Google valuation presentation

CONFIDENTIAL | 25 JANUARY 2010PRESENTATION TO INVESTORS | VALUATION ANALYSIS Project Google Sample Valuation Confidential Table of Contents I. INDUSTRY OVERVIEW………………………………………………… 3 II. COMPANY OVERVIEW………………………………………………… 6 III. FINANCIAL OVERVIEW……………………………………………….. 10 IV. APPENDIX……………………………………………………………….. 18 Sample Valuation Project Google Project Google INDUSTRY OVERVIEW | INTERNET SOFTWARE & SERVICES Sample Valuation 3 Project Google Industry Overview Global Search Market Posted 46% Growth in 2009  The worldwide internet search reached over 131 billion queries in December 2009. This statistic represents: (1)  4 billion searches per day  175 million searches per hour  2.9 million searches per minute  The U.S. had the largest share of the global individual search market with 22.7 billion searches conducted by people age 15 or older. (2) 25,000 Top 10 Countries by Number of Searches Conducted Global Searches (MM) 22% 20,000 15,000 13% December-08 48% 10,000 December-09 35% 38% 61% 5,000 44% 53% 28% 92% Canada Russian Federation 0 United States Sample Valuation 1) 2) China Japan United Germany Kingdom France South Korea Brazil Source: “comScore Reports Global Search Market Growth of 46 percent in 2009.” (January 22, 2010) Source: “comScore Reports Global Search Market Growth of 46 percent in 2009.” (January 22, 2010) 4 Industry Overview Project Google Google Sites Had a Dominate Share Of Search Query Volume in 2009  The U.S. core search market grew 16% overall in 2009  Google Sites search query volume grew 21 %  Microsoft Sites had the greatest growth in search volume at 49%  Ask Network increased its search query volume by 12% Sample Valuation 5 Project Google COMPANY OVERVIEW | GOOGLE INC. Sample Valuation 6 Project Google Company Overview Selected Company Data (1) Company Information (2) Selected Market Data Company Name Ticker: Fiscal Year Ending Fiscal Year Ending + 1 Fiscal Year Ending + 2 Marginal Tax Rate Beta Google Inc. GOOG Dec-31-08 Dec-31-09 Dec-31-10 35.0% 1.08 Jan/25/10 $529.0 Stock Valuation Date Share Price as of (01/25/10) F.D. Shares Outstanding Equity Value Net Debt 320.3 $169,435.4 ($21,994.4) Enterprise Value $147,441.0 700 % 600 % 500 % 400 % Google 300 % Nasdaq 200 % 100 % 0% Google Sample Valuation 1) 2) Based on company filings. Based on closing prices as of January 25, 2010. NASDAQ 7 Project Google Company Overview Google Stock Price Trading History (1) 12,000 10,000 8,000 6,000 4,000 2,000 Volume Share Price 0 Price High (01/04/2010) Low (03/09/2009) Average Volume $626.75 $290.89 $456.18 High (04/17/2009) Low (12/24/2009) Average 10,730 858.7 3,480 Volume Sample Valuation Volume in Thousands $700 $650 $600 $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 