woodhorb

Re-valuing Google: Three Scenarios

I always thought that with discounted cash flows you used either the current and expected interest rate cost or your rae of return required to invest; if base rates are at 2%; OK histoprically low but still your 10.5% discount rate seems rather high; I took your $34.5 B revenue prediction for 2010 and your 40% EBITDA which gave me EPS for 2010 at $46 per share; then said OK it's a mature company growing at 6.5% a year with no new innovation (again your assumptions) so a PE of 15 gives me a value of $690 a share in 2 years time; that's a worthwhile return over the next 2 years using your bas case scenario; with their huge data storage vlume which can't be matched I expect competitors will struggle to disrupt GOOG from it's dominant position over the next 2 years; hence my long position at 1000 shares; would add more if I could afford it; there is always a downside risk but if GOOG delivers the profits each quarter or only misses by cents we will get to $700 in 2 years

Watch for Google Apps, Salesforce to Integrate

That's why it makes sense to buy a few companies to boost the cororate sales side of the business and leave the tech side of things to the geeks