Google Inc (GOOG) Valuation

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Company Profile (obtained from Google Finance): Google Inc. maintains an index of Websites and other online content, and makes this information freely available through its search engine to anyone with an Internet connection. The Company’s automated search technology helps people obtain nearly instant access to relevant information from its online index. The Company generates revenue primarily by delivering online advertising. Businesses use its AdWords program to promote their products and services with targeted advertising. In August 2008, the Company sold the search marketing business of Performics, a division of DoubleClick. In September 2008, Google Inc. bought Korea-based blogging software developer Tatter and Company. In September 2009, the Company acquired ReCAPTCHA Inc., a spin-off of Carnegie Mellon University’s Computer Science Department.

ModernGraham Comments: None at this time.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 5/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

• Last Updated    11/2/2009
• MG Value    $553
• MG Opinion    Fairly Valued
• Value Based on 3% Growth    $208
• Value Based on 0% Growth    $122
• Market Implied Growth Rate    14.29%
• Net Current Asset Value (NCAV)    $70.67
• PEmg    37.07
• Current Ratio    11.35
• PB Ratio    5.00

Key Data:

Balance Sheet – 9/30/2009

• Current Assets    $26,353,540,000
• Current Liabilities    $2,321,770,000
• Total Debt    $0
• Total Assets    $37,702,850,000
• Intangible Assets    $823,250,000
• Goodwill    $4,849,220,000
• Total Liabilities    $3,981,090,000
• Outstanding Shares    316,570,000

Earnings Per Share – Diluted

• 2009 (estimate)    $19.49
• 2008    $13.31
• 2007    $13.29
• 2006    $9.94
• 2005    $5.02
• 2004    $1.46
• 2003    $0.41
• 2002    $0.45
• 2001    $0.04
• 2000    -$0.22
• 1999    -$0.14

Earnings Per Share – Modern Graham

• 2009 (estimate)    $14.36
• 2008    $10.74
• 2007    $8.31
• 2006    $5.03
• 2005    $2.21
• 2004    $0.68

Valuation History:

• 11/2/09 – Value $553, Actual Price $532.65, Fairly Valued & Enterprising