1) Source: Yahoo! Finance. Note: Price and volume data are based on closing prices and volumes. Share Price 8 Project Google Company Overview Google Stock Trading History (1) 26 Oct 09 16 Sep 09 $700 $650 $600 $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 Sample Valuation 03 May 09 12 Feb 09 Google Exits Radio Advertising Business. Reuters Apple and Google Ties are Investigated. NYT Google Acquires Carnegie Mellon Spin-Off ReCapture Inc. - Reuters 06 Dec 09 13 Jan 2010 09 Nov 09 05 Aug 09 03 Apr 09 26 Mar 09 Google Cut 200 Jobs From Sales Force. Reuters On2 Technologies Announced Proposed Settlement in Litigation. -Reuters Google to acquire On2 technologies.-Reuters Google Signs Agreement To Acquire AdMob. Reuters Google Could Be in Talks To Buy Twitter. - Reuters. 1) Yahoo! Finance. Note: Price and volume data are based on closing prices and volumes. Google Buys Online Word Processing Startup AppJet.Reuters Rejecting Censorship, Google Threatens To Quit China. -Reuters 23 Nov 09 Google To Buy Display Advertising Startup Teracent. -DJ 9 Project Google FINANCIAL OVERVIEW | GOOGLE INC. Sample Valuation 10 Project Google Financial Overview Valuation Summary PREMIUM TO 01/25/2010 PRICE: $533.50 EBITDA 212.2% - (50.0%) 7.2x – 34.7x 9.5x – 60.1x 175.4% - (67.0%) 7.9x – 50.8x 10.8x – 90.0x (3.6%) - (31.7%) 18.8x – 25.6x 30.8x – 43.5x (1.3%) - (60.0%) 18.4x – 42.7x 30.1x – 75.0x $626.76 (83.4%) - (14.9%) 10.8x – 21.0x 16.2x – 34.9x $635.00 (11.1%) - (16.0%) 20.2x – 21.2x 33.4x – 35.3x GOOGLE VALUATION – IMPLIED PRICE PER SHARE COMPARABLE PUBLIC COMPANIES $1081.61 $170.89 IMPLIED 2009E MULTIPLES P/E (1) PRECEDENT TRANSACTIONS $1617. 37 $193.75 (2) DISCOUNTED CASH FLOW $781.66 $ 553.59 Median: $659.9 (3) PREMIUMS PAID ANALYSIS (4) 52-WEEK RANGE $1348. 58 $540.46 $290.89 (5) ANALYST PRICE TARGETS (5) $600.00 $200.00 Sample Valuation $700.00 1) 2) 3) 4) 5) 6) $1,200.00 $1,700.00 Based on selected comparable companies for the “Internet Software & Services” sector. Selected transactions are based on data provided by techcrunch.com and company press-releases. Reflects WACC of 12.1% and exit multiple of 14.5x. Source: Techcrunch.com. Includes transactions greater than $1 billion from 2007 to date. Based on closing prices as of January 25, 2010. Based on selected Wall Street analysts„ equity reports on October 16, 2009. 