language search platform on its Website www.baidu.com. It provides Chinese-language Internet search services to enable users to find relevant information online, including Web pages, news, images and multimedia files, through links provided on its Websites. The Company designs and delivers its online marketing services primarily on its Baidu.com Website to its online marketing customers” –Reuters Baidu was chosen because of their market leading position in Chinese search. However, Baidu was not weighted as their expected growth is much too high and their reliance on the Chinese market makes them substantially more risky than Google.

Amazon.com Inc.
“Amazon.com, Inc. serves consumers through its retail Websites and focuses on selection, price, and convenience. The Company’s four customer sets include consumers, sellers, enterprises and content creators. It also manufactures and sells Kindle devices. It offers programs, which enable sellers to sell their products on its Websites and their own branded Websites and to fulfill orders through it. In addition, it generates revenue through other marketing and promotional services, such as online advertising, and co-branded credit card agreements” –Reuters

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Amazon was chosen because of their similar expected growth and market leading position in internet sales. However, Amazon was not weighted due to their much different nature of business, considerably smaller margins, and much different risks to that of which Google faces.

Discounted Cash Flow Analysis
A discounted cash flow analysis was done in order to find the estimated intrinsic value of Google. To complete the discounted cash flow analysis, revenues were projected, and then the percentage of revenue method was used to project the Considerations majority of the company’s line items. Projections were based upon management guidance, analyst expectations, industry research, and my analysis of the company’s prospects.

Discounted Free Cash Flow Assumptions Tax Rate Risk Free Rate Beta Market Risk Premium % Equity % Debt Cost of Debt CAPM WACC Terminal WACC 25.00% Terminal Growth Rate 2.06% Terminal Value 1.09 PV of Terminal Value 7.00% Sum of PV Free Cash Flows 97.99% Firm Value 2.01% Total Debt 3.83% Cash & Cash Equivalents 9.68% Market Capitalization 9.54% Fully Diluted Shares 10.64% Implied Price w/o MMI Current Price Undervalued Implied Price w/ MMI Undervalued 3.00% 300,197 114,871 78,908 193,779 4,204 31,179 205,108 325 715.69 630.84 13.45% 694.21 10.05%

Revenue
Revenue was projected using a combination of management guidance, analyst expectations, and my analysis of the industry and the company’s growth prospects. Total revenue was broken down into each operating segments and a growth rate was assigned for each segment each year. Growth in the Google Websites segment will be primarily be driven by increased use of the search engine and advertising services outside the U.S. There are also significant opportunities to increase mobile advertising revenues through mobile versions of Google’s websites such as YouTube and google.com. Google Network Websites will continue to grow as companies join the network to take advantage of advertising revenues. As the internet continues to grow in popularity as a means to access content, websites will continue to utilize Google’s suite of advertising products that allow them to monetize site traffic. Growth will also be spurred as Google offers more advertising services for mobile browsing. While “Other” revenues only make up a small portion of Google’s business, growth will remain high as the company’s enterprise and advertisement management services continue to grow in popularity.

Cost of Revenues
Cost of Revenues consists of the portion of revenues that are paid to Google Network Members under AdSense arrangements, distribution fees, data center expenses, and licensing agreements. These expenses are expected to increase into the terminal year as Google offers higher incentives to bring in potential clients.

Sales and Marketing
Sales and Marketing expenses include personnel compensation for customer service, sales, and sales support, as well as other advertising expenditures. These expenses are projected to increase as a percentage of revenue over the next few years as the company expands globally and increases their number of employees abroad. However, these are expected to fall as a portion of revenue as the company slows expansion. While the percentage of revenue is falling, the large increases in revenue make the nominal amount large enough to cover the growing sales and marketing requirements.

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General and Administrative
General and Administrative expenses consist of compensation and costs for the personnel and facilities involved in finance, human resources, information technology, legal organizations, and professional service fees. These expenses are expected to increase as a percentage of revenue into the terminal year as the company faces higher amounts of litigation as well as increased administrative facilities.

Depreciation and Amortization
Depreciation and Amortization is projected to remain constant as a percentage of revenues over the course of the DCF.

Net Working Capital
Non Cash current assets and current liabilities were projected using a networking capital model over the course of the DCF. Projections were made primarily using historical growth rates. The only significant increase is an increase in Accounts Receivable as the company deals with more clients that will result in longer collection times.

Capital Expenditures
Capital Expenditures are projected to remain high as a portion of revenues through 2013 then begin to trend down as international expansion slows. The expenditures will be primarily on data center facilities. While these are trended down into the terminal year, the nominal amount is still quite large and will result in more than enough spending to keep up with the company’s growth.

Acquisitions
Acquisitions have been one of the key ways that Google has grown. While the company makes many acquisitions, they are often smaller companies that they believe can be integrated into their advertising sales model. The large acquisition number in 2012 is because of MMI. Acquisitions are projected to be 4.5% of revenue until 2014 and then fall to 3% into the terminal year. As a nominal number, these are large amounts of acquisitions that the company will use to expand their search, advertising, and other offerings. Acquisitions were considered primarily with regards to top line growth.

