GOOG - PDF

Document Sample
GOOG - PDF Powered By Docstoc
					18 June 2009 Americas/United States Equity Research Consumer Internet

Google, Inc. (GOOG)
Rating OUTPERFORM* [V] Price (16 Jun 09, US$) 416.14 Target price (US$) (from 400.00) 475.00¹ 52-week price range 572.78 - 257.44 Market cap. (US$ m) 132,340.84
*Stock ratings are relative to the relevant country benchmark. ¹Target price is for 12 months. [V] = Stock considered volatile (see Disclosure Appendix).

COMPANY UPDATE

Several Tail Winds; 2Q09 Preview
In this note, we analyze several factors that may impact Google’s fundamentals over the next several quarters, including a beneficial new trademark policy, stabilizing CPC trends, and the possible impact of Micrososft’s new search engine, Bing. Google’s new policy allows 3rd parties to use trademarked terms within the ad text portion of a paid listing, which should benefit Google’s paid clicks in 3Q09 and for the last two weeks of 2Q09, as ad relevancy is expected to increase. We estimate a 1.0%-1.5% incremental uplift to paid clicks in 2Q09. Our channel checks with SEM’s and key advertisers suggest that search pricing appears to be stabilizing. We now expect a 11.7% decline in RPC in 2Q09, consistent with 1Q09, and better than our original -16.2% estimate. Bing has resulted in a 33% increase in market share for MSFT in its first 2 weeks, with share gains coming proportionally from its competitors, according to comScore. For GOOG, this implies a -190 bps potential impact on revenue growth for FY09, should trends persist and all else being equal. Based on the trademark policy change, our channel checks and Google’s continued focus on cost efficiencies, we are raising EPS estimates (x-stock comp) from $4.48 to $4.99 vs. $4.63. Our full year 2009 EPS estimate has been increased from $19.78 to $21.07 vs. $19.49 in 2008. We are also increasing our target price from $400 to $475, as we roll forward our TP to use our 2010 forecasts. Our new $475 target price implies Google can trade at a 19x P/E multiple on our new 2010 EPS estimate, in line with its current ’09 P/E multiple and our projected 19% EPS CAGR through 2014.
12/09E 26.46 21.07 19.8 19.7 126.9 22,903.8 11,210.8 -22,466 28.6 14.6 Price/sales(x) P/BVPS (x) Dividend (12/08A, US$) 12/10E — 25.12 24.1 16.6 131.3 27,255.8 13,278.0 — 35.6 11.7 5.78 4.5 —

Research Analysts Spencer Wang 212 325 9624 spencer.wang@credit-suisse.com Kenneth Sena 212 325 3687 ken.sena@credit-suisse.com

Share price performance
Daily Jun 17, 2008 - J un 16, 2009, 6/17/08 = $569.46

600 500 400 300 200 Jun-08

Sep-08 Price

Dec-08

Mar-09 Indexed S&P 500

On 06/16/09 the S&P 500 index closed at 911.97

Quarterly EPS 2008A 2009E 2010E

Q1 4.84 5.16 —

Q2 4.63 4.99 —

Q3 4.92 5.52 —

Q4 5.10 5.40 —

DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Customers of Credit Suisse in the United States can receive independent, third party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.credit-suisse.com/ir or call 1 877 291 2683 or email equity.research@credit-suisse.com to request a copy of this research.

■ ■ ■ ■ ■ ■

Financial and valuation metrics Year 12/08A EPS - (Excl. ESO, US$) 21.02 EPS (CS adj., US$) 19.49 Prev. EPS (CS adj., US$) — P/E (CS adj., x) 21.4 P/E rel. (CS adj., %) 155.8 Revenue (US$ m) 21,795.5 EBITDA (US$ m) 9,346.8 Net debt (US$ m) -15,846 OCFPS (US$) 24.7 P/OCF (x) 12.4 Number of shares (m) 318.02 BV/share (current, US$) 92.5 Net debt (current, US$ m) -16,088.4 Dividend yield (%) —
Source: Company data, Credit Suisse estimates.

18 June 2009

Several Tail Winds; 2Q09 Preview
Overview
In this report, we walk through several factors likely to impact Google’s performance over the next couple of quarters, including: Google’s new trademark policy (officially implemented on June 15th in the U.S. and announced on May 14th), which should positively impact paid click growth Current search pricing trends in 2Q09, which appear to be stabilizing, based on conversations with SEMs and several large advertisers The potential impact on search query share from the June 3rd launch of Microsoft’s new search engine, Bing

Based on our work on the above issues and our belief that Google remains focused on cost efficiencies, we are raising our estimates for 2Q09 and FY09. Overall, we are increasing our 2Q09 and full year 2009 estimates for Google. For 2Q09, we are raising our EPS estimate (excluding stock comp) from $4.48 to $4.99 vs. $4.63. Our full year 2009 EPS estimate has been increased from $19.78 to $21.07 vs. $19.49 in 2008. In addition, we are rolling forward our valuation to use our 2010 estimates and hence we are raising our price target on Google to $475 from $400 (which implies a 19x P/E multiple on our 2010 EPS estimate of $25.12).

■ ■ ■

New Trademark Policy Should Drive CTR Improvement
This week, Google adjusted its trademark policy in the U.S., allowing advertisers to use third party trademarks in paid search advertising text under certain guidelines. By way of background, under the new policy, advertisers may use trademark terms even if that advertiser does not own the trademark, as long as the advertiser complies with the trademark policy terms of the trademark holder. This change should prove beneficial to Google’s paid click volumes in 3Q09 and for the last two weeks of 2Q09. As an example of the policy change, we show in the exhibit below, that a search for Cole Haan shoes under the new trademark policy yields ads by Zappos, Nordstrom and others, each using the trademarked term “Cole Haan” in the ad text. Under the old trademark policy, a trademark (“Cole Haan,” in this case) could not be used in the search ad by companies that do not own the trademark. Rather, non-trademarked terms would need to be used in the ad text, despite the advertiser’s ability to bid on the trademarked term for placement purposes. As an example of this latter approach, in the exhibit below, instead of using “Cole Haan” in the text adjacent to a Cole Haan search, Bluefly.com simply states “dress apparel” in the ad text.