11 Project Google Financial Overview ($ in millions, except per share data ) Comparable Public Companies (1) Multiples Analysis Company Name Amazon.com, Inc. eBay Inc. Yahoo Inc. Microsoft Corp. Maximum 75th Percentile Median Mean 25th Percentile Minimum Google Inc. Ticker AMZN EBAY YHOO MSFT GOOG Share Price 1/11/2010 $120.4 $23.7 $15.9 $29.3 $120.4 $52.1 $26.5 $47.3 $21.7 $15.9 $533.5 % of 52Market Enterprise Week High Capitalization Value 17.5% $52,915.0 $49,030.0 8.2% $30,630.3 $27,671.0 12.0% $22,220.8 $17,801.3 7.0% $260,494.6 $260,494.6 17.5% $260,494.6 $260,494.6 13.4% $104,809.9 $101,896.1 10.1% $41,772.6 $38,350.5 11.2% $91,565.1 $88,749.2 7.9% $28,527.9 $25,203.5 7.0% $22,220.8 $17,801.3 14.9% $170,879.4 $148,885.0 Cash $4,001.0 $3,159.3 $4,503.1 $36,728.0 $36,728.0 $12,559.3 $4,252.0 $12,097.8 $3,790.6 $3,159.3 $21,994.4 Debt $116.0 $200.0 $83.6 $5,996.0 $5,996.0 $1,649.0 $158.0 $1,598.9 $107.9 $83.6 $0.0 EV/Revenue LTM FYE +1 FYE +2 2.3x 2.1x 1.6x 3.3x 3.2x 3.0x 3.7x 3.8x 3.6x 4.1x 3.8x 3.5x 4.1x 3.8x 3.6x 3.8x 3.8x 3.5x 3.5x 3.5x 3.3x 3.3x 3.2x 2.9x 3.0x 2.9x 2.7x 2.3x 2.1x 1.6x 8.9x 8.3x 7.2x EV/EBITDA LTM FYE +1 FYE +2 30.9x 27.5x 19.2x 9.2x 9.0x 8.0x 10.3x 10.5x 10.0x 9.8x 9.5x 8.6x 30.9x 27.5x 19.2x 15.5x 14.7x 12.3x 10.1x 10.0x 9.3x 15.0x 14.1x 11.5x 9.6x 9.4x 8.5x 9.2x 9.0x 8.0x 14.2x 14.0x 11.8x Margins Analysis Company Name Amazon.com, Inc. eBay Inc. Yahoo Inc. Microsoft Corp. Maximum 75th Percentile Median Mean 25th Percentile Minimum Revenue Growth (CAGR) EBITDA Growth (CAGR) EBIT Growth (CAGR) LTM CapEx EBIT Margin FYE '06-08 FYE '08-10 FYE '06-08 FYE '08-10 FYE '06-08 FYE '08-10 % Revenue LTM FYE +1 FYE +2 33.8% 26.7% 42.1% 34.7% 51.0% 25.7% 2.0% 5.7% 4.6% 5.7% 19.6% 3.2% 18.3% 3.8% 19.3% 8.2% 6.6% 26.3% 29.6% 31.9% 8.8% (4.9%) (2.5%) (0.9%) (13.5%) (20.8%) 9.5% 20.1% 8.8% 13.2% 6.9% 6.3% 7.9% 3.3% 5.9% 3.0% 4.9% 37.1% 35.4% 36.0% 33.8% 26.7% 42.1% 34.7% 51.0% 25.7% 9.5% 37.1% 35.4% 36.0% 23.2% 11.4% 24.3% 11.5% 27.2% 12.6% 7.3% 29.0% 31.0% 32.9% 14.2% 4.7% 13.1% 3.5% 12.6% 5.6% 5.8% 23.2% 19.2% 22.5% 17.3% 7.8% 16.5% 10.2% 15.7% 4.0% 5.8% 22.3% 19.6% 21.7% 8.3% 1.2% 5.3% 2.3% 1.0% (2.9%) 4.2% 16.5% 7.7% 11.3% 6.9% (4.9%) (2.5%) (0.9%) (13.5%) (20.8%) 2.0% 5.7% 4.6% 5.7% Google Inc. Sample Valuation 47.4% 13.9% 1) 49.0% 16.1% 46.9% 12.3% 5.7% 53.5% 46.1% Based on selected comparable companies for the “Internet Software & Services” sector. 48.1% EBITDA Margin LTM FYE +1 FYE +2 7.3% 7.5% 8.3% 35.9% 35.4% 37.9% 35.9% 36.6% 36.5% 41.8% 39.8% 40.4% 41.8% 39.8% 40.4% 37.4% 37.4% 38.5% 35.9% 36.0% 37.2% 30.2% 29.8% 30.7% 28.7% 28.4% 29.4% 7.3% 7.5% 8.3% 62.7% 59.4% 61.3% 12 Project Google Financial Overview ($ in millions) Precedent Transactions Announce Date 04/29/07 (1) Acquiror Yahoo Inc. Target Right Media Target description Right Media, Inc. is an online advertising company that operates the Right Media Exchange (RMX), a marketplace that enables advertisers, publishers, and ad networks to trade digital media. aQuantive is a digital marketing company with three distinct business segments: digital marketing services; digital marketing technologies; and digital performance media. DoubleClick is a provider of digital marketing technology and services with a focus on ad serving, media, video, search and affiliate marketing. 