Discounted Cash Flow Analysis
Beta
Beta 5 Year Monthly 3 Year Monthly 1 Year Weekly 5 Year Monthly Hamada 3 Year Monthly Hamada 5 Year Monthly Vasicek 3 Year Monthly Vasicek Google Inc. Beta 1.09 1.16 1.01 1.06 0.89 1.08 1.05 1.09 Weighting 33.33% 33.33% 33.33% 0.00% 0.00% 0.00% 0.00%

Seven different betas were calculated for Google. I chose to use an equal weighting of the 5 year monthly, 3 year monthly, and 1 year weekly regressions against the S&P 500. These regressions accurately capture Google’s systematic risk. While beta techniques such as Hamada and Vasicek are valuable, they were not weighted due to the fact there is not a strongly defined group of industry peers that could be used to calculate these betas accurately.

Tax Rate
Google pays a tax rate significantly lower than the usual federal statutory rate of 35% because of significant overseas operations with lower tax rates and other tax benefits. The tax rate is projected to rise to 25% and remain constant over the course of the DCF from the current 21% as tax benefits and credits in the

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U.S. expire. However, the effective rate will not rise higher than 25% as Google continues to receive more of its revenue internationally.

Cost of Debt
Implied Price Terminal Growth Rate 679 0.89 2.0% 757.46 690.46 634.30 586.58 545.56 2.5% 790.10 716.15 654.85 603.24 559.23 3.0% 827.95 745.53 678.08 621.90 574.42 3.5% 872.35 779.45 704.56 642.94 591.39 4.0% 925.16 819.07 735.03 666.85 610.47

Adjusted Beta

A weighted average of Google’s debt was used in order to calculate the cost of debt. The current yield of this debt was used as the base for the cost of debt. Undervalued/(Overvalued) However, as the result of this base was less than the risk free rate, a 1.5% Terminal Growth Rate premium was added. As debt is only roughly 2% of Google’s capital structure, this had little to no effect on the valuation.

0.99 1.09 1.19 1.29

Risk Free Rate
A 10-year treasury rate was used as the risk-free rate over the course of the 10 year DCF. However, a terminal WACC was calculated using the 30-year treasury rate. Given the significant different between the 10 and 30 year risk free rates, the 30 year treasury rate better reflects the terminal value being discounted.

Cash and Equivalents
As Google has a significant amount of Cash and Equivalents, these are valuable to shareholders. Therefore, a portion of the company’s cash and equivalents were added back to firm value. Cash and equivalents reported on the balance sheet were assumed to be used to fund the company’s operations, therefore were not added back to firm value. However, note that this is a large amount, over $9 billion. It is highly unlikely that all of this cash is being used to fund operations. Therefore, much of this may hold value for shareholders as well. The line item “Marketable Securities” was then used as cash equivalents that provide value for shareholders. This was then segregated into two equal halves. The first is assumed that 50% of this is cash that is within the United States and has been taxed accordingly. The second 50% is cash assumed to be overseas. This cash, in order to be brought back to the U.S. would still need to be taxed. Therefore 80% of this amount is added back to the other 50%. The 20% difference is the different between the U.S. corporate tax rate and as estimated 15% international tax rate. This cash would therefore need to be taxed an excess 20% before coming back to the U.S. This final balance is then added back to the firm’s value.

Motorola Mobility DCF
In 2012, Google will be making its biggest acquisition in the history of the company with Motorola Mobility (MMI). Google will spend $12.5 billion in cash on this acquisition. In order to project the benefits of this acquisition, a five year Discounted Cash Flow analysis was done to come up with the value that this acquisition will provide to Google. After the firm value was estimated, this was added back to Google’s firm value to come up with the implied price.

Projections
Projections were made based on my research of the company, analyst expectations, and management guidance. Revenue is projected to grow slowly this year and trended up into 2013. This is then expected to remain constant as the company will struggle to compete with larger manufacturers such as Apple and Samsung. Cost of Sales is projected to remain relatively constant as any efficiencies brought about will be offset by decreases in selling prices. SG&A is trended downward as the company expects to trim overhead costs over the next few years and has a long term goal cutting them by 3% to 4% of revenue. R&D

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April 13, 2012 is expected to remain relatively high and trended down. The nominal amount however is still large as the company will need to continue to innovate to stay competitive. Current Assets, Current Liabilities, Capital Expenditures, and Acquisitions are expected to remain a relatively constant portion of revenues.

MMI Beta Implied Price 1.5 1.4 1.3 1.2 1.1 1 694.21 695.37 696.7 698.24 700.04 702.19

After all line items were projected, free cash flows were discounted and summed. Free cash flow is still growing significantly by the end of the fifth year; therefore, a 5% terminal growth rate was placed on the free cash flows for five years. The terminal value is then calculated using the free cash flow at the end of year 10.

Assumptions
Motorola Mobility was only spun off in 2011; therefore, there is not enough historical data to calculate an accurate beta. Therefore, the beta of Nokia at 1.5 was used. Nokia has a similar line of business and is losing market share rapidly to companies such as Apple and Samsung. To stay conservative, this higher beta was used for MMI. It is likely however that this is significantly lower. Unlike Google, Cash and Equivalents were not added back to firm value, as this company is much smaller and needs their cash more in day to day operations. Other than this, all other assumptions used for Google were done so as well for MMI. Based on the analysis, it seems that Google paid a considerable premium for MMI over their intrinsic value. However, this analysis does not take into consideration the value of MMI’s patents to Google. These patents could be worth a significant amount to Google and may justify this premium.

