Google.value.analysis.for.business.growth

WHERE BUSINESS APPS LIVE

Value Analysis of Google Inc.

By Shekhar Bhartiya ([email protected])

© 2015 Chandra Shekhar Bhartiya


Disclaimer

Although the author publisher have made every effort to ensure that the

information in this report was correct at published time, the author do

not assume and hereby disclaim any liability to any party for any loss,

damage, or disruption caused by errors or omissions, whether such errors

or omissions result from negligence, accident, or any other cause.



About Author

- Shekhar is passionate and energetic professional program/project manager with demonstrated skills in sales, sales management, general

management, strategic planning, business planning, execution, P&L responsibility and management, leadership/coaching, channel development and

growth.

- Shekhar has proven track record in leading Business and IT transformation engagements. Specialist in CIO/CXO advisory and large scale

transformation initiatives ranging from diversified conglomerates to new ventures with many of the fortune 500 companies.

Delivered significant top-line and bottom-line impact at a number of clients in industries such as Manufacturing, Consumer Products, Utilities, Telco,

Travel & Logistics, Retail, Banking, Oil & Gas and Real Estate.

Shekhar has studied in Asia and Germany, grew up in India and worked in various places like US, Europe, India, ANZ, Japan, Korea and many South

Asian countries


Contact me for any fortune 500 firm value analysis to understand the business value of adopting

and using Business Applications to drive business transformation and long lasting improvements

[email protected]


SUMMARY OF VALUE ANALYSIS OF GOOGLE INC

Industry Trends

and Business

Expectations

Google is a new generation media company with a business model that is exceptionally well positioned to capitalize on the

continuing transition from traditional print and television media to Internet-based content and advertising. With advertising

representing about 95% of its revenue, Google is one of the largest advertising companies in the world.

The GOOGLE future growth is tied to continuously optimizing its business and IT operations to better manage their

business processes, advancing technologies and innovations.

Google Outside-In

Analysis Objective

- Understand what critical Business/IT process drives Google Inc’s revenue, net and Operating Income

- Analysis of Google’s 10 years of financial data reveals for year 2015-17 these are critical focus areas will bring

maximum returns for Google

Fund Management, AR and AP optimization and integration, Sales Management, IT infrastructure integration and optimization,

Assets Management.

Why call SAP

Google’s operational IT system to run backend process is home grown and some others but data reveals that probably it is a

time to call the professionals like SAP to handle key ERP process. Data reveals that integration and optimization of top impacted

areas will improve top and bottom line but a balanced approach will be required.

Top Impact Areas



METHODOLOGY (OUTSIDE IN VALUE ENGINEERING IN CONJUNCTION WITH STATISTICAL ANALYSIS)

Google Peer

data Statistical

Analysis

To Establish

drivers of

business

growth from

Peer Data

User the business

drivers for further

data analysis with 10

years of Google

financial data

To Establish the

magic link between

business drivers and

Google’s business

and IT process

Conclusion on Key

Business and IT

process which will

drive Google’s

future growth



GOOGLE INC. AND PEERS ANALYSIS (YEAR 2014)

Source: Respective financial statements for year 2014 (normalized in Mill USD with

current market exchange value)

ROA Return on Assets %

ROE Return on Equity %

Company Market Value ($mil) Enterprise Value Revenue (mil) ROA (%) ROE (%) Operating Margin (%) Net Margin (%) Gross Margin % Operating Income Net Income

Google Inc (GOOGL) $ 455,579.00 $ 383,587.00 $ 69,611.00 11.59 14.02 24.99 21.67 62.86 17,395.79$ 15,087.00$

Facebook Inc (FB) $ 267,372.00 $ 251,702.00 $ 13,507.00 9.61 10.76 35.93 20.8 82.73 4,853.07$ 2,810.00$

Tencent Holdings Ltd (TCEHY) $ 173,545.00 $ 172,602.00 $ 13,248.00 15.09 32.06 38.73 29.4 60.89 5,130.95$ 3,933.00$

Baidu Inc (BIDU) $ 61,327.00 $ 54,794.00 $ 9,085.00 13.2 25.56 22 23.26 61.5 1,998.70$ 2,136.00$

Yahoo! Inc (YHOO) $ 35,117.00 $ 30,359.00 $ 4,711.00 17.83 26.84 0.54 153.49 71.89 25.44$ 7,231.00$

Yahoo Japan Corp (YAHOY) $ 14,242.00 $ 11,181.00 $ 3,547.00 15.12 20.22 44.54 31.22 80.05 1,579.83$ 1,267.00$

Conclusion Based on above data Target Value Driver

The ***interaction of Operating Income

And Revenue*Gross Margin

(**Predictive Strength 93%)

The interaction of ROE % and ROA% *Operating Margin


The interaction of Operating Income

And Revenue* ROA%


Drives

Drives

Drives

Above Data says Gross Margin%, Operating Margin% and ROA% is interlinked and are key to Operating Income. Now let

look at these key driver for Google using 10 years (2005-2015) of quarterly financial data**Predictive strength- Predictive strength measures how well a predictor accurately predicts a target, predictor with a predictive strength of 100%

perfectly predicts a target.

