Google inc. of Mountain view, California, operates the most popular and powerful 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 an increased pressure from well funded rival entities. Yahoo! inc., with a market cap of approximately $38.43billion, is generally regarded as following a business model very similar to Google's.

Use the data found in Exhibit p6-10.1 for the following companies as comparable in your analysis; Earthlink, Yahoo,eBay,and Microsoft. Compute the IPO value for google's shares using each of the comparable firms separately, and then use an average "multiple" 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.

-How has the stock performed because the IPO? Do you believe that Google is currently correctly valued in the stock market? Why or Why not?

Exhibit P0 10. 1 Financial Info E artljnk Yahoo Ella}: IMicrus aft 2003 Shares outstanding 159,399,000 05 5,002,000 040,319,000 10,300,000,000 2003 Fiscal C1053 stock prices 3 10.00 3 45.03 3 04.01 3 25.04 Market capitalization 3 1,593,990,000 3 29,521,335 3,000 3 41,?90,9T5,590 3 2T0,912,000,000 Shuntam debt 900,000 $ $ 2,800,000 $ Long131111 debt 350,000,000 3 124,500,000 3 - Cash 3:. quvalmts 349,340,000 713,5 39,000 3 1,331,513,000 3 0,43 3,000,000 Slimterm hvestnmts 39,033,000 595,935,000 3 340,5 30,000 3 42,010,000,000 EBTI'DA 213,100,000 45 5,300,000 3 313,200,000 3 14,050,000,000 NET WC ONE 02,200,000 23 3,900,000 3 441,300,000 3 9,993,000,000 Calculated EPS 0.39 0.30 0.03 0.93