Discounted Free Cash Flow Assumptions Tax Rate Risk Free Rate Beta Market Risk Premium % Equity % Debt Cost of Debt CAPM WACC Terminal WACC Intermediate Growth Rate 30.00% Terminal Growth Rate 2.06% Terminal Value 1.50 PV of Terminal Value 7.00% Sum of PV Free Cash Flows 100.00% Firm Value 0.00% Total Debt 0.00% Cash & Cash Equivalents 12.56% Market Capitalization 12.56% Fully Diluted Shares 13.68% Implied Fim Value 5.00% 3.00% 5,751 3,230 1,728 4,958 0 3,451 11,767 0 4,958

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Recommendation
Google’s market leading search engine will allow the company to continue to grow its advertising revenues both domestically and abroad. The company offers the most efficient means of internet advertising, and as the internet continues to grow in popularity, so will their advertising services. The company also has many opportunities for substantial growth outside of search. Android presents the company with a growing market of over 250 million phones running their operating system, and 850,000 being activated each day. Any successful monetization of this system will result in substantial profits to the company. Finally, Google continues to be at the forefront of innovation, constantly attempting to discover the next great business idea. With Google, you can be assured that the company will continue to be a leader of the technology sector. Based on Google’s growth opportunities, innovative philosophy, and undervaluation, I recommend a Buy for the Tall Firs and Svigals portfolios.

Recommendation Comparable Analysis (25%) DCF Analysis (75%) Current Price Implied Price Under (Over) Valuation

$ 672.45 $ 694.21 $ 630.84 $ 688.77 9.18%

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Appendix 1 – Comparables Analysis
Comparables Analysis ($ in millions) Stock Characteristics Current Price 50 Day Moving Average 200 Day Moving Average Beta Size Short-Term Debt Long-Term Debt Cash and Cash Equivalent Non-Controlling Interest Preferred Stock Diluted Basic Shares Market Capitalization Enterprise Value Profitability Margins Gross Margin EBIT Margin EBITDA Margin Net Margin Credit Metrics Interest Expense Debt/EV Leverage Ratio Interest Coverage Ratio Operating Results Revenue 2012E Gross Profit 2012 E EBIT 2012 E EBITDA 2012E Net Income 2012E Valuation EV/Revenue EV/Gross Profit EV/EBIT EV/EBITDA EV/Net Income GOOG Google Inc. Max $636.23 624.35 601.14 1.26 1,218.00 11,932.00 51,736.00 40.28 0.00 8,390.77 593,201.77 562,602.77 76.04% 37.39% 41.13% 30.64% $ 65 $ 5.40% 39.26% 277 159,797 68,633 54,432 57,689 41,353 3.62x 8.20x 53.24x 28.83x 118.31x $ $ $ $ $ Min Weight Avg. $15.10 $227.48 14.99 207.00 15.43 165.12 0.90 1.06 0.00 0.00 2,055.58 0.00 0.00 325.14 18,327.61 16,312.31 22.36% 2.35% 4.34% 1.06% $ 0.00% 0.00% 5,047 3,549 746 1,543 660 1.25x 3.94x 8.00x 7.28x 9.77x $ $ $ $ $ 0.00 3,977.33 28,130.19 13.43 0.00 3,512.30 290,827.45 266,688.02 63.10% 28.75% 35.93% 25.74% $ 1.80% 13.09% 79,580 42,790 27,602 29,875 21,681 3.25x 5.58x 13.40x 9.20x 12.99x $ $ $ $ $ Median $111.49 110.26 112.68 0.97 0.00 127.50 20,087.50 0.00 0.00 1,073.06 174,133.44 149,635.44 56.63% 24.43% 33.34% 23.29% $ .25% 7.09% 68,193 35,082 14,548 16,551 11,845 3.11x 5.09x 16.10x 10.16x 14.61x Forward Multiple EV/Revenue EV/Gross Profit EV/EBIT EV/EBITDA EV/Net Income Price Target Current Price Undervalued $ $ $ $ $ $ $ $ $ $ $ $ $ $630.84 $624.35 $601.14 1.09 1,218 2,986 44,626 325 205,108 164,686 70.00% 34.00% 39.25% 27.37% 58 $ 2.55% 23.54% 308 45,505 31,853 15,472 17,861 12,456 3.6x 5.2x 10.6x 9.2x 13.2x $ $ $ $ $ $ $ $ $ $ $ $ $ YHOO Yahoo Inc. 33.33% $15.10 $14.99 $15.43 0.94 2,056 40 1,214 18,328 16,312 70.31% 14.79% 30.57% 20.71% $ 0.00% 0.00% 5,047 3,549 746 1,543 1,045 3.2x 4.6x 21.9x 10.6x 15.6x Implied Price Weight $ 578.97 20.00% $ 670.66 0.00% $ 761.93 40.00% $ 629.71 40.00% $ 622.08 0.00% $672.45 630.84 6.60% $ $ $ $ $ 159,797 68,633 54,432 57,689 41,353 3.5x 8.2x 10.3x 9.8x 13.6x $ $ $ $ $ $ $ $ $ $ $ $ $ AAPL Apple Inc. 33.33% $636.23 $574.05 $451.62 1.26 30,599 932 593,202 562,603 42.95% 34.06% 36.10% 25.88% $ 0.00% 0.00% 73,897 56,190 27,629 30,393 22,644 3.0x 3.9x 8.0x 7.3x 9.8x $ $ $ $ $ $ $ $ $ $ $ $ $ MSFT Microsoft 33.33% $31.10 $31.97 $28.30 0.99 11,932 51,736 8,391 260,953 221,149 76.04% 37.39% 41.13% 30.64% $ 5.40% 39.26% $ $ $ $ $ $ $ $ AMZN Amazon 0.00% $191.87 $188.55 $197.06 0.90 129 255 9,576 455 87,314 78,122 22.36% 2.35% 4.34% 1.06% 65 $ .49% 14.17% 42 62,489 13,974 1,467 2,709 660 1.3x 5.6x 53.2x 28.8x 118.3x $ $ $ $ $ $ $ $ $ $ $ $ $ BIDU Baidu Inc. 0.00% $148.80 $140.00 $130.77 1.84 424 2,330 16 78 51,936 50,046 74.13% 52.58% 57.24% 46.38% .85% 21.14% 3,506 2,599 1,843 2,007 1,626 14.3x 19.3x 27.2x 24.9x 30.8x