***An interaction effect is the combined effect of two inputs. If the interaction effect is not zero, the combined influence of two inputs is greater than

the simple addition of their independent main effects. In other words, combining the two fields simultaneously explains more of the variance in the target

field than analyzing the fields separately© 2015 Chandra Shekhar Bhartiya

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1


MAGIC LINK?

Improving Return on

Assets % (ROA),

Operating Margin %

(OM), Gross Margin %

(GM) will have huge

impact on Google's

Operating Income

How GOOGLE

internal IT operations

and business

transformation are

related to ROA,OM,

GM

Magic Link?

Lets select OM %, ROA % and GM % as key indicators for driving Google Operating Income

Now lets establish the Magic Link

The Conclusion



GOOGLE PEER COMPARISON (OM %, ROA % AND GM % )

KPI 1 Gross Margin % - A positive Gross Profit is only the first step for a company to make a net profit. The gross profit needs to be big enough to also cover related labor, equipment,

rental, marketing/advertising, research and development and a lot of other costs in selling the products

Google Inc had a gross margin of 62.86% for the quarter that ended in Jun. 2015, it has been in long term decline. The average rate of decline per year is -1.2%.

KPI 2 Operating Margin % - It is important to see a company maintains its operating margin over time. Among the same industry, a company with higher operating margin is more

efficient in its operation. Google Inc operating margin has been in 5-year decline. The average rate of decline per year is -7.3%.

KPI 3 Return on Assets % - ROA% measures a firm's efficiency at generating profits from shareholders' equity plus its liabilities. ROA shows how well a company uses what it has to

generate earnings.

0.1 % increment of operation margin % will

generates 703 Mil USD of operating income0.1 % increment of ROA % will generates 63

Mil USD of net income

1 % increment of gross margin % will

generates 176 Mil USD of Gross Profit



WHAT INFLUENCES GOOGLE GROSS MARGIN %

(15 YEARS OF QUARTERLY GOOGLE FINANCIAL DATA SAYS)

Key Business Parameter Secondary Target Value Driver

The ***interaction of Property, Plant and Equipment

and COGS to Revenue*Google Gross Margin %


The ***interaction of COGS to Revenue

and Accounts Payable/Accounts Receivable

*Google Gross Margin %

(**Predictive Strength 96% for AP,

95% for AR)

The ***interaction of COGS to Revenue

and Days Sales Outstanding*Google Gross Margin %


The ***interaction of Cash and Cash Equivalents

and COGS to Revenue *Google Gross Margin %


The ***interaction of COGS to Revenue and Total Assets *Google Gross Margin %


Drive

Drive

Drive

Drive

Drive**Predictive strength- Predictive strength measures how well a predictor accurately predicts a target, predictor with

a predictive strength of 100% perfectly predicts a target.

***An interaction effect is the combined effect of two inputs. If the interaction effect is not zero, the combined influence of two

inputs is greater than the simple addition of their independent main effects. In other words, combining the two fields

simultaneously explains more of the variance in the target field than analyzing the fields separately © 2015 Chandra Shekhar Bhartiya

Analysis of

data in next

slides

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1


ISOLATED CONCLUSION ON GROSS MARGIN %

Magic Link?

Improvement Areas Related Process Related IT Areas

Cash and Cash Equivalents Cash (Fund Management) Fund Management System

COGS Sales Operations Sales Management

Account Payable (AP) AP Process ERP System (AP )

Account Receivables, (AR), DSO AR Process (DSO) ERP System (AR)

Property, Plat and Equipment Assets Management Assets Management System

Total Assets Assets Management Assets Management System

A magic link is established

These related process and IT Areas will impact Gross Margin

Slight increment (1 %) of gross margin will generates 176 Mil USD of Gross

Profit



WHAT INFLUENCES GOOGLE ROA %

(LAST 15 YEARS OF QUARTERLY GOOGLE FINANCIAL DATA SAYS)


The ***interaction COGS to Revenue

and Operating Margin %*Google ROA%


The ***interaction of Building and Improvements

and Accumulated Depreciations*Google ROA%


The ***interaction of Operating Margin%

and Gross Margin%*Google ROA%


The ***interaction of Accounts Receivable

and Building and Improvements *Google ROA%


The ***interaction of Accounts Payable and

COGS to Revenue *Google ROA%


Drive

Drive

Drive

Drive

Drive


**Predictive strength- Predictive strength measures how well a predictor accurately predicts a target, predictor with




simultaneously explains more of the variance in the target field than analyzing the fields separatelyc

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1


ISOLATED CONCLUSION ON ROA %

Magic Link?