Google, Inc. (GOOG)

2

18 June 2009

Exhibit 1: Google’s New Trademark Ad Text Policy Example

New TM Policy

Old TM Policy

Source: Company data, Credit Suisse estimates

The Framework for Analysis While the newer, more relaxed trademark rules will bring Google in line with Yahoo! and Microsoft Bing’s current trademark policies, in the near-term this policy change should prove beneficial to Google’s paid click volumes, which we now explore.

CTR/Paid Click Impact. We believe that increasing the number of paid listings that contain a trademarked search term will result in additional paid clicks for Google. Conceptually, including a trademark in the advertising text when a user is searching for that trademark should result in greater ad relevancy and therefore a higher click through rate (CTR). Said another way, in our prior example, we believe that if a user searches for “Cole Haan,” having more ads with this trademark will result in higher number of clicks. RPC Impact. In the near term, we believe that this change will also drive higher demand for trademark keywords, which, in theory should increase keyword bids and therefore search revenues for Google. Conversion Impact. For search marketers, while we believe that the new trademark policy will drive more paid clicks and traffic to their sites, this may not translate into more consumer purchases, particularly given the choppy economic backdrop. Therefore, this would lead to a decline in “conversion” (typically defined as the percentage of clicks that convert to an action) for the advertiser. Therefore, over time, we would expect reduced bid prices to mitigate a portion of the ramp in paid click volumes as advertisers adjust spending to maintain return on investment (ROI).
We illustrate our expectations for the impact of the new trademark policy from both the perspective of Google and advertisers in the exhibit below.

Google, Inc. (GOOG)

3

18 June 2009

Exhibit 2: Expected Impact of New Trademark Policy, Google and Advertiser Perspectives Stage 1: Google Perspective Advertiser Perspective
Searches X Coverage = Searches with Paid Ads X CTR = Paid Clicks X RPC/CPC = Search Revenue “Actions” / Search Marketing Spend = ROI Paid Clicks X CPC/RPC = Search Marketing Spend

Stage 2:

Google Perspective Searches X Coverage = Searches with Paid Ads X CTR = Paid Clicks X RPC/CPC = Search Revenue

Advertiser Perspective Paid Clicks X CPC/RPC = Search Marketing Spend

“Actions” / Search Marketing Spend = ROI

Source: Company data, Credit Suisse estimates

Quantifying the Impact We have held conversations with SEMs and advertisers in order to quantify the impact of the new trademark policy on above outlined factors. Overall, our research finds several conclusions: Roughly 20% of paid clicks that convert to an action are trademark-related and the balance (80%) are non-trademark related. On average, according to some search marketers, the new trademark policy is expected to result in a mid to high single digit increase in the number of total paid clicks. This implies a 30%-45% increase in trademark related paid clicks (20% of total paid clicks). We assume no uplift in revenue per click for Google as we expect reduced conversion to ultimately lead to reduced bids so that advertisers can maintain ROI. However, we think that increased paid clicks will outweigh the net change in RPC, resulting in a net positive impact on Google’s gross revenue. For 2Q09, based on a June 15 implementation, this would impact ~17% of the quarter.

Based on these factors, we calculate a +1.0% to +1.5% uplift in paid clicks and Google revenues, assuming no material change in RPC either positively or negatively. We would expect a larger positive benefit in 3Q09 as the new trademark policy will be in effect for the entire quarter, as opposed to for only two weeks in 2Q09.
Exhibit 3: Estimated Impact of Trademark Policy Change, 2Q09 Trademark Clicks as % of Total 20% 20% x % Uplift in Trademark Clicks 30% 35% = % Uplift in Total Paid Clicks 6.0% 7.0% 16.7% 16.7% x Timing Adjustment for 6/15/09 Implementation = 2Q09 Impact 1.0% 1.2%
Source: Company data, Credit Suisse estimates

■ ■ ■ ■ ■

20% 40% 8.0% 16.7% 1.3%

20% 45% 9.0% 16.7% 1.5%

Google, Inc. (GOOG)

4

18 June 2009

Signs of Ad Market and Pricing Stabilization
Our channel checks with search engine marketers and key search advertisers also find that search pricing appear to be stabilizing. From a broader advertising perspective, this is consistent with the tone of the market in online display, network television, and, to a lesser extent, in the local advertising mediums. Over the past several quarters, Google’s revenue per click has softened in tandem with the economic climate. For example, on a global basis and not adjusted for F/X, we estimate that revenue per click (RPC) for Google grew ~16% year over year in 2Q08, but slowed to 10% in 3Q08, fell 2.5% year over year in 4Q08 and declined ~12% in 1Q09. Our current channel checks indicate that RPC weakness appears to have stabilized, which we interpret to mean that the year over year decline in RPC in 2Q09 should be roughly comparable to the 12% decline in 1Q09. This is better than our base case assumption, where had assumed a further deterioration in RPC declines to -16% in 2Q09. In addition, we are receiving encouraging signs from SEM’s that stability should continue into 3Q09.
Exhibit 4: Y/Y % Change in Revenue per Click, 2Q08-2Q09E
20% 16.0% 15% 10.2% 10% Y/Y % Change in RPC 5% 0% (5)% (10)% (15)% (20)% 2Q08E 3Q08E 4Q08E 1Q09E 2Q09E (12.2)% (16.0)% (2.5)%

Source: Company data, Credit Suisse estimates.