$ $ $ $ $

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University of Oregon Investment Group

April 13, 2012

Appendix 2 – Discounted Cash Flows Analysis
Discounted Cash Flow Analysis ($ in millions) Total Revenue % YoY Growth Cost of Revenues % Revenue Gross Profit Gross Margin Sales and Marketing % Revenue General and Administrative % Revenue Research and Development % Revenue Depreciation and Amortization % Revenue Other Expense % Revenue Earnings Before Interest & Taxes % Revenue Interest Expense % Revenue Interest and Other Income % Revenue Earnings Before Taxes % Revenue Less Taxes (Benefits) Tax Rate Net Income Net Margin Add Back: Depreciation and Amortization Add Back: Interest Expense*(1-Tax Rate) Operating Cash Flow % Revenue Current Assets % Revenue Current Liabilities % Revenue Net Working Capital % Revenue Change in Working Capital Capital Expenditures % Revenue Acquisitions % Revenue Unlevered Free Cash Flow Discounted Free Cash Flow $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2008A 21,796 7,122 32.68% $14,674 67.32% 1,946 8.93% 1,803 8.27% 2,793 12.81% 1,500 6.88% 1,095 5.02% $5,537 25.40% 0.00% 316 1.45% $5,853 26.85% 1,626 27.78% $4,227 19.39% 1,500 $5,727 26.28% 4,332 19.88% 1,409 6.46% $2,923 13.41% 2,359 10.82% 3,320 15.23% $48 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2009A 23,651 8.51% 7,320 30.95% $16,331 69.05% 1,984 8.39% 1,668 7.05% 2,843 12.02% 1,524 6.44% 0.00% $8,312 35.14% 0.00% 69 .29% $8,381 35.44% 1,861 22.20% $6,520 27.57% 1,524 $8,044 34.01% 4,659 19.70% 1,765 7.46% $2,894 12.24% (29) 810 3.42% 108 .46% $7,155 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2010A 29,321 23.97% 9,021 30.77% $20,300 69.23% 2,799 9.55% 1,962 6.69% 3,762 12.83% 1,396 4.76% 0.00% $10,381 35.40% 5 .02% 420 1.43% $10,796 36.82% 2,291 21.22% $8,505 29.01% 1,396 4 $9,905 33.78% 5,837 19.91% 2,723 9.29% $3,114 10.62% 220 4,018 13.70% 1,067 3.64% $4,600 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2011A 37,905 29.28% 11,337 29.91% $26,568 70.09% 4,589 12.11% 2,724 7.19% 5,162 13.62% 1,851 4.88% 500 1.32% $11,742 30.98% 58 .15% 642 1.69% $12,326 32.52% 2,589 21.00% $9,737 25.69% 1,851 46 $11,634 30.69% 7,387 19.49% 3,673 9.69% $3,714 9.80% 600 3,438 9.07% 1,900 5.01% $5,696 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2012E 45,505 20.05% 13,651 30.00% $31,853 70.00% 5,347 11.75% 3,185 7.00% 5,461 12.00% 2,389 5.25% 0.00% $15,472 34.00% 68 .15% 774 1.70% $16,177 35.55% 3,721 23.00% $12,456 27.37% 2,389 53 $14,898 32.74% 8,942 19.65% 4,323 9.50% $4,619 10.15% 905 3,868 8.50% 13,200 29.01% ($3,075) ($2,938) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2013E 54,302 19.33% 16,426 30.25% $37,875 69.75% 6,516 12.00% 3,937 7.25% 6,788 12.50% 2,851 5.25% 0.00% $17,784 32.75% 0.00% 0.00% $17,784 32.75% 4,268 24.00% $13,516 24.89% 2,851 $16,367 30.14% 10,752 19.80% 5,159 9.50% $5,593 10.30% 974 4,344 8.00% 2,444 4.50% $8,604 $7,505 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2014E 63,824 17.54% 19,466 30.50% $44,358 69.50% 7,659 12.00% 4,946 7.75% 7,978 12.50% 3,351 5.25% 0.00% $20,424 32.00% 0.00% 0.00% $20,424 32.00% 5,106 25.00% $15,318 24.00% 3,351 $18,669 29.25% 12,637 19.80% 6,159 9.65% $6,478 10.15% 885 5,106 8.00% 2,872 4.50% $9,805 $7,807 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2015E 73,398 15.00% 22,570 30.75% $50,828 69.25% 8,624 11.75% 5,872 8.00% 9,175 12.50% 3,853 5.25% 0.00% $23,304 31.75% 0.00% 0.00% $23,304 31.75% 5,826 25.00% $17,478 23.81% 3,853 $21,331 29.06% 14,716 20.05% 7,083 9.65% $7,633 10.40% 1,155 5,138 7.00% 2,936 4.00% $12,102 $8,797 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2016E 82,641 12.59% 25,619 31.00% $57,022 69.00% 9,297 11.25% 6,611 8.00% 10,330 12.50% 4,339 5.25% 0.00% $26,445 32.00% 0.00% 0.00% $26,445 32.00% 6,611 25.00% $19,834 24.00% 4,339 $24,172 29.25% 16,570 20.05% 8,057 9.75% $8,512 10.30% 879 5,785 7.00% 3,306 4.00% $14,203 $9,424 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2017E 90,983 10.09% 28,432 31.25% $62,551 68.75% 9,781 10.75% 7,279 8.00% 11,145 12.25% 4,777 5.25% 0.00% $29,570 32.50% 0.00% 0.00% $29,570 32.50% 7,392 25.00% $22,177 24.38% 4,777 $26,954 29.63% 18,697 20.55% 9,098 10.00% $9,599 10.55% 1,087 6,369 7.00% 3,639 4.00% $15,859 $9,606 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2018E 97,895 7.60% 30,837 31.50% $67,058 68.50% 10,279 10.50% 8,076 8.25% 11,747 12.00% 5,140 5.25% 0.00% $31,816 32.50% 0.00% 0.00% $31,816 32.50% 7,954 25.00% $23,862 24.38% 5,140 $29,001 29.63% 20,117 20.55% 9,790 10.00% $10,328 10.55% 729 6,853 7.00% 3,916 4.00% $17,504 $9,679 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2019E 104,593 6.84% 33,470 32.00% $71,123 68.00% 10,459 10.00% 8,629 8.25% 12,551 12.00% 5,491 5.25% 0.00% $33,993 32.50% 0.00% 0.00% $33,993 32.50% 8,498 25.00% $25,495 24.38% 5,491 $30,986 29.63% 21,494 20.55% 10,459 10.00% $11,035 10.55% 707 7,322 7.00% 3,138 3.00% $19,820 $10,005 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2020E 109,281 4.48% 35,516 32.50% $73,765 67.50% 10,382 9.50% 9,016 8.25% 13,114 12.00% 5,737 5.25% 0.00% $35,516 32.50% 0.00% 0.00% $35,516 32.50% 8,879 25.00% $26,637 24.38% 5,737 $32,375 29.63% 22,457 20.55% 10,928 10.00% $11,529 10.55% 495 7,650 7.00% 3,278 3.00% $20,952 $9,655 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2021E 113,653 4.00% 36,937 32.50% $76,716 67.50% 10,229 9.00% 9,376 8.25% 13,638 12.00% 5,967 5.25% 0.00% $37,505 33.00% 0.00% 0.00% $37,505 33.00% 9,376 25.00% $28,129 24.75% 5,967 $34,096 30.00% 23,356 20.55% 11,365 10.00% $11,990 10.55% 461 7,956 7.00% 3,410 3.00% $22,269 $9,368

