Relative Valuation Method Financial Information Earthlink (ELINK) Yahoo! (YHOO) eBay (EBAY) Microsoft (MSFT) 2003 shares outstanding 159,399,000
Question:
Relative Valuation Method | ||||
Financial Information | Earthlink (ELINK) | Yahoo! (YHOO) | eBay (EBAY) | Microsoft (MSFT) |
2003 shares outstanding | 159,399,000 | 655,602,000 | 646,819,000 | 10,800,000,000 |
2003 fiscal close stock price | 10.00 | 45.03 | 64.61 | 25.64 |
Market capitalization | 1,593,990,000 | 29,521,758,060 | 41,790,975,590 | 276,912,000,000 |
Short-term debt | 900,000 | 0 | 2,800,000 | 0 |
Long-term debt | 0 | 750,000,000 | 124,500,000 | 0 |
Cash and equivalents | 349,740,000 | 713,539,000 | 1,381,513,000 | 6,438,000,000 |
Short-term investments | 89,088,000 | 595,975,000 | 340,576,000 | 42,610,000,000 |
EBITDA | 218,100,000 | 455,300,000 | 818,200,000 | 14,656,000,000 |
Net income | (62,200,000) | 237,900,000 | 411,800,000 | 9,993,000,000 |
Calculated EPS | (0.39) | 0.36 | 0.64 | 0.93 |
Google Inc. of Mountain View, California 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. 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.
a. Use the data found in the Exhibit for the following companies as comparables in your analysis: Earthlink, Yahoo!, eBay, and Microsoft. Compute the P/E ratio, Enterprise value and EBITDA multiple for each comprable firm using their year-end 2003 financial information.
b. Estimate the IPO price of Google's common shares using EBITDA multiple method. Compute the EBITDA of each of the comparable firms separately, and then use an average "multiple" of the comparable firms.
c. Estimate the IPO price of Google's common shares using P/E ratio method. Compute the P/E of each of the comparable firms separately, and then use an average "P/E" of the comparable firms.