“Ba-Da-Bing:” An Early Look at Bing
Microsoft’s new search engine, Bing, launched on June 3rd has shown some early signs of momentum. As such, in an effort to monitor Bing’s progress and the competitive impact on Google, we have utilized what available traffic data there is to estimate what impact Bing could have on Google’s traffic and query volume share in June and beyond. A study of Bing’s search query performance in its first two weeks by comScore suggests that Bing’s share of search result pages (as opposed to queries) increased 300 bps to 12.1% from 9.1%.
Exhibit 5: comScore Bing Analysis, 5/26-5/30 vs. 6/08-6/12 5/26/-5/30 6/08-6/12 Share of Search Result Pages 9.1% 12.1%
Source: Company data, Credit Suisse estimates

% Chg 33.0%

% Pt Chg 300

Based on our understanding, the gain in search page share came proportionately from all the competing engines. Therefore, if we extrapolate this improvement to search query volume (as opposed to landing pages) and assume that a proportionate share comes from

Google, Inc. (GOOG)

5

18 June 2009

Google, we estimate 190 basis points in share loss for Google in June, assuming that the share gains experienced by Bing in its first two weeks persist.
Exhibit 6: Bing Impact on June Search Query Market Share

Google.com Yahoo.com MSN.com / Bing.com AOL.com Ask.com Total
Source: Company data, Credit Suisse estimates

Apr, 09 64.2% 20.4% 8.2% 3.4% 3.8% 100.0%

May, 09 65.0% 20.1% 8.0% 3.9% 3.1% 100.0%

Bing Effect -1.9% -0.6% 2.6% -0.1% -0.1% 0.0%

Jun, 09 63.1% 19.5% 10.7% 3.8% 3.0% 100.0%

2Q09 (x-Bing) 64.7% 20.2% 8.1% 3.7% 3.3% 100.0%

2Q09 (Incl. Bing) 64.1% 20.0% 9.0% 3.7% 3.3% 100.0%

Conceptually, this 2.9% reduction in market share for Google would result in a 2.9% decrease in paid clicks and revenue, all else being equal. On a full year basis, if this trend continues, we calculate a -1.7% potential impact on Google revenue, after factoring in the early June launch of Bing. However, we note that is difficult to draw too many conclusions based on only two weeks of data. Additionally, some of the share increase may simply be a function of curiosity on the part of users who are interested in testing out the new Bing search engine.
Exhibit 7: Theoretical FY2009 Impact on Paid Clicks and Revenue (All Else Being Equal)

GOOG Search Share Post-Bing / GOOG Search Share Pre-Bing -1 = % Decrease in Share x Timing Adjustment for 6/3/09 Bing Launch = FY09 Impact
Source: Company data, Credit Suisse estimates

63.1% 65.0% 1 -2.9% 58.3% -1.7%

Fine Tuning Estimates Higher
Overall, based on our analysis of the trademark policy change as well as our channel checks, which suggest a stabilizing pricing environment for search, we are increasing our 2Q09 and full year 2009 estimates for Google. For 2Q09, we are raising our EPS estimate (excluding stock comp) from $4.48 to $4.99 vs. $4.63. Our full year 2009 EPS estimate has been increased from $19.78 to $21.07 vs. $19.49 in 2008. The main drivers of our revised estimates are: Trademark Policy Change: Given the new trademark policy rolled out this week, we would expect higher click-through around trademarked keywords for the last half of the month of June and the remainder of the year. As such, we forecast that click-through rates will increase 1.4% in 2Q09 and by 4.6% for the year over our prior estimates. However, as discussed above, we expect this increased click-through to ultimately result in modestly lower customer conversion around trademarked keywords and pressure keyword pricing in the future. That being said, we do expect the paid click volume improvement to outweigh the potential softness in RPC that may arise. Improving RPC Trends: We have also increased our quarterly and FY revenue per click growth estimates to negative 11.7% and 11.1%, respectively, versus our previous estimates of 16.2% and 12.3% declines. This change reflects stabilizing pricing trends based on our conversations with search marketers and advertisers. Higher operating margin: Given Google’s recent emphasis on cost discipline over the past three quarters, which was recently reaffirmed by Google’s CFO at our conference last week, we now project 2Q09 GAAP EBIT margin of 34.3% vs. 29.4% in 2008 and our prior 31.3% estimate. Among the ways that Google is generating cost efficiencies is by controlling traffic acquisition costs, slowing hiring, trimming travel

■ ■ ■

Google, Inc. (GOOG)

6

18 June 2009

budgets, reducing perks to Search Marketing clients, and, in general, cutting “wasteful” G&A, by shutting down low use cafeterias, for example. The following two exhibits summarize the key changes to our 2Q09 and 2009 income statement forecasts.
Exhibit 8: Google Estimate Revisions, 2Q09E
2Q09E 2Q08 $3,530.1 1,655.3 $5,185.4 181.8 $5,367.2 1,474.0 $3,893.2 664.2 494.9 442.0 441.4 1,850.7 272.8 $1,578.0 58.0 $1,635.9 436.3 272.8 $1,472.4 47.8 272.8 $1,247.4 318.0 $3.92 $4.63 $3.92 New $3,703.7 1,526.1 $5,229.8 214.5 $5,444.3 1,415.7 $4,028.7 598.9 473.2 398.8 426.7 2,131.1 264.4 $1,866.7 21.6 $1,888.3 552.9 264.4 $1,599.7 82.0 264.4 $1,417.3 320.4 $4.42 $4.99 $4.42 Original $3,488.1 1,460.0 $4,948.1 214.5 $5,162.7 1,351.0 $3,811.6 619.5 476.7 411.7 423.1 1,880.7 267.1 $1,613.6 21.4 $1,635.0 465.8 267.1 $1,436.3 69.1 267.1 $1,238.3 320.4 $3.86 $4.48 $3.86 Variance ($) $215.6 66.1 $281.7 0.0 $281.7 64.6 $217.0 (20.6) (3.5) (12.8) 3.6 $250.4 (2.7) $253.1 0.2 $253.3 87.1 (2.7) $163.4 12.9 (2.7) $179.0 0.0 $0.56 $0.51 $0.56 Variance (%) 6.2% 4.5% 5.7% 0.0% 5.5% 4.8% 5.7% -3.3% -0.7% -3.1% 0.8% 13.3% -1.0% 15.7% 0.7% 15.5% 18.7% -1.0% 11.4% 18.7% -1.0% 14.5% 0.0% 14.5% 11.4% 14.5% 2Q09 Y/Y % Chnge New 4.9% -7.8% 0.9% 18.0% 1.4% -4.0% 3.5% -9.8% -4.4% -9.8% -3.3% 15.1% -3.1% 18.3% -62.8% 15.4% 26.7% -3.1% 8.6% 71.7% -3.1% 13.6% 0.7% 12.8% 7.8% 12.8% Original -1.2% -11.8% -4.6% 18.0% -3.8% -8.3% -2.1% -6.7% -3.7% -6.9% -4.1% 1.6% -2.1% 2.3% -63.1% -0.1% 6.8% -2.1% -2.5% 44.6% -2.1% -0.7% 0.7% -1.5% -3.2% -1.5%