05/18/07 (2) Microsoft Corp. aQuantive Inc., 04/13/07 (3) Google Inc. DoubleClick 05/17/07 (4) WPP Group 24/7 Real Media 03/15/07 (5) CISCO Systems 05/15/08 (6) CBS Corp. 10/23/09 (7) Adobe Systems Transaction Value $850.0 EV/Revenue LTM FYE+1 12.1x N/A EV/EBITDA LTM FYE+1 47.2x N/A $492.6 $129.5 $6,376.9 12.3x 9.9x 46.7x 39.3x $232.0 $72.0 $3,100.0 13.4x 10.4x 46.7x 31.6x 24/7 Real Media provides multi-platform internet marketing strategies including behavioral targeting, ad serving and Web advertising. $215.0 $20.8 $668.6 2.8x 2.2x 29.0x 22.3x WebEX Com. Inc. WebEx Communications Inc. provides on-demand collaboration, online meeting, web conferencing and video conferencing applications. $380.0 $124.1 $3,090.5 7.2x 6.0x 22.1x 18.6x CNET Networks CNET is an interactive media company providing tech product reviews, news and price comparisons, free software downloads, daily videos, and podcasts. $408.2 $73.3 $1,794.3 4.3x 4.0x 23.8x 20.1x Omniture, Inc. Omniture is a provider of online business optimization products and services including integrated set of optimization applications for online analytics, channel analytics, visitor acquisition and conversion. $335.5 $68.8 $1,771.0 4.9x 3.6x 24.1x 11.2x $492.6 $394.1 $335.5 $304.8 $223.5 $70.0 $129.5 $98.7 $72.0 $72.4 $44.8 $18.0 $6,376.9 $3,095.3 $1,794.3 $2,521.6 $1,310.5 $668.6 13.4x 12.2x 7.2x 8.1x 4.6x 2.8x 10.4x 8.9x 5.0x 6.0x 3.7x 2.2x 47.2x 46.7x 29.0x 34.2x 23.9x 22.1x 39.3x 29.3x 21.2x 23.9x 19.0x 11.2x Maximum 75% Percentile Median Mean 25th Percentile Minimum 1) Sample Valuation Target LTM Revenue EBITDA $70.0 $18.0 2) 3) 4) 5) 6) 7) Source: “Yahoo to buy rest of Right Media for $680mln.” (Reuters, 04/30/2007) Note: Includes 20% stake (~$200MM) Yahoo! acquired in October, 2006. Source: “Microsoft to Acquire aQuantive, Inc.” (Microsoft, 05/18/2007) Source : “Google to Acquire DoubleClick.” (Google, 04/13/2007) Source :”WPP has agreed to acquire 24/7 Real Media for $11.75 per share.” (WPP, 05/17/2007) Source: “CISCO Announces Agreement to Acquire WebEx.”(CISCO, 03/15/2007) Source: “CBS to buy CNET Networks.” (05/15/2008) Source : “Adobe to Acquire Omniture.” (Adobe, 10/23/2009) 13 Project Google Financial Overview ($ in millions, except per share data) Discounted Cash Flow Analysis Fiscal Year Ending 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 Revenue (excl. TAC) $17,879.5 $20,561.4 $23,350.2 $26,275.8 $29,326.9 EBIT Less: Taxes Debt-Free Earnings Less: Capital Expenditures Less: Working Capital Requirements Add: Depreciation and Amortization Add: Stock-Based Compensation Total Net Investment $8,246.3 $3,074.4 $5,171.9 ($1,984.6) ($328.6) $1,302.2 $1,073.5 $62.4 $9,888.8 $3,694.7 $6,194.1 ($1,871.1) ($515.8) $1,557.4 $1,155.1 $325.6 $11,470.0 $4,304.0 $7,166.1 ($1,657.9) ($525.0) $1,775.0 $1,184.4 $776.6 $13,300.2 $5,010.6 $8,289.6 ($1,865.6) ($577.4) $1,973.7 $1,267.9 $798.6 $14,998.1 $5,680.3 $9,317.8 ($2,082.2) ($581.3) $2,216.0 $1,326.0 $878.6 Net Debt-Free Cash Flows: Projection Year Discount period Discount Factor @ 12.1% PV of Net Debt-Free Cash Flows: $5,234.3 1.0 0.5 0.94 $4,944.8 $6,519.7 2.0 1.5 0.84 $5,496.5 $7,942.6 3.0 2.5 0.75 $5,975.8 $9,088.2 4.0 3.5 0.67 $6,102.1 $10,196.4 5.0 4.5 0.60 $6,109.7 Free Cash Flow Growth Rate: Implied Share price Sample Valuation Discount Rate Enterprise Value Discount Rate Sensitivity Analysis 10.1% 11.1% 12.1% 13.1% 14.1% 10.1% 11.1% 12.1% 13.1% 14.1% 12.5x $180,286.2 $173,589.4 $167,209.2 $161,127.8 $155,328.7 12.5x $631.5 $610.6 $590.7 $571.7 $553.6 13.5x $192,310.8 $185,134.6 $178,298.1 $171,782.2 $165,569.3 13.5x $669.0 $646.6 $625.3 $605.0 $585.6 Exit Multiple 14.5x $204,335.4 $196,679.7 $189,386.9 $182,436.7 $175,809.9 Exit Multiple 14.5x $706.6 $682.7 $659.9 $638.2 $617.5 15.5x $216,359.9 $208,224.9 $200,475.8 $193,091.1 $186,050.6 15.5x $744.1 $718.7 $694.5 $671.5 $649.5 16.5x $228,384.5 $219,770.0 $211,564.7 $203,745.6 $196,291.2 16.5x $781.7 $754.8 $729.2 $704.7 $681.5 DCF Assumptions Discount Rate Tax Rate 12.1% 35.0% Mid-Year Conversion (Y/N)? Terminal Multiple Gordon Growth Approach (Y/N)? Gordon Growth Rate Y 14.5x N 8.0% Terminal Multiple Increment Discount Rate Increment 1.0x 1.0% Terminal Value Assumptions Terminal EBITDA Terminal Multiple Terminal Value Discount Period Discount Factor @ PV of Terminal Value % of Enterprise Value $18,540.1 14.50 $268,831.6 4.50 0.60 $161,084.2 Enterprise Value $189,713.0 Implied Equity Value and Share Price Enterprise Value $189,713.0 Less: Net Debt ($21,994.4) Implied Equity Value F.D. Shares Outstanding Implied Share Price Distribution of Value Period Cash Flow Terminal Cash Flow Total Implied Analyses LTM EBITDA Multiple NFY EBITDA Multiple Implied Gordon Growth Rate $211,707.4 320.3 $660.9 15.1% 84.9% 100.0% 18.1x 17.9x 13.4% 14 Project Google Financial Overview ($ in millions) WACC Analysis Amazon.com, Inc. eBay Inc. Yahoo Inc. Microsoft Corp. Median Mean Google Inc. Amazon.com, Inc. eBay Inc. Yahoo Inc. Microsoft Corp. Median Mean Google Inc. Ticker AMZN EBAY YHOO MSFT GOOG Ticker AMZN EBAY YHOO MSFT GOOG Sample Valuation Debt $116.0 $200.0 $83.6 $5,996.0 $158.0 $1,598.9 Preferred Stock $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Market Value of Total Equity Capitalization $52,915.0 $53,031.0 $30,630.3 $30,830.3 $22,220.8 $22,304.4 $260,494.6 $266,490.6 $41,772.6 $41,930.6 $91,565.1 $93,164.1 $170,879.4 Levered Beta 1.25 1.92 