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Google Analysis

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Google, Inc.

Overview

Google is a global technology leader, focused on improving the ways people connect with information. Through innovations in web search and advertising, Google is now a top Internet destination and possesses one of the most recognized brands in the world. Available to anyone with an Internet connection, Google maintains the world’s largest online index of web sites and other content.

Revenue is generated by delivering relevant, cost-effective online advertising. Businesses use the Google AdWords program to promote their products and services with targeted advertising. Furthermore, Google maintains advertising on thousands of third-party web sites using the Google Network and Google AdSense.

While Google continues to expand its product line into new and existing territories, the company considers its primary industry to be web search technology. However, Google also faces competition from online advertising companies, particularly those that provide pay-per-click services. Currently, Google considers its primary competitors to be Microsoft and Yahoo.

Future operating performance will be directly related to the role of information technology in the marketplace. Information technology is an area experiencing constant growth and innovation, which existing companies must address in order to overcome product obsolescence.

A variety of factors exist that will affect the success and future growth of Google. First, Google must protect its proprietary search algorithms accounting for its success to date. If such methodology reaches competitors, its competitive advantage is suddenly lost. In addition, it must be able to maintain its competitive advantage over Microsoft in areas of expertise. Microsoft is a proven industry leader in many aspects of technology, having the financial strength to compete in every capacity.

Key Accounts

The growth in revenues that Google is experiencing is astonishing. However, all of its revenues at the moment are the direct result of two business segments. The two primary sources of revenue are Google owned sites and the Google network, each accounting for approximately 50% of revenues.

For this reason, the cost of revenues becomes a key account on its income statement. As demonstrated in the vertical income statement, the cost of revenues rose from 11.46% in 2002 to 45.71% in 2004. This is...

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...nd drawing plenty of attention. On February 14, 176 million new shares of Google will enter the marketplace. Typically, more supply without more demand means a decline in price. Although, the promising performance of Google makes many believe that the company can withstand the flood. All of the financial measures in this analysis will continue to converge with the industry as Google matures, but they are simply approaching reality, as this type of growth cannot be sustained forever.

Non-Firm Specific

In Looking for Red Flags, Howard Schilit discusses how Tyco used acquisitions to overstate cash flows. These acquisitions would allow Tyco to obtain large amounts of receivables, which it would place on its books. The additional receivables are collected at the end of the quarter, in turn, increasing operating cash flows. Realistically, Tyco is paying for these receivables when it acquires the other company. Hence, the collection of receivables in not a free operating cash flow. In order to uncover such practice, many compare cash flows from operations to profits. These two measures should reveal the same type of result, whereas, Tyco is showing high cash flows and little profit.
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