Google Site Revenues + The Google Network = Gross Advertising Revenue + Licensing & Other = Gross Revenue -TAC = Net Revenues - Other Cost of Revenue (x-TAC) - Research & Development - Sales & Marketing - General & Administrative = Operating Income Adjusted - Stock-based Compensation = Operating Income Reported + Interest (Expense) Income = Pretax Income - Adjusted Income Taxes + Stock-Based Compensation = Net Income fom Cont. Ops + Provision for Tax Adjustments - Stock Based Compensation = Net Income After Extraordinary Items / Diluted Shares Outstanding = Diluted EPS Reported Proforma EPS x-Stock Comp Proforma EPS Incl. Stock Comp % of Gross Revenue/Margins TAC Net Revenues Other Cost of Revenue (x-TAC) Research & Development Sales & Marketing General & Administrative Operating Income (Adjusted) Stock Based Comp Operating Income (Reported) Metrics (Y/Y % Growth) Ad Revenue Growth - Reported Paid Click Volumue = Implied RPC Growth Sequential (Q/Q % Growth) Ad Revenue Growth - Reported Paid Click Volumue = Implied RPC Growth

27.5% 72.5% 12.4% 9.2% 8.2% 8.2% 34.5% 5.1% 29.4%

26.0% 74.0% 11.0% 8.7% 7.3% 7.8% 39.1% 4.9% 34.3%

26.2% 73.8% 12.0% 9.2% 8.0% 8.2% 36.4% 5.2% 31.3%

35.1% 19.1% 16.0%

0.9% 12.6% (11.7)%

(4.6)% 11.6% (16.2)%

2.0% 0.7% 1.2%

(1.9)% (3.1)% 1.2%

-7.2% -4.2% -3.0%

Source: Company data, Credit Suisse estimates

Google, Inc. (GOOG)

7

18 June 2009

Exhibit 9: Google Estimate Revisions, 2009E
2009 2008 $14,413.4 6,714.5 $21,128.0 667.6 $21,795.6 5,941.6 $15,854.0 2,638.6 2,060.8 1,740.2 1,567.6 7,846.8 1,119.8 $6,727.1 316.4 $7,043.5 1,974.6 1,119.8 $6,188.6 309.0 1,119.8 $4,227.0 317.5 $13.31 $19.49 $16.68 New $15,599.2 6,461.1 $22,060.2 843.5 $22,903.8 5,905.3 $16,998.5 2,515.0 2,103.9 1,738.2 1,651.9 8,989.5 1,159.8 $7,829.7 75.6 $7,905.4 2,278.9 1,159.8 $6,786.3 323.2 1,159.8 $5,949.8 322.0 $18.48 $21.07 $18.48 Original $14,941.6 6,363.7 $21,305.2 843.5 $22,148.8 5,802.1 $16,346.7 2,598.3 2,052.1 1,703.7 1,608.8 8,383.9 1,133.9 $7,250.0 75.2 $7,325.2 2,090.1 1,133.9 $6,368.9 295.3 1,133.9 $5,530.3 322.0 $17.17 $19.78 $17.17 Variance ($) $657.6 97.4 $755.0 0.0 $755.0 103.3 $651.7 (83.3) 51.8 34.5 43.2 605.6 25.9 $579.7 0.5 $580.2 188.8 25.9 $417.4 28.0 25.9 $419.5 0.0 $1.30 $1.30 $1.30 Variance (%) 4.4% 1.5% 3.5% 0.0% 3.4% 1.8% 4.0% -3.2% 2.5% 2.0% 2.7% 7.2% 2.3% 8.0% 0.6% 7.9% 9.0% 2.3% 6.6% 9.5% 2.3% 7.6% 0.0% 7.6% 6.6% 7.6% 2009 Y/Y % Chnge New 8.2% -3.8% 4.4% 26.4% 5.1% -0.6% 7.2% -4.7% 2.1% -0.1% 5.4% 14.6% 3.6% 16.4% -76.1% 12.2% 15.4% 3.6% 9.7% 4.6% 3.6% 40.8% 1.4% 38.8% 8.1% 10.8% Original 3.7% -5.2% 0.8% 26.4% 1.6% -2.3% 3.1% -1.5% -0.4% -2.1% 2.6% 6.8% 1.3% 7.8% -76.2% 4.0% 5.8% 1.3% 2.9% -4.5% 1.3% 30.8% 1.4% 29.0% 1.5% 3.0%

Google Site Revenues + The Google Network = Gross Advertising Revenue + Licensing & Other = Gross Revenue -TAC = Net Revenues - Other Cost of Revenue (x-TAC) - Research & Development - Sales & Marketing - General & Administrative = Operating Income Adjusted - Stock-based Compensation = Operating Income Reported + Interest (Expense) Income = Pretax Income - Adjusted Income Taxes + Stock-Based Compensation = Net Income fom Cont. Ops + Provision for Tax Adjustments - Stock Based Compensation = Net Income After Extraordinary Items / Diluted Shares Outstanding = Diluted EPS Reported Proforma EPS x-Stock Comp Proforma EPS Incl. Stock Comp % of Gross Revenue/Margins TAC Net Revenues Other Cost of Revenue (x-TAC) Research & Development Sales & Marketing General & Administrative Operating Income (Adjusted) Stock Based Comp Operating Income (Reported) Metrics (Y/Y % Growth) Ad Revenue Growth - Reported Paid Click Volumue = Implied RPC Growth