COGS Sales Operations Sales Management

Building and Improvements Real Estate Management Real Estate Management System

Account Payable (AP) AP Process ERP System (AP )

Account Receivables, (AR) AR Process (DSO) ERP System (AR)


These related process and IT Areas will impact ROA%

Slight increment (0.1 %) in ROA will generates 63 Mil USD of incremental

net income



WHAT INFLUENCES GOOGLE OPERATING MARGIN

(LAST 15 YEARS OF QUARTERLY GOOGLE FINANCIAL DATA SAYS)


The ***interaction of Net Margin %

and Accumulated Depreciation %*Google Operating Margin %


Net Margin % and Property, Plant and Equipment *Google Operating Margin %


The ***interaction of Accounts Receivable

and Net Margin%*Google Operating Margin %


The ***interaction of Net Margin%

and Goodwill*Google Operating Margin %


The ***interaction of Net Margin%

and Total assets*Google Operating Margin %


Drive

Drive

Drive

Drive

Drive


**Predictive strength- Predictive strength measures how well a predictor accurately predicts a target, predictor with




simultaneously explains more of the variance in the target field than analyzing the fields separately

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1

Proof of

analysis in

Appendix 1


ISOLATED CONCLUSION ON OPERATING MARGIN %

Magic Link?


Accumulated Depreciation Depreciation Methods Depreciation Rule Management

Property Plan and Equipment's Asset Management Asset Management System

Account Receivables AR Process (DSO) ERP System (AR )

Goodwill Acquisition and merger process IT consolidation and optimization


These related process and IT Areas will impact Operating Margin

Slight increment (0.1 %) of operating margin will generates 703 Mil USD of

operation income



GOOGLE IT AND BUSINESS TRANSFORMATION AREAS

IT Areas This will drive Primary target

• Fund Management

(End to end Effective Cash and Fund management

is crucial for Google, it greatly affects the key growth drivers)

GM%, OM% and ROA %

Will increase the gross, operating and net Income of Google

• CRM and Sales System

(COGS is very important for Google, a world class pricing engine

and sales management will benefit the key growth drivers)

GM % and ROA %


• Account Receivables (Integration and optimization, ERP)

• Account Payables (Integration and optimization, ERP)

(End to end integrated AR and AP will drive Google’s Growth)

GM%, OM% and ROA %


• Assets Management system

(Integrated and optimized assets management system) GM%, OM% and ROA %


• IT infrastructure (Integration and Optimization)

(Google might be better than others in this areas

but a internal IT optimization will drive Google’s Growth)

GM% and OM%


Relevance

100%

100%

90%

90%

90%



NEXT STEP – WHAT TO DO IN THESE AREAS?

DEEP DIVE USING GOOGLE INTERNAL DATA

Business Transformation

- Include these process in a more deeper study with internal data along side with external

Internal IT Transformation

- Along side of process look how the process is defined with regards to IT operations and then see how it can be improved?



About Author



growth.






Asian countries




[email protected]



Appendix 1 (Statistical Data Analysis details)



Google’s peer data analysis using Statistics

Objective – Gross Margin%, Operating Margin% and ROA % with regards to other

parameters in whole data set

Technique – Since these all are continuous target, so a Linear Regression (ANOVA)

based approach is used

Company Market Value ($mil) Enterprise Value Revenue (mil) ROA (%) ROE (%) Operating Margin (%) Net Margin (%) Gross Margin % Operating Income Net Income

Google Inc (GOOGL) $ 455,579.00 $ 383,587.00 $ 69,611.00 11.59 14.02 24.99 21.67 62.86 17,395.79$ 15,087.00$

Facebook Inc (FB) $ 267,372.00 $ 251,702.00 $ 13,507.00 9.61 10.76 35.93 20.8 82.73 4,853.07$ 2,810.00$

Tencent Holdings Ltd (TCEHY) $ 173,545.00 $ 172,602.00 $ 13,248.00 15.09 32.06 38.73 29.4 60.89 5,130.95$ 3,933.00$

Baidu Inc (BIDU) $ 61,327.00 $ 54,794.00 $ 9,085.00 13.2 25.56 22 23.26 61.5 1,998.70$ 2,136.00$

Yahoo! Inc (YHOO) $ 35,117.00 $ 30,359.00 $ 4,711.00 17.83 26.84 0.54 153.49 71.89 25.44$ 7,231.00$

Yahoo Japan Corp (YAHOY) $ 14,242.00 $ 11,181.00 $ 3,547.00 15.12 20.22 44.54 31.22 80.05 1,579.83$ 1,267.00$









Google’s 10 years of financial data analysis using Statistics

Objective – Gross Margin % with regards to other parameters in whole data set.


















Objective – Return on Assets % with regards to other parameters
















Objective – Operation Margin% with regards to other parameters














About Author



growth.






Asian countries




[email protected]

Technology

Google.value.analysis.for.business.growth