There's no debating that Google is a successful company. Aside from dominating the U.S. search market and the online advertising business, the tech giant has become a Wall Street darling, thanks to strong profits. Google's stock price that, at its height, rose above $700 per share--the company at that time had a market capitalization of approximately $250 billion.
But as the economy has slowed and the world sank deeper into a recession, Google has fallen with it. The company's stock price is now just $312 per share with a $98.42 billion market capitalization. Online ad spending will slow during 2009, and some investors believe Google could be impacted greatly.
Realizing that, I thought it would be a good time to look into Google's real value and decide if it's worth investing in, even as economic troubles continue to plague the world. Is Google a good bet for long-term gain?
Let's explore the company's financial health and find out. (Note that all the findings below are derived from Google's 2007 Annual Report and 2008 third-quarter data. The company plans to release 2008 fourth quarter data on January 22.)
Cash and income: Ideal and ideal When evaluating the financial health of a company and determining whether or not you should invest your money in its stock, it's best to start with the easy stuff--income and cash. And in that department, Google is performing extremely well.
According to its latest quarterly filing data, Google's operations have grown at a healthy rate. Its last reported quarter, ending September 30, 2008, yielded the company more than $1.28 billion in profit, up more than $40 million over the previous quarter, and $200 million over the same quarter in 2007.
Google's cash reserves are equally healthy. The company's total cash-on-hand increased more than $3 billion year-over-year in 2007 and so far, after three quarters reported, the company has added more than $2 billion to its coffers in 2008. Expect that number to climb higher than $3 billion once again when the company's 2008 Annual Report is released.
Balance sheet health: Outstanding When examining the value and growth potential of a company, its balance sheet can be a key indicator of whether or not you should invest money. Some companies have strong profit figures, but thanks to costly debt that's coming due, those profits may not adequately reflect the true financial health of the company. That said, you don't need to worry about anything of the sort with Google--it doesn't have any debt in its financial structure.
A quick check of Google's balance sheet reveals the online giant is in an enviable position. According to its latest quarterly filing, its assets--cash, investments, receivables, and property--are valued at more than $30 billion, while its liabilities are valued at just $3.3 billion. The balance can be found in the company's Stockholders' Equity section, which boasts more than $13 billion in retained earnings--the portion of the net income that is kept by Google--as well as Capital Surplus--capital received from investors who are paying more than the par value for each share acquired.
So what does all that mean? Google is extremely well-off. The company has no worry of long-term debt, which is a major drain on some, less-healthy companies, and with more cash each month, it's fully capable of acquiring other firms and paying its bills at the same time without borrowing funds from banks. That's a luxury only a select few companies can enjoy.… Read more