EBITDA EBITDA Margin

$7,037 32.29%

$9,836 41.59%

$11,777 40.17%

$13,593 35.86%

$17,861 39.25%

$20,635 38.00%

$23,775 37.25%

$27,157 37.00%

$30,784 37.25%

$34,346 37.75%

$36,955 37.75%

$39,484 37.75%

$41,254 37.75%

$43,472 38.25%

UOIG 15

University of Oregon Investment Group

April 13, 2012

Appendix 3 – Discounted Cash Flow: Motorola Mobility
Discounted Cash Flow Analysis ($ in millions) Total Revenue % YoY Growth Cost of Sales % Revenue Gross Profit Gross Margin Selling, General, and Administrative % Revenue Research and Development % Revenue Depreciation and Amortization % Revenue Other Expense % Revenue Earnings Before Interest & Taxes % Revenue Interest Expense % Revenue Interest and Other Income (Expense) % Revenue Earnings Before Taxes % Revenue Less Taxes (Benefits) Tax Rate Non-Controlling Interest % Revenue Net Income Net Margin Add Back: Depreciation and Amortization Add Back: Interest Expense*(1-Tax Rate) Operating Cash Flow % Revenue Current Assets % Revenue Current Liabilities % Revenue Net Working Capital % Revenue Change in Working Capital Capital Expenditures % Revenue Acquisitions % Revenue Unlevered Free Cash Flow Discounted Free Cash Flow $ $ $ $ $ $ $ $ $ 7 .06% ($1,342) -12.14% 211 ($1,131) -10.24% 2,714 24.56% 3,292 29.79% ($578) -5.23% (578) $ 67 .61% 21 .19% ($641) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2009A 11,050 8,686 78.61% $2,364 21.39% 1,486 13.45% 1,591 14.40% 211 1.91% 287 2.60% ($1,211) -10.96% 41 .37% (83) $ .75% ($1,335) -12.08% $ 7 .06% ($86) -0.75% 230 $144 1.26% 3,009 26.26% 3,846 33.56% ($837) -7.30% (259) $ 143 1.25% 148 1.29% $112 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2010A 11,460 3.71% 8,265 72.12% $3,195 27.88% 1,592 13.89% 1,479 12.91% 230 2.01% (182) $ (1.59%) $76 0.66% 52 .45% (28) $ .24% ($4) -0.03% 75 $ 0.00% ($249) -1.91% 221 ($28) -0.21% 3,066 23.47% 4,074 31.18% ($1,008) -7.72% (171) $ 200 1.53% 72 .55% ($129) $ $ $ $ $ $ $ $ $ $ $ $ $ 2011A 13,064 14.00% 9,526 72.92% $3,538 27.08% 1,745 13.36% 1,526 11.68% 221 1.69% 188 1.44% ($142) -1.09% 0.00% (6) $ .05% ($148) -1.13% 101 $ $ $ $ $ $ $ $ 2012E 13,521 3.50% 9,938 73.50% $3,583 26.50% 1,623 12.00% 1,487 11.00% 270 2.00% 0.00% $203 1.50% 0.00% 0.00% $203 1.50% 55 27.00% 0.00% $148 1.10% 270 $418 3.10% 3,245 24.00% 4,192 31.00% ($946) -7.00% 62 237 1.75% 68 .50% $53 $25 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2013E 14,062 4.00% 10,265 73.00% $3,797 27.00% 1,687 12.00% 1,547 11.00% 281 2.00% 0.00% $281 2.00% 0.00% 0.00% $281 2.00% 84 30.00% 0.00% $197 1.40% 281 $478 3.40% 3,516 25.00% 4,359 31.00% ($844) -6.00% 103 211 1.50% 70 .50% $94 $81 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2014E 