27.3% 72.7% 12.1% 9.5% 8.0% 7.2% 36.0% 5.1% 30.9%

25.8% 74.2% 11.0% 9.2% 7.6% 7.2% 39.2% 5.1% 34.2%

26.2% 73.8% 11.7% 9.3% 7.7% 7.3% 37.9% 5.1% 32.7%

28.7% 18.7% 10.0%

4.4% 15.6% (11.1)%

0.8% 13.1% (12.3)%

Source: Company data, Credit Suisse estimates

Valuation and Investment Conclusion
We rate Google as Outperform, and our recommendation reflects our positive secular outlook for search advertising and our belief that Google is well positioned competitively. In our opinion, Google should continue to benefit from the strong network effect arising from its critical mass of search users, advertiser and publisher relationships, and data/information. We also view Google’s computing infrastructure as a competitive advantage and a barrier to entry for all but the most well financed competitors. Google is currently trading at a 19.7x P/E multiple on our 2009 EPS estimate (excluding stock comp) of $21.07. As we are now roughly halfway through 2009, we are rolling forward our price target to use our 2010 forecasts. As a result, we are increasing our price target on Google from $400 to $475, based on our DCF analysis, which assumes a 13% weighted average cost of capital and a 3% terminal growth rate in unlevered free cash flow.

Google, Inc. (GOOG)

8

18 June 2009

Our new $475 price target implies that Google can trade at about a 19x P/E multiple on our new 2010 EPS estimate of $25.12 in line with the stock’s current P/E multiple on 2009 estimates and our projected 19% EPS CAGR for Google through 2014.
Exhibit 10: Comparative EV/EBITDA Multiples, 2009–10E GOOG 6/16/2009 2009E 2010E Stock Price $416.00 $416.00 x Shares Outstanding 322.0 323.6 = Equity Market Cap $133,956.6 $134,626.4

YHOO 2009E 2010E $14.94 $14.94 1,408.1 1,408.2 $21,037.3 $21,038.7 $0.0 $4,501.3 ($4,501.3) $0.0 $16,536.0 $3,865.1 $13.8 $12,684.7 $1,902.6 6.7x $0.0 $5,860.9 ($5,860.9) $0.0 $15,177.7 $3,865.1 $14.4 $11,327.0 $2,222.1 5.1x

EBAY 2009E 2010E $16.92 $16.92 1,287.8 1,287.8 $21,789.8 $21,789.8 $400.0 $5,324.8 ($4,924.8) $0.0 $16,865.0 $355.6 $0.0 $16,509.4 $3,019.1 5.5x $400.0 $7,954.7 ($7,554.7) $0.0 $14,235.1 $355.6 $0.0 $13,879.5 $3,441.5 4.0x

AMZN 2009E 2010E $82.15 $82.15 437.7 442.0 $35,953.4 $36,313.0 $409.0 $5,526.4 ($5,117.4) $0.0 $30,836.0 $0.0 $0.0 $30,836.0 $1,534.1 20.1x $74.0 $7,531.5 ($7,457.5) $0.0 $28,855.4 $0.0 $0.0 $28,855.4 $1,746.1 16.5x

Year End Gross Debt Balance - Year End Cash Balance + Net Debt + Other Adjustments = Adjusted Enterprise Value - Off Balance Sheet Assets + Minority Interest = Enterprise Value / EBITDA* = EV/EBITDA Multiple (x-Stock comp)

$0.0 $22,465.7 ($22,465.7) $0.0 $111,490.9 $350.0 $0.0 $111,140.9 $11,210.8 9.9x

$0.0 $30,982.3 ($30,982.3) $0.0 $103,644.1 $350.0 $0.0 $103,294.1 $13,278.0 7.8x

Source: Company data, Credit Suisse estimates *EBITDA excludes non-cash stock option expense activity

Exhibit 11: Comparative P/E Multiples, 2009-10E GOOG 6/16/2009 2009E 2010E Stock Price $416.00 $416.00 / Proforma EPS (x-Stock comp) $21.07 $25.12 = P/E (x-Stock Comp) 19.7x 16.6x / 5 Year Growth Rate 18.7% 18.7% = PEG 1.1x 0.9x P/E / Market Multiple -1 = Premium (Discount) to Market 19.7x 13.9x 1 42.1% 16.6x 11.1x 1 49.1%

YHOO 2009E $14.94 $0.70 21.4x 10.1% 2.1x 21.4x 13.9x 1 54.3% 2010E $14.94 $0.85 17.7x 10.1% 1.7x 17.7x 11.1x 1 58.9% 2009E $16.92 $1.43 11.9x 18.4% 0.6x 11.9x 13.9x 1 -14.6%

EBAY 2010E $16.92 $1.66 10.2x 18.4% 0.6x 10.2x 11.1x 1 -8.0% 2009E $82.15 $2.28 36.0x 22.8% 1.6x

AMZN 2010E $82.15 $2.60 31.6x 22.8% 1.4x 31.6x 11.1x 1 184.7%

36.0x 13.9x 1 158.9%

*Company proforma EPS is CS adjusted to exclude non-cash stock option expense activity for industry peer comparability.

Google, Inc. (GOOG)

9

18 June 2009

Exhibit 12: Comparative FCF Multiples, 2009E-2010E GOOG 6/16/2009 2009E 2010E Net Income $5,950 $7,024 + D&A 2,221.3 2,900.1 + Other Non-Cash Charges 1,221.6 1,470.8 + Changes in Working Cap (189.1) 115.7 = C/F from Ops $9,203.6 $11,510.5 - CAPEX $2,571.2 $2,981.5 - Preferred Dividend $0.0 $0.0 = Levered FCF $6,632.4 $8,529.0 / EBITDA* $11,210.8 $13,278.0 = LFCF/EBITDA Conversion 59.2% 64.2%

YHOO 2009E 2010E $579 $693 949.0 1,072.8 282.8 345.1 (99.6) (18.8) $1,710.9 $2,091.8 $552.3 $553.0 $0.0 $0.0 $1,158.6 $1,538.8 $1,907.4 $2,222.1 60.7% 69.3% $1,158.6 1,408.1 $0.82 $14.94 $0.82 18.2x 1 18.2x 5.5% $1,538.8 1,408.2 $1.09 $14.94 $1.09 13.7x 1 13.7x 7.3%

