Google Inc. of Mountain View, California, operates the most popular and power-ful search engine on the Web. The company went public using an unconventional Dutch auction method on August 19, 2004. The resulting IPO was the largest

Internet IPO ever, raising $ 1.67 billion and leaving the firm with 271,219,643 shares of common stock. While Google commands a wide lead over its competitors in the search engine market, it is witnessing increased pressure from well-funded rival entities. Yahoo! Inc., with a market cap of approximately $ 38.43 billion, is generally regarded as following a business model very similar to Google€™s.
a. Use the data found in Exhibit P8-12.1 for the following companies as comparables in your analysis: Earthlink, Yahoo!, eBay, and Microsoft. Compute the IPO value of Google: shares using each of the comparable firms separately, and then use an average €œmultiple€ of the comparable firms. Use the year-end 2003 balance sheets and income statements of the comparable firms to do the analysis. Assume that Google€™s forecasted values at the time of the IPO are as follows: Net income is $ 400 million, EBITDA is approximately $ 800 million, cash and equivalents are $ 430 million, and interest-bearing debt (total short-term and long-term) equals only $ 10 million. 17
b. Which of the four comparable firms do you think is the best comparison firm for Google? Why?
c. How has the stock performed after the IPO? Do you believe that Google is currently correctly valued in the stock market? Explain your answer.

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Financial Information 2003 shares outstanding 2003 fiseal close stock price Market capitalization Short-term debt Long-term debt Cash and equivalents Short-term investments EBITDA Net income Calculated EPS Earthlink (ELINK) 59,399,000 10.00 $1,593.990,000 $ 900,000 0 S 349740,000 S 89,088,000 218,100000 $(62.200000) (0.39) Yahoo!(YH00) 646,819,000 64.61 $29,521.758,060 $41,790,975590 0 2,800,000 750,000,000124,500,000 713.539,000 1381,513,000 S 595,975,000 340,576,000 S 455300,000 818.200,000 $ 237900,000 441,800,000 0.68 eBay (EBAY) Microsoft (MSHT) 10,800,000,000 25.64 $276,912,000,000 0 0 S 6,438,000,000 42,610,000,000 14.656,000,000 9.993.000,000 0.93 655,602,000 45.03 $ 0.36