14,625 4.00% 10,676 73.00% $3,949 27.00% 1,755 12.00% 1,609 11.00% 292 2.00% 0.00% $292 2.00% 0.00% 0.00% $292 2.00% 88 30.00% 0.00% $205 1.40% 292 $497 3.40% 3,656 25.00% 4,387 30.00% ($731) -5.00% 112 219 1.50% 73 .50% $92 $72 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2015E 15,210 4.00% 11,103 73.00% $4,107 27.00% 1,673 11.00% 1,673 11.00% 304 2.00% 0.00% $456 3.00% 0.00% 0.00% $456 3.00% 137 30.00% 0.00% $319 2.10% 304 $624 4.10% 3,802 25.00% 4,411 29.00% ($608) -4.00% 123 228 1.50% 76 .50% $197 $138 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2016E 15,818 4.00% 11,547 73.00% $4,271 27.00% 1,740 11.00% 1,582 10.00% 316 2.00% 0.00% $633 4.00% 0.00% 0.00% $633 4.00% 190 30.00% 0.00% $443 2.80% 316 $759 4.80% 3,954 25.00% 4,587 29.00% ($633) -4.00% (24) 237 1.50% 79 .50% $467 $296 Tax Rate Risk Free Rate Beta Market Risk Premium % Equity % Debt Cost of Debt CAPM WACC Terminal WACC Intermediate Growth Rate Discounted Free Cash Flow Assumptions 30.00% Terminal Growth Rate 2.06% Terminal Value 1.50 PV of Terminal Value 7.00% Sum of PV Free Cash Flows 100.00% Firm Value 0.00% Total Debt 0.00% Cash & Cash Equivalents 12.56% Market Capitalization 12.56% Fully Diluted Shares 13.68% Implied Fim Value 5.00% 3.00% 5,751 3,230 1,728 4,958 0 3,451 11,767 0 4,958

Unlevered Free Cash Flow Discounted Free Cash Flow

$491 $256

$515 $236

$541 $223

$568 $208

$596 $194

UOIG 16

University of Oregon Investment Group

April 13, 2012

Appendix 4 – Revenue Model

Revenue Model ($ in millions) Advertising Revenue Google Websites % Growth Google Network Websites % Growth Total Advertising Revenue % Growth Other Revenue % Growth Total Revenue % Growth $ $ $ 14,414 $ 15,723 $ 19,444 $ 6,715 $ 667 $ 9.08% 7,166 $ 6.72% 8.33% 762 $ 14.24% 8.51% 23.67% 8,792 $ 22.69% 23.36% 1,085 $ 42.39% 23.97% 26,145 $ 31,635 $ 34.46% 18.13% 29.38% 1,374 $ 26.64% 29.28% 21.00% 17.00% 19.86% 1,718 $ 25.00% 20.05% 10,386 $ 12,152 $ 36,531 $ 43,787 $ 37,963 $ 20.00% 14,278 $ 17.50% 52,241 $ 19.31% 2,061 $ 20.00% 54,302 $ 19.33% 44,606 $ 17.50% 16,848 $ 18.00% 61,454 $ 17.64% 2,370 $ 15.00% 63,824 $ 17.54% 51,297 $ 15.00% 19,375 $ 15.00% 70,672 $ 15.00% 2,726 $ 15.00% 73,398 $ 15.00% 57,709 $ 12.50% 21,797 $ 12.50% 79,506 $ 12.50% 3,135 $ 15.00% 82,641 $ 12.59% 63,480 $ 10.00% 23,977 $ 10.00% 87,457 $ 10.00% 3,526 $ 12.50% 90,983 $ 10.09% 68,241 $ 7.50% 25,775 $ 7.50% 7.50% 3,879 $ 10.00% 7.60% 73,359 $ 7.50% 27,064 $ 5.00% 6.81% 4,170 $ 7.50% 6.84% 77,027 $ 5.00% 27,876 $ 3.00% 104,903 $ 4.46% 4,378 $ 5.00% 109,281 $ 4.48% 80,108 4.00% 28,991 4.00% 109,099 4.00% 4,554 4.00% 113,653 4.00% 2008A 2009A 2010A 2011A 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