EBAY 2009E 2010E $1,239 $1,610 1,041.8 1,065.3 623.7 673.2 217.6 (38.4) $3,122.0 $3,309.6 $551.6 $665.8 $0.0 $0.0 $2,570.5 $2,643.8 $3,019.1 $3,441.5 85.1% 76.8% $2,570.5 1,287.8 $2.00 $16.92 $2.00 8.5x 1 8.5x 11.8% $2,643.8 1,287.8 $2.05 $16.92 $2.05 8.2x 1 8.2x 12.1%

AMZN 2009E 2010E $666 $814 342.2 404.5 (3.9) (18.0) 802.1 945.0 $1,806.6 $2,145.1 $388.9 $478.1 $0.0 $0.0 $1,417.7 $1,666.9 $1,534.1 $1,746.1 92.4% 95.5% $1,417.7 437.7 $3.24 $82.15 $3.24 25.4x 1 25.4x 3.9% $1,666.9 442.0 $3.77 $82.15 $3.77 21.8x 1 21.8x 4.6%

Levered Free Cash Flow / Shares Outstanding = Free Cash Flow per Share Stock Price / Free Cash Flow per Share = P/FCF Multiple 1 / P/FCF Multiple = FCF Yield

$6,632.4 322.0 $20.60 $416.00 $20.60 20.2x 1 20.2x 5.0%

$8,529.0 323.6 $26.35 $416.00 $26.35 15.8x 1 15.8x 6.3%

*EBITDA excludes non-cash stock option expense activity

Google, Inc. (GOOG)

10

18 June 2009

Exhibit 13: Google Income Statement, 1Q07-4Q09E
Gross Revenue -TAC = Net Revenues - Other Cost of Revenue (x-TAC) - Research & Development - Sales & Marketing - General & Administrative = Operating Income Adjusted - Stock-based Compensation = Operating Income Reported + Interest (Expense) Income = Pretax Income - Adjusted Income Taxes - Extraordinary Items + Stock-Based Compensation = Net Income fom Cont. Ops + Provision for Tax Adjustments + Extraordinary Items - Stock Based Compensation = Net Income After Extraordinary Items / Diluted Shares Outstanding = Diluted EPS Reported Proforma EPS x-Stock Comp Proforma EPS Incl. Stock Comp Adjusted EBITDA Y/Y % Change Gross Revenue TAC Net Revenues Other Cost of Revenue (x-TAC) Research & Development Sales & Marketing General & Administrative Operating Income (Excl. Stock Comp) Stock-based Compensation Operating Income (Incl. Stock Comp) Non-GAAP Net Income Diluted Shares Outstanding Proforma EPS (Excl. Stock Comp) Adjusted EBITDA % of Gross Revenue/Margins (xStock Comp) TAC Net Revenues Other Cost of Revenue (x-TAC) Research & Development Sales & Marketing General & Administrative Operating Income (Excl. Stock Comp) Stock Based Comp Operating Income (Incl. Stock Comp) Adjusted EBITDA 1Q07 $3,664.0 $1,125.0 $2,539.0 $341.0 $287.6 $275.3 $230.0 $1,405.1 $183.9 $1,221.2 $130.7 $1,351.9 $376.5 $0.0 $183.9 $1,159.3 $26.8 $0.0 $183.9 $1,002.2 314.9 $3.18 $3.68 $3.18 $1,610.1 Qtr. Ending Mar 1Q08 1Q09E $5,186.0 $5,509.0 $1,486.0 $1,487.4 $3,700.0 $4,021.6 $615.4 $601.5 $479.3 $473.1 $404.3 $374.9 $374.1 $411.0 $1,827.0 $2,161.1 $280.8 $277.5 $1,546.2 $1,883.6 $167.3 $6.2 $1,713.6 $1,889.8 $457.2 $531.0 $0.0 $0.0 $280.8 $277.5 $1,537.1 $1,636.3 $50.7 $64.0 $0.0 $0.0 $280.8 $277.5 $1,307.1 $1,422.8 317.4 317.2 $4.12 $4.49 $4.84 $5.16 $4.12 $4.49 $2,163.5 $2,564.3 2Q07 $3,872.0 $1,148.0 $2,724.0 $404.6 $375.1 $319.2 $278.9 $1,346.1 $241.5 $1,104.6 $137.1 $1,241.7 $359.6 $0.0 $241.5 $1,123.6 $43.0 $0.0 $241.5 $925.1 315.5 $2.93 $3.56 $2.93 $1,573.2 Qtr. Ending Jun 2Q08 2Q09E $5,367.2 $5,444.3 $1,474.0 $1,415.7 $3,893.2 $4,028.7 $664.2 $598.9 $494.9 $473.2 $442.0 $398.8 $441.4 $426.7 $1,850.7 $2,131.1 $272.8 $264.4 $1,578.0 $1,866.7 $58.0 $21.6 $1,635.9 $1,888.3 $436.3 $552.9 $0.0 $0.0 $272.8 $264.4 $1,472.4 $1,599.7 $47.8 $82.0 $0.0 $0.0 $272.8 $264.4 $1,247.4 $1,417.3 318.0 320.4 $3.92 $4.42 $4.63 $4.99 $3.92 $4.42 $2,242.3 $2,664.2 3Q07 $4,231.4 $1,221.0 $3,010.4 $437.5 $418.1 $350.9 $288.0 $1,515.8 $198.0 $1,317.8 $154.4 $1,472.3 $433.3 $0.0 $198.0 $1,236.9 $31.0 $0.0 $198.0 $1,070.0 316.6 $3.38 $3.91 $3.38 $1,765.2 Qtr. Ending Sep 3Q08 3Q09E $5,541.4 $5,999.0 $1,498.6 $1,512.2 $4,042.8 $4,486.8 $664.1 $659.9 $535.3 $572.1 $444.3 $487.9 $376.4 $408.3 $2,022.7 $2,358.6 $280.0 $313.9 $1,742.7 $2,044.7 $21.2 $23.9 $1,763.9 $2,068.7 $480.8 $597.5 $0.0 $280.0 $313.9 $1,563.1 $1,785.1 $63.1 $88.6 ($56.1) $0.0 $280.0 $313.9 $1,290.0 $1,559.8 317.8 323.6 $4.06 $4.82 $4.92 $5.52 $4.24 $4.82 $2,409.0 $2,932.4 4Q07 $4,826.7 $1,440.0 $3,386.7 $509.6 $469.4 $384.2 $337.5 $1,686.0 $245.3 $1,440.7 $167.3 $1,608.0 $443.8 $0.0 $245.3 $1,409.5 $42.3 $0.0 $245.3 $1,206.4 317.9 $3.79 $4.43 $3.79 $1,976.0 Qtr. Ending Dec 4Q08 4Q09E $5,700.9 $5,951.5 $1,483.0 $1,490.1 $4,217.9 $4,461.4 $694.9 $654.7 $551.3 $585.6 $449.6 $476.5 $375.7 $406.0 $2,146.4 $2,338.7 $286.2 $304.0 $1,860.2 $2,034.7 $69.9 $23.9 $1,930.1 $2,058.6 $600.3 $597.4 $0.0 $0.0 $286.2 $304.0 $1,615.9 $1,765.2 $147.4 $88.6 ($1,094.8) $0.0 $286.2 $304.0 $382.4 $1,549.8 316.9 326.8 $1.21 $4.74 $5.10 $5.40 $4.40 $4.74 $2,531.9 $3,049.9