0.76 0.96 1.11 1.22 Unlevered Beta 1.25 1.91 0.76 0.95 1.10 1.22 1.10 1.10 $170,879.4 Equity Risk Premium 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% Debt to Equity 0.2% 0.7% 0.4% 2.3% 0.5% 0.9% 0.0% Cost of Equity 13.1% 17.8% 9.7% 11.1% 12.1% 12.9% 12.1% Debt to Total Capitalization 0.2% 0.6% 0.4% 2.2% 0.5% 0.9% 0.0% Cost of Debt 0.0% 0.5% 0.0% 2.4% 0.2% 0.7% 0.0% Preferred to Total Capitalization 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Equity to Total Capitalization 99.8% 99.4% 99.6% 97.8% 99.5% 99.1% 0.0% Cost of Preferred 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% WACC 13.1% 17.7% 9.7% 10.9% 12.0% 12.8% 0.0% Source: Company filings, Yahoo! Finance and equity research. Weighted Average Cost of Capital (WACC) = (Cost of Debt*(1- Tax Rate) * Debt to Enterprise Value) + (Cost of Equity * Equity to Enterprise Value) + (Cost of Preferred *Preferred to Enterprise Value ) Cost of Equity = Risk Free + (Levered Beta * Equity Risk Premium) Risk Free Rate is based on the 30-year treasury rate of 4.375%. Equity Risk Premium (average) is sourced from equity research and press-releases. 12.1% 15 Project Google Financial Overview ($ in millions) Premiums Analysis – Technology M&A Deals Over $1 Billion with Public, U.S.-Based Sellers Since 01/01/2007 Acquirer Target Date Equity Offer Announced Value Price Share Price History 1-Day 20-Day Premium/(Discounts) 1-Day 20-Day Microsoft Corp. (1) aQuantive Inc., 05/18/07 $6,376.93 $66.50 $35.87 $31.90 85.4% 108.5% CISCO Systems, Inc. (2) WebEX Com. Inc. 03/15/07 $3,090.52 $57.00 $25.98 $26.18 119.4% 117.7% CBS Corp. (3) CNET Networks 05/15/08 $1,794.35 $11.50 $7.95 $7.95 44.7% 44.7% Adobe Systems, Inc. (4) Hewlett-Packard (5) Oracle Corp. (6) Omniture, Inc. 10/23/09 $1,771.04 $21.50 $21.48 $21.51 0.1% (0.05%) EDS 05/13/08 $13,900.00 $25.00 $24.13 $17.17 3.6% 45.6% Sun Microsystems 04/20/09 $7,400.00 $9.50 $6.69 $7.94 42.0% 19.6% Dell Inc. (7) CISCO Systems, Inc. (8) Perot Systems Starent Systems 09/21/09 10/13/09 $3,900.00 $2,900.00 $30.00 $35.00 $17.91 $34.97 $17.00 $34.39 67.5% 0.1% 76.5% 1.8% Hewlett-Packard (9) IBM (10) 3Com 11/11/09 $2,700.00 $7.90 $5.41 $5.84 46.0% 35.3% SPSS 07/28/09 $1,200.00 $50.00 $35.09 $33.37 42.5% 49.8% $66.50 $35.87 $34.39 119.4% 117.7% Max 75th Percentile $46.25 $32.72 $30.47 62.1% 69.8% Median $27.50 $22.81 $19.34 43.6% 45.1% Mean $31.39 $21.55 $20.33 45.1% 49.9% 25th Percentile Min Sample Valuation 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) $14.00 $10.44 $10.21 13.2% 23.6% $7.90 $5.41 $5.84 0.1% (0.0%) Source: “Microsoft to Acquire aQuantive, Inc.” (Microsoft, 05/18/2007) Source: “CISCO Announces Agreement to Acquire WebEx.”