Google's Initial Public Offering (IPO) of common stock is the biggest news in business for a long time. Yesterday, Google filed it's prospectus with the Securities and Exchange Commission (SEC), which detailed the offering and revealed Google's financials since inception. Much about Google's financials and the way they are going to run their auction (an open Dutch auction) are really fascinating! Taking only a couple of lines from Google's financials (Net Revenue and Net Income), we can figure out how much Google as a company is worth.
I put together a Net Present Value spreadsheet to give us the answer on how much Google is worth. Assuming a revenue growth decay of 25% per annum, a net margin going forward of 20%, and a discount rate of 20%, Google is worth $18 billion.
However, changing the revenue growth decay from 25% to 20% per annum, Google is worth $39 billion. Let's say you further think that Google's business is not as risky as to warrant a 20% discount rate, but rather it warrants only a 15% discount rate, Google is now worth $62 billion.
This huge difference in the value of Google by changing only a few variables slightly shows that Google can be worth almost as much as you want it to be. It's true that there are some boundaries, such as it's unreasonable to assume that Google's revenues would be 100% of the US economy. But you can have some pretty wild results from some mundane assumptions.
So how much is Google worth? My best answer is that it's worth an awful lot of money.
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