$ 21,129 $ 22,889 $ 28,236 $

94,016 $ 100,423 $

$ 21,796 $ 23,651 $ 29,321 $

37,905 $ 45,505 $

97,895 $ 104,593 $

UOIG 17

University of Oregon Investment Group

April 13, 2012

Appendix 5 – Working Capital Model

UOIG 18

University of Oregon Investment Group

April 13, 2012

Appendix 6 – Discounted Cash Flows Analysis Assumptions
Discounted Free Cash Flow Assumptions Tax Rate Risk Free Rate Beta Market Risk Premium % Equity % Debt Cost of Debt CAPM WACC Terminal WACC 25.00% Terminal Growth Rate 2.06% Terminal Value 1.09 PV of Terminal Value 7.00% Sum of PV Free Cash Flows 97.99% Firm Value 2.01% Total Debt 3.83% Cash & Cash Equivalents 9.68% Market Capitalization 9.54% Fully Diluted Shares 10.64% Implied Price w/o MMI Current Price Undervalued Implied Price w/ MMI Undervalued 3.00% 300,197 114,871 78,908 193,779 4,204 31,179 205,108 325 715.69 630.84 13.45% 694.21 10.05%

Considera

Appendix 7 –Sensitivity Analysis

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University of Oregon Investment Group

April 13, 2012

Appendix 8 – Sources
                    Google Inc. 10K, 10Q, Investor Presentations, Investor Relations www.google.com Business Source Premier Standard and Poors Net Advantage IBIS World FactSet Google Finance Yahoo! Finance Reuters.com www.sec.gov Amazon SEC 10K, 10Q, Investor Relations Amazon.com Yahoo! SEC 10K, 10Q, Investor Relations Yahoo.com Microsoft SEC 10K, 10Q, Investor Relations Microsfot.com Baidu SEC Filings Baidu.com Apple SEC 10K, 10Q, Investor Relations comScore.com

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...Assignment 1 Keeping Google Googley Answer to Question 1: Outstanding opportunities for employees. Google is open for very talented and inspired people, and give best opportunity to be promoted in professional sphere. Example, Oleg, starting his career as an engineer become a leader of developing tools department team after only 8 months period. This is I think very motivating staff. Looking at google HRM site, everything brought so understandable, and impressively clear, I feel that Google knows distinctively what they want from their personnel and how attract people with best abilities. There pretty much attractive links, where I found about working at google, employees tell about why they love working in company. And there are very excellent stories about life at google and all other important info. Company has annual two day conference, where thousands of developers bring together and make a brainstorm the technology of tomorrow. The innovation strategy also is very impressive at google. Becoming the best searching engine in the world, they never stop paying attention to innovation for solving best world challenges. Noticing this it’s understandable how Scott had a long career with Google, as at have developing atmosphere. Compared to other giant companies’ sites, like Shell, Exxon, Microsoft etc., I see that they better deliver information and attract people to become a Googler....

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...Applying this model to the Google Corporation, we notice that during Phase1 (creativity), the culture that Larry Page and Sergey Brin start as the founders largely influences the leadership within the company. This culture is designed to encourage cooperation and rapid idea development. As the company enters phase 1, the founders feel the need of a strong manager who has the necessary knowledge and skill to introduce new business techniques. Page and Brin hire former Novell CEO, Eric Schmidt, as Google’s CEO and the company starts hiring more managers with experience, reducing the number of direct reports per manager. Then Phase 2 (Direction), the company starts to grow again with new capable managers in place. At the end of this phase a crisis develops from demands for greater autonomy on the part of lower-level managers. Google found that the solution would be through delegation. In phase three, Google managed not to lose control over everyday operations by having all the managers get in one room and talk through a consensus decision-making process. Hence, the Phase 3 (Revolution) is under way when top management seeks to regain control over the total company. Google was able to overcome this problem by putting additional effort into reporting up and communicating in all directions through the use of special coordination techniques and introducing a series of tools designed to provide more transparency. In Phase 4...

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...Google Drive: s a file storage and synchronization service presented by Google that enables user cloud storage and file share (Web definitions). 3. Google+: is a...

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...Company Overview In the beginning, Google was nothing more than a research project developed by two Stanford graduate students. In 1996, Sergey Brin and Larry Page had developed a search engine with a unique method of ranking search results. As the need for a relevant search engine on the internet became clearer and clearer, Brin and Page registered the Google.com domain in 1997 and officially formed Google, Inc. on September 7, 1998. Google had an advantage over other search engines at the time because their search results were ranked in a relevant manner; based on the number of sites linking to each specific page. Because of the high quality search results and their simple approach to searching, Google’s popularity has grown substantially over time. Along with their growth in popularity, Google has grown to employ more than 10,000 people worldwide, while also being ranked as the best company to work for by Fortune Magazine. The term ‘google’ was derived from a misspelling of the word ‘googol,’ which refers to 10100, and the name stuck. Also, due to the popularity of the world ‘google,’ Merriam-Webster added the term to their dictionary defining google as “to use the Google search engine to obtain information on the Internet.” As ‘googling’ things became more commonplace, Google’s revenues grew tremendously through the use of advertisements....