(CISCO, 03/15/2007) Source: “CBS to buy CNET Networks.” (05/15/2008) Source : “Adobe to Acquire Omniture.” (Adobe, 10/23/2009) Source: “HP to Acquire EDS for $13.9 Billion.” (HP, 05/13/2008) Source: “Sun and Oracle.” (Sun, 04/20/2009) Source: “Dell to Acquire Perot Systems for $3.9Billion.” (Dell, 09/21/09) Source: “CISCO Announces Agreement to Acquire Starent Networks.” (CISCO,10/13/2009) Source: “HP to Acquire 3Com for $2.7 Billion.” (HP, 11/11/2009) Source: “IBM to Acquire SPSS Inc. to Provide Clients Predictive Analytics Capabilities.” (IBM, 07/28/2009) 16 Project Google Financial Overview Wall Street Analysts’ Price Targets Firm Susquehanna Financial Group Date 10/16/2009 Analyst Name Marianne Wolk Rating Positive Price Target $625.00 $22.72 - $25.69 Morgan Stanley 10/16/2009 Mary Meeker Overweight $625.00 $20.17 - $22.87 Jefferies & Co. 10/16/2009 Youssef H. Squali Buy $600.00 $23.02 - $26.54 Credit Suisse 10/16/2009 Spencer Wang Outperform $600.00 $22.51 - $26.18 Collins Stewart Median Mean 10/16/2009 Sundeep Aggarwal Buy $635.00 $625.00 $617.00 $22.68 $22.68 $22.22 - $25.89 $25.89 $25.43 Sample Valuation Earnings Per Share Source: Thomson Reuters One Banker and analysts‟ equity research reports on October 16, 2009. 17 Project Google APPENDIX Sample Valuation 18 Project Google Appendix ($ in millions, except per share data) Projected Income Statement Income Statement (Exc. TAC) - Google Inc.: Historical Statement FY2006A Net revenue (Exc.TAC): Other cost of revenue: Research & development: Sales & marketing: General & sales: Total operating Expenses: Operating Income: FY2007A FY2008A Projected Statements FY2009P FY2010P FY2011P FY2012P FY2013P EBITDA: EBITDA margin: EBITDA growth: $7,296.1 $11,660.1 $15,856.6 $17,879.5 $20,561.4 $23,350.2 $26,275.8 $29,326.9 $916.2 $1,715.2 $2,682.5 $2,826.3 $2,976.0 $3,124.3 $3,258.5 $3,380.1 $1,601.3 $2,120.0 $2,793.2 $3,071.7 $3,521.8 $3,920.0 $4,441.2 $4,942.4 $849.5 $1,461.3 $1,946.2 $2,071.5 $2,324.2 $2,692.3 $2,949.7 $3,358.1 $751.8 $1,279.3 $1,802.6 $1,663.7 $1,850.5 $2,143.6 $2,326.2 $2,648.2 $4,118.8 $6,575.7 $9,224.6 $9,633.2 $10,672.6 $11,880.2 $12,975.6 $14,328.9 $3,177.3 $5,084.4 $6,632.0 $8,246.3 $9,888.8 $11,470.0 $13,300.2 $14,998.1 4% 11% 11% 9% 10% $4,207.3 $6,920.7 $9,251.7 $10,622.0 $12,601.3 $14,429.4 $16,541.8 $18,540.1 57.7% 59.4% 58.3% 59.4% 61.3% 61.8% 63.0% 63.2% N/A 64.5% 33.7% 14.8% 18.6% 14.5% 14.6% 12.1% Interest & other, net: Impairment of equity investments: (1) Pre-tax income: Income tax provision Effective Income tax: Net Income: Net income margin: Net income growth: $461.0 $0.0 $3,638.3 $933.6 25.7% $2,704.8 37.1% N/A $589.6 $0.0 $5,674.0 $1,470.3 25.9% $4,203.7 36.1% 55.4% Weighted average diluted shares outstanding: Diluted EPS (GAAP): 309.5 $8.74 316.2 $13.29 317.5 $13.31 317.5 $17.98 317.5 $21.61 317.5 $25.17 317.5 $29.31 