Google-Finance Project
Running Head: GOOGLE LLC 1
GOOGLE LLC 2
Google-Finance Project
Lesley Nelson
Finance 6630
Tewhan Hahn
7/11/2020
Finance 6630 Project
Part 1
1. Case Company Name: Google LLC
Case Company Stock Ticker: GOOG
2) i) Business Description of Google
Business Description of the case company: Google LLC is technology company that deals in internet-related services as well as products such as Google AdSense, Search, and Cloud services.
ii) The company makes money through online advertising, search engine and sale of hardware and software products. The section of Google is working with publicizing, digital content, cloud computing and applications as well as hardware products’ sales. The portion of Additional Business is filled with Television services, internet sales via Nest items benefits and deals, Google Fiber as well as benefiting from Verily in research -development (R and D). It provides Assistant at Google such typing or talking with Google’ customers, Google Photos assists the clients in organizing and storing of the photos and finally the Google Maps that enables the clients to explore the world.
3) i) Pros (Bulls) and Cons (Bears) on Google (GOOG) ( From Morningstar?
Bull say
· Google is indisputably the dominate technology with its Ad Sense business and Search being the leading sources of revenue thus, going forward is promising for Google in terms of positive business outlook.
· Google Search unit is the most popular in the world, 91.75% market share as of June 2020. Coupled with its Ad Sense business unit, the company’s share will soar with such significant share.
· Apple will continue to dominate online advertising business and more business focus more online advertising. Other business units such YouTube will continue to propel the company to greater business heights.
Bears say
· Google faces competition from other platforms such Twitter for online market share thus, the risk of reduced revenue and shrinking market share.
· The company has been accused of violating user privacy rules thus, less consumer confidence on the company.
· With multiple business units such as its recent venture into smartphone market might drain the company’s finances while not performing well in the market.
You need similar to bulls say and bears say about GOOGL from another source here. Please see the project description in the blackboard.
ii) Summary of Pros and Cons and Possible Future Performance
GOOG stock appears to be struggling to sustain its monthly gains, but the company’s performance has a positive outlook given that other companies are doing even worse. Thus, the bull trades have an upper hand as the company’s stocks defy the bears to perch at more than 20 percent year-on-year from 2017 to 2020, and consequently positive prospects for the company’s future stock performance. Thus, Google stock performance for Google is promising because the company online advertising business is unrivalled, thus its expansion and subsequent stocks value will soar.
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iii) Google Stock Probabilities for the next 12 Months
Good: 40% - based on stable revenue prospects for the company from its multiple product lines.
Normal: 50% - he companies the single most popular search engine in the world with a market share of up to 97%.
Bad: 10% - the company may face lawsuits which will eat into its revenue streams.
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Current Stock Price: |
1,495.70 |
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Business Condition |
Probability |
Possible Price |
Possible Return |
Prob. x Possible Return |
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Good (High Price) |
0.4 |
1,712.76 |
H = (1,712.76-1,495.70) x100/1,495.70 = |
K =0.4x =56% |
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Normal (Avg. Price) |
0.5 |
1,560.55 |
I = (1,560.55-1,495.70) x100/1,495.70 = |
L =0.5x 21.5%
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Bad (Low Price) |
0.1 |
1,420.00 |
J = (1,420.00-1,495.70) x100/1,495.70 = |
M = 0.1x - =-5% |
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Expected Return |
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Please correct return calculations above.
Part 2: Estimating the stock’s beta and required return
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SUMMARY OUTPUT |
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Regression Statistics |
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Multiple R |
0.749344 |
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R Square |
0.561516 |
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Adjusted R Square |
0.553823 |
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Standard Error |
0.040032 |
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Observations |
59 |
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ANOVA |
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df |
SS |
MS |
F |
Significance F |
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Regression |
1 |
0.116977 |
0.116977 |
72.99331 |
8.66E-12 |
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Residual |
57 |
0.091347 |
0.001603 |
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Total |
58 |
0.208324 |
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Coefficients |
Standard Error |
t Stat |
P-value |
Lower 95% |
Upper 95% |
Lower 95.0% |
Upper 95.0% |
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Intercept |
-0.00508 |
0.005283 |
-0.96215 |
0.34004 |
-0.01566 |
0.005496 |
-0.01566 |
0.005496 |
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X Variable 1 |
1.050135 |
0.122915 |
8.543612 |
8.66E-12 |
0.804003 |
1.296267 |
0.804003 |
1.296267 |
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1) Security Market Line (SML): rGOOGL = rf + (rM – rf) x beta GOOGL
rM=6%
rf=3%
beta GOOGL=1.050135
Required Rate of Return (RRR)= 0.03+(0.06-0.03) * 1.050135
RRR = 0.061504 = 6.15%
Explanation: the above equation shows Google’s required return is 6.15% based on our estimated beta and Google’s beta of 1.05 shows that its stock is 5% riskier than the market average.
Part 3. Evaluating Stock’s Over- or Under- Pricing
1) Comparing the expected return and required return
Expected Return of GOOGL: 72% is greater than the Required Return, 6.15%
Google stock is expected to return greater than fair return and therefore it is underpriced.
2) Please provide how many analysts recommend buy, how many sell etc. and explain if analysts’ recommendations are consistent with your analysis above. Yahoo Finance recommends that GOOG is a “buy” rated 1.8 which favorably recommends the purchase of the stock (Yahoo Finance, 2020). Also, CNN Business goes for a strong with not analyst going for “buy”. Thus, in recommendation reflects the assessment of the stock price above (1) which indicates that the stock is underpriced with a potential of better returns in future when bought at the current low prices as opposed to waiting for it to rise.
ii) A consensus by Nasdaq analyst offering is as “strong buy.” According to the article, it argues that, “Based on analysts offering 12-month price targets for GOOG in the last 3 months. The average price target is $1527.66 with a high estimate of $1800 and a low estimate of $1237.” Also, CNN Business advocates for a buy citing the company’s expanding online advertising business which is expected to generate more revenue for the company in near and long-term.
2) Conclusion
Reasons for buying Google (GOOG) stock:
· The price is projected to hit an upwards of $1530 per share in the coming 12 months, up from the current price of $1,1495.
· The company is expanding its business portfolio to include AI and Cloud computing, both profitable business ventures thus, positive business outlook
· The stock prices might peak at $1,800 in the next 12 months giving good returns.
· The prices are expected to increase at a +3.58% year-on-year from the current price of $1,495 (CNN Business, n.d).
· The company faces minimal competition in online advertising business providing for better profit outlook.
Reasons for selling Google (GOOG) stock:
· Prices might fall below the current price of $1,495.
· The main source of revenue for company, Google Ads, might not perform well in the long term as expected causing stock prices to fall in future.
Final judgment: There exist more reasons to buy GOOGL stocks than to sell because the next 12 months cannot be determined by long term and speculative reasons to sell.
References
CNN Business (n.d). Analyst Recommendations. Retrieved from https://money.cnn.com/quote/forecast/forecast.html?symb=goog
Morningstar (2020). Alphabet Inc A GOOGL. Retrieved from https://www.morningstar.com/stocks/xnas/googl/quote
Nasdaq (n.d). GOOG Analyst Research. Retrieved from https://www.nasdaq.com/market-activity/stocks/goog/analyst-research
Yahoo Finance (2020). Alphabet Inc. (GOOGL). Retrieved from https://finance.yahoo.com/quote/GOOGL/analysis?p=GOOGL