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...After some brainstorming, they go with Google—a play on the word “googol,” a mathematical term for the number represented by the numeral 1 followed by 100 zeros. The use of the term reflects their mission to organize a seemingly infinite amount of information on the web. Back to top 1998 August * Sun co-founder Andy Bechtolsheim writes a check for $100,000 to an entity that doesn’t exist yet: a company called Google Inc. September * Google sets up workspace in Susan Wojcicki’s garage at 232 Santa Margarita, Menlo Park. * Google files for incorporation in California on September 4. Shortly thereafter, Larry and Sergey open a bank account in the newly-established company’s name and deposit Andy Bechtolsheim’s check. * Larry and Sergey hire Craig Silverstein as their first employee; he’s a fellow computer science grad student at Stanford. December * “PC Magazine” reports that Google “has an uncanny knack for returning extremely relevant results” and recognizes us as the search engine of choice in the Top 100 Web Sites for 1998. Back to top 1999 February * We outgrow our garage office and move to new digs at 165 University...

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...Journal of Case Research in Business and Economics Google: searching for value Ronald Kuntze The University of Tampa Erika Matulich The University of Tampa ABSTRACT Google is a company well known for providing a unique work environment for employees that provides plenty of benefits. However, these benefits come at a significantly higher cost structure. Are these costs worth it? How does providing value to the employee also provide value to the firm and to the customer? Can employee value be sustained during recessionary times? Keywords: Google, value, employee benefits, human resources Google: Searching for Value, Page 1 Journal of Case Research in Business and Economics Introduction The Google search engine has become so popular that it is now listed as a verb in the dictionary (Merriam-Webster 2009). The American Dialect Society members voted “Google” as the most used word of the year 2002 (Google, Google Milestones, 2009). Co-founded by Larry Page and Sergey Brin while students at Stanford University, Google was incorporated as a privately held company in 1998 (Google, Google Milestones, 2009) and is a textbook example of modern ‘employee-centric’ policies and benefits....

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...Google mission and Business model Google mission statement is very simple and clear. “Google’s mission is to organize the world’s information and make it universally accessible and useful”. Their vision for google is to make the search engine commanding so that understand “everything in the world” (Google) Google’s business model is Business Model Canvas. This model provides key information on the strategy of Google’s business. Google who is recognized as one of the top leading technology company in the world and one of the most widespread search engines on the internet that is used by many. Because Google is one of the most widely used search engine which attracts advertisers to Google services in order for them to reach a higher populated online users. According to investor.google.com, Google reported consolidated revenues of $18.10 billion year ending 2014. The network paid clicks are ads served on Google relating to ads increased 14%. Another stream of income that Google generates is from Cost-Per-Click which is when advertisers pay each time a user clicks on their advertisement. This also increased by 6 percent in the 4th quarter of 2014. Google will continue grow and revolutionize its business model as technology consistently change and people become more creative. The people who work for Google are those that do not have a single mind set....

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...3/3/2016 Google: The World’s First Information Utility? ­ Springer 4 How Google innovates Innovation at Google has been internally focused on building an IT infrastructure that is robust and enables easy creation of new products and services. Going forward, the information utility will require more externally­ oriented innovation focused on supporting external developers and customer applications. But how does Google foster the innovation that leads to new applications? This is an important question because most companies cannot expect to imitate its IT infrastructure, but they can imitate its innovation strategies. Google uses the following four strategies. 4.1 Explicit focus on R&D Google’s extraordinary revenue enables it to have a luxury few firms can enjoy today – an R&D lab that focuses on developing revolutionary hardware and software ideas along with complementary services. More than one­half of the company’s employees are engineers and scientists, and there might be hundreds of projects in development at any given time. Many prototypes are made available on the lab’s website for the interested public to download and try in the beta stage. ...

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...Google Google is founded by two Stanford University Ph.D. students, Larry Page and Sergey Brin. Google the search engine original named is BlackRub. It takes the name from a play on word Googol- the number 1 followed by 100 zeros, a reference to huge amount of data online. Google mission was: “to organize the words information and make it universally accessible and useful.” In recent year, Google had expand to many different field and become a multinational technology company that specialize in Internet-related services and products. Which is include online advertising, search, cloud computing, and software. Advertising is one of its main source for profit. Google’s is well positioned in demographics because it has a relatively young userbased. Nowadays, when people asking someone about something that they don’t know, the first word that come to their mind right away is “Google.” This is like a magic that will solve most of the problem. Even when I’m doing most of my research paper, Google is the place that I will go to. Google’s recent stocks are relatively low in a few weeks. However, Google are not really affected by this because most of it profit are coming from the advertising. We can said that Google is well-positioned compared to the downturn of the economy. Google’s political and legal is not going well with some legal issue. Google has faced concern on copyright issues because the company stores copies of third party web pages and images on their servers....

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...Journal of Case Research in Business and Economics Google: searching for value Ronald Kuntze The University of Tampa Erika Matulich The University of Tampa ABSTRACT Google is a company well known for providing a unique work environment for employees that provides plenty of benefits. However, these benefits come at a significantly higher cost structure. Are these costs worth it? How does providing value to the employee also provide value to the firm and to the customer? Can employee value be sustained during recessionary times? Keywords: Google, value, employee benefits, human resources Google: Searching for Value, Page 1 Journal of Case Research in Business and Economics Introduction The Google search engine has become so popular that it is now listed as a verb in the dictionary (Merriam-Webster 2009). The American Dialect Society members voted “Google” as the most used word of the year 2002 (Google, Google Milestones, 2009). Co-founded by Larry Page and Sergey Brin while students at Stanford University, Google was incorporated as a privately held company in 1998 (Google, Google Milestones, 2009) and is a textbook example of modern ‘employee-centric’ policies and benefits....

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