62.6% 55.6% 65.9% 90.7% 65.7% 57.3% 57.5% 63.9% 60.4% 64.4% 66.3% 3.5% 60.6% 65.6%

41.5% 32.1% 45.7% 80.4% 66.6% 46.9% 62.7% 30.0% 52.7% 26.6% 32.6% 0.8% 31.5% 34.4%

6.2% 0.1% 8.7% (2.3)% (1.3)% (7.3)% 9.9% 18.3% (1.2)% 21.8% 6.5% (0.1)% 6.5% 18.5%

57.7% 46.2% 63.0% 100.6% 77.0% 75.3% 85.1% 45.6% 121.3% 35.5% 45.5% 1.8% 43.0% 49.7%

38.6% 28.4% 42.9% 64.2% 31.9% 38.5% 58.2% 37.5% 12.9% 42.9% 31.0% 0.8% 30.0% 42.5%

1.4% (4.0)% 3.5% (9.8)% (4.4)% (9.8)% (3.3)% 15.1% (3.1)% 18.3% 8.6% 0.7% 7.8% 18.8%

57.3% 48.0% 61.4% 97.5% 66.6% 82.5% 70.8% 47.0% 98.2% 41.5% 52.3% 1.9% 49.4% 49.2%

31.0% 22.7% 34.3% 51.8% 28.0% 26.6% 30.7% 33.4% 41.5% 32.2% 26.4% 0.4% 25.9% 36.5%

8.3% 0.9% 11.0% (0.6)% 6.9% 9.8% 8.5% 16.6% 12.1% 17.3% 14.2% 1.8% 12.1% 21.7%

50.6% 47.5% 51.9% 72.0% 54.1% 59.6% 75.0% 41.1% 82.5% 35.8% 41.3% 1.4% 39.3% 42.7%

18.1% 3.0% 24.5% 36.4% 17.4% 17.0% 11.3% 27.3% 16.7% 29.1% 14.6% (0.3)% 15.0% 28.1%

4.4% 0.5% 5.8% (5.8)% 6.2% 6.0% 8.1% 9.0% 6.2% 9.4% 9.2% 3.1% 5.9% 20.5%

30.7% 69.3% 9.3% 7.8% 7.5% 6.3% 38.3% 5.0% 33.3% 43.9%

28.7% 71.3% 11.9% 9.2% 7.8% 7.2% 35.2% 5.4% 29.8% 41.7%

27.0% 73.0% 10.9% 8.6% 6.8% 7.5% 39.2% 5.0% 34.2% 46.5%

29.6% 70.4% 10.4% 9.7% 8.2% 7.2% 34.8% 6.2% 28.5% 40.6%

27.5% 72.5% 12.4% 9.2% 8.2% 8.2% 34.5% 5.1% 29.4% 41.8%

26.0% 74.0% 11.0% 8.7% 7.3% 7.8% 39.1% 4.9% 34.3% 48.9%

28.9% 71.1% 10.3% 9.9% 8.3% 6.8% 35.8% 4.7% 31.1% 41.7%

27.0% 73.0% 12.0% 9.7% 8.0% 6.8% 36.5% 5.1% 31.4% 43.5%

25.2% 74.8% 11.0% 9.5% 8.1% 6.8% 39.3% 5.2% 34.1% 48.9%

29.8% 70.2% 10.6% 9.7% 8.0% 7.0% 34.9% 5.1% 29.8% 40.9%

26.0% 74.0% 12.2% 9.7% 7.9% 6.6% 37.6% 5.0% 32.6% 44.4%

25.0% 75.0% 11.0% 9.8% 8.0% 6.8% 39.3% 5.1% 34.2% 51.2%

Source: Company data, Credit Suisse estimates

Google, Inc. (GOOG)

