5.Have Google’s business model and strategy proven to be successful?

Should investors be
impressed with the company’s financial performance? How does the company’s financial
performance compare to that of Microsoft and Yahoo? Please conduct a financial analysis to
support your position—you may wish to use the financial ratios presented in Table 1 of Chapter 4
as a guide in doing your financial analysis of the company.

1. Have Google
1.Have Google’’s business model and strategy proven to be successful?
Google Marketing Strategy.
Google Inc., starting from just a smart algorithm, has developed a totally new business
model, has become in a few years the world leading search engine, has developed
winning applications as Google Earth, Google Video, Google Maps, Gmail, and is
enjoying a huge success. Google, starting from scratch, has won the challenge against a
giant like Microsoft and against the previous search engine market leaders Yahoo, Lycos,
Altavista, Excite.
Google Market Capitalization.
In nov 2007 Google Inc. was the 5th biggest US company, considering stock market
capitalization. In nov. 2007 Google shares had topped $700.
Google stock market capitalization in nov 2007 was $230 billion, in July 2008 was $170
billion.
By comparison in July 2008 Microsoft stock market capitalization was $240 billion,
General Electric market cap was $270 billion, Exxon stock market capitalization was $450
billion.

2. Should investors be impressed with the company

2.Should company’’s financial performance?
Eric Schmidt was made CEO of the company, David Drummond, an attorney of Wilson
Sonsini Goodrich & Rosati who had advised Google founders since the early days, joined
Google as Chief Legal Officer, Wilson Sonsini Goodrich & Rosati took care of the IPO at
Nasdaq.

At the IPO in August 2004 Google share price was set at $85, which to many financial
analysts seemed eccessive and unreasonable. In nov. 2007 Google shares had topped
$700.
And in nov. 2007 Google stock market capitalization reached $230 billion, while annual
revenues reached $16 billion and profits $4 billion.

An excellent return for Google shareholders.

3. How does the company

3.How company’’s financial performance compare to that of Microsoft and
Yahoo? Please conduct a financial analysis to support your position
position——you may
wish to use the financial ratios presented in Table 1 of Chapter 4 as a guide in doing
your financial analysis of the company.

Total Revenue Structure From the figures we can see that the growth of the Google Total
Revenue is constant. In 1st quarter of year 2009 we can observe first negative growth,
which can be related with recession. Search based advertising is the main revenue source.
Since 2007 there is also a new source of revenue, that is licensing revenue.

Cost Structure From the cost point of view we can see that largest part of cost are
represented by cost of revenues. Cost for R&D are little increasing, but in general they
represent significant level of total cost (company which investments a lot of mony in R&D).
Other cost are at low level.
Liquidity/Cash Ratio Google has better liquidity then Yahoo. We can notice that there was
some affect of recession. Yahoo had bigger problems with liquidity in year 2007, but now it
is improved.

Profitability/Operating Profit Both companies has been affected by economic downturn in

year 2008. Google clearly runs it’s bussines more effective with better cost management.
Profitability/ROE Google gain higher profitability level then Yahoo.

Debt ratio Google reflect lower debt ratio then Yahoo. Google’s growth is organic, while
Yahoo took some measures to decrease debt in 2008 (and converted some coupons in
stock).