317.5 $33.22 Depreciation: Amortization: Stock-based compensation: (2) $494.4 $77.5 $458.1 $807.7 $159.9 $868.6 $1,212.2 $287.7 $1,119.8 $1,050.4 $251.8 $1,073.5 $1,336.5 $220.9 $1,155.1 $1,605.8 $169.2 $1,184.4 $1,844.0 $129.7 $1,267.9 $2,112.0 $104.0 $1,326.0 Sample Valuation 1) 2) $316.4 ($1,094.8) $5,853.6 $1,626.7 27.8% $4,226.9 26.7% 0.6% $537.7 $667.4 $827.0 $1,015.9 $1,231.3 $0.0 $0.0 $0.0 $0.0 $0.0 $8,784.0 $10,556.1 $12,297.1 $14,316.0 $16,229.3 $3,074.4 $3,694.7 $4,304.0 $5,010.6 $5,680.3 35.0% 35.0% 35.0% 35.0% 35.0% $5,709.6 $6,861.5 $7,993.1 $9,305.4 $10,549.1 31.9% 33.4% 34.2% 35.4% 36.0% 35.1% 20.2% 16.5% 16.4% 13.4% Impairment of equity investments in AOL and Clearwire. Per 2008 10K - SBC was estimated to be ~ $1.0 billion in 2009 and ~$1.4 billion thereafter. 19 Project Google Appendix Revenue And Operating Expenses Projections Total Net Revenue (Exc. TAC) - Google Inc.: Historical Statements FY2006A Search/Paid click revenue: % of advertising revenue: Display/YouTube revenue: % of advertising revenue: Total advertising revenue: % of net revenue: Licensing & other revenue: % of net revenue: Net Revenue: Growth: FY2007A FY2008A Projected Statements FY2009P FY2010P FY2011P FY2012P FY2013P $7,173.9 $11,396.8 $14,919.6 $16,553.3 $18,829.8 $21,275.0 $23,814.5 $26,422.4 99.9% 99.3% 98.2% 97.3% 96.2% 95.4% 94.5% 93.6% $10.0 0.1% $82.0 0.7% $270.0 1.8% $459.0 2.7% $734.4 3.8% $1,028.2 4.6% $1,388.0 5.5% $1,804.4 6.4% $7,183.9 $11,478.8 $15,189.6 $17,012.3 $19,564.2 $22,303.1 $25,202.5 $28,226.9 98.5% 98.4% 95.8% 95.2% 95.2% 95.5% 95.9% 96.2% $112.3 1.5% $181.3 1.6% $667.0 4.2% $867.1 4.8% $997.2 4.8% $1,047.1 4.5% $1,073.3 4.1% $1,100.1 3.8% $7,296.1 $11,660.1 $15,856.6 $17,879.5 $20,561.4 $23,350.2 $26,275.8 $29,326.9 n/a 59.8% 36.0% 12.8% 15.0% 13.6% 12.5% 11.6% Operating Expenses- Google Inc.: Historical Statements Projected Statements FY2006A FY2007A FY2008A FY2009P FY2010P FY2011P FY2012P FY2013P $916.2 12.6% $1,715.2 14.7% $2,682.5 16.9% $2,826.3 15.8% $2,976.0 14.5% $3,124.3 13.4% $3,258.5 12.4% $3,380.1 11.5% $1,228.6 16.8% $2,120.0 18.2% $2,793.2 17.6% $3,071.7 17.2% $3,521.8 17.1% $3,920.0 16.8% $4,441.2 16.9% $4,942.4 16.9% Sales and marketing: % of total revenue $849.5 11.6% $1,461.3 12.5% $1,946.2 12.3% $2,071.5 11.6% $2,324.2 11.3% $2,692.3 11.5% $2,949.7 11.2% $3,358.1 11.5% General and administrative: % of total revenue $751.8 10.3% $1,279.3 11.0% $1,802.6 11.4% $1,663.7 9.3% $1,850.5 9.0% $2,143.6 9.2% $2,326.2 8.9% $2,648.2 9.0% $3,746.1 51.3% $6,575.7 56.4% $9,224.6 58.2% $9,633.2 $10,672.6 $11,880.2 $12,975.6 $14,328.9 53.9% 51.9% 50.9% 49.4% 48.9% Cost of revenue: % of total revenue Research and development: % of total revenue Total operating expenses: % net revenue: Sample Valuation 20