11

18 June 2009

Exhibit 14: Google Income Statement, 2006-2014E
Gross Revenue -TAC = Net Revenues - Other Cost of Revenue (x-TAC) - Research & Development - Sales & Marketing - General & Administrative = Operating Income Adjusted - Stock-based Compensation = Operating Income Reported + Interest (Expense) Income = Pretax Income - Adjusted Income Taxes - Extraordinary Items + Stock-Based Compensation = Net Income fom Cont. Ops + Provision for Tax Adjustments + Extraordinary Items - Stock Based Compensation = Net Income After Extraordinary Items / Diluted Shares Outstanding = Diluted EPS Reported Proforma EPS x-Stock Comp Proforma EPS Incl. Stock Comp Adjusted EBITDA Y/Y % Change Gross Revenue TAC Net Revenues Other Cost of Revenue (x-TAC) Research & Development Sales & Marketing General & Administrative Operating Income (Excl. Stock Comp) Stock-based Compensation Operating Income (Incl. Stock Comp) Non-GAAP Net Income Diluted Shares Outstanding Proforma EPS (Excl. Stock Comp) Adjusted EBITDA % of Gross Revenue/Margins (xStock Comp) TAC Net Revenues Other Cost of Revenue (x-TAC) Research & Development Sales & Marketing General & Administrative Operating Income (Excl. Stock Comp) Stock Based Comp Operating Income (Incl. Stock Comp) Adjusted EBITDA 2006 $10,604.9 $3,309.0 $7,295.9 $898.4 $941.1 $790.1 $658.2 $4,008.1 $458.1 $3,550.0 $461.0 $4,011.0 $1,165.4 $24.9 $458.1 $3,278.8 $231.9 $24.9 $458.1 $3,077.4 309.5 $9.94 $10.59 $9.43 $4,590.8 2007 $16,594.0 $4,934.0 $11,660.0 $1,692.8 $1,550.2 $1,329.6 $1,134.4 $5,953.0 $868.6 $5,084.4 $589.6 $5,674.0 $1,613.3 $0.0 $868.6 $4,929.3 $143.0 $0.0 $868.6 $4,203.7 316.2 $13.29 $15.59 $13.29 $6,924.4 2008 $21,795.6 $5,941.6 $15,854.0 $2,638.6 $2,060.8 $1,740.2 $1,567.6 $7,846.8 $1,119.8 $6,727.1 $316.4 $7,043.5 $1,974.6 $0.0 $1,119.8 $6,188.6 $309.0 ($1,150.9) $1,119.8 $4,227.0 317.5 $13.31 $19.49 $16.68 $9,346.8 2009E $22,903.8 $5,905.3 $16,998.5 $2,515.0 $2,103.9 $1,738.2 $1,651.9 $8,989.5 $1,159.8 $7,829.7 $75.6 $7,905.4 $2,278.9 $0.0 $1,159.8 $6,786.3 $323.2 $0.0 $1,159.8 $5,949.8 322.0 $18.48 $21.07 $18.48 $11,210.8 2010E $27,255.8 $6,516.6 $20,739.2 $3,298.0 $2,661.5 $2,310.8 $2,091.1 $10,377.9 $1,497.4 $8,880.4 $400.9 $9,281.3 $2,650.4 $0.0 $1,497.4 $8,128.3 $393.1 $0.0 $1,497.4 $7,024.0 323.6 $21.70 $25.12 $21.70 $13,278.0 2011E $31,942.6 $7,115.2 $24,827.4 $3,897.0 $3,226.2 $2,761.8 $2,498.8 $12,443.6 $1,746.0 $10,697.7 $727.6 $11,425.2 $3,298.2 $0.0 $1,746.0 $9,873.0 $491.2 $0.0 $1,746.0 $8,618.2 325.2 $26.50 $30.36 $26.50 $16,222.6 2012E $36,783.1 $7,711.0 $29,072.1 $4,524.3 $3,773.4 $3,228.7 $2,920.7 $14,624.9 $2,041.3 $12,583.6 $959.5 $13,543.1 $3,919.2 $0.0 $2,041.3 $11,665.1 $583.7 $0.0 $2,041.3 $10,207.5 326.9 $31.23 $35.69 $31.23 $18,429.9 2013E $42,087.0 $8,317.6 $33,769.4 $5,218.8 $4,378.1 $3,744.4 $3,386.5 $17,041.7 $2,367.5 $14,674.2 $1,222.7 $15,896.8 $4,613.5 $0.0 $2,367.5 $13,650.8 $690.0 $0.0 $2,367.5 $11,973.3 328.5 $36.45 $41.56 $36.45 $20,586.6 2014E $48,183.3 $8,952.0 $39,231.2 $6,022.9 $5,080.4 $4,342.9 $3,927.0 $19,857.9 $2,746.3 $17,111.6 $1,519.3 $18,631.0 $5,416.7 $0.0 $2,746.3 $15,960.6 $810.1 $0.0 $2,746.3 $14,024.4 330.1 $42.48 $48.34 $42.48 $23,221.4 CAGR 09-'14 16.0% 8.7% 18.2% 19.1% 19.3% 20.1% 18.9% 17.2% 18.8% 16.9% 82.2% 18.7% 18.9% 18.8% 18.7% 20.2% 18.8% 18.7% 0.5% 18.1% 18.1% 18.1% 15.7%

72.8% 56.5% 81.3% 96.8% 94.5% 79.7% 54.7% 80.7% 128.2% 76.0% 103.9% 6.1% 92.3% 75.0%

56.5% 49.1% 59.8% 88.4% 64.7% 68.3% 72.3% 48.5% 89.6% 43.2% 50.3% 2.2% 47.2% 50.8%

31.3% 20.4% 36.0% 55.9% 32.9% 30.9% 38.2% 31.8% 28.9% 32.3% 25.5% 0.4% 25.0% 35.0%

5.1% (0.6)% 7.2% (4.7)% 2.1% (0.1)% 5.4% 14.6% 3.6% 16.4% 9.7% 1.4% 8.1% 19.9%

19.0% 10.4% 22.0% 31.1% 26.5% 32.9% 26.6% 15.4% 29.1% 13.4% 19.8% 0.5% 19.2% 18.4%

17.2% 9.2% 19.7% 18.2% 21.2% 19.5% 19.5% 19.9% 16.6% 20.5% 21.5% 0.5% 20.9% 22.2%

15.2% 8.4% 17.1% 16.1% 17.0% 16.9% 16.9% 17.5% 16.9% 17.6% 18.2% 0.5% 17.6% 13.6%

14.4% 7.9% 16.2% 15.3% 16.0% 16.0% 15.9% 16.5% 16.0% 16.6% 17.0% 0.5% 16.4% 11.7%

14.5% 7.6% 16.2% 15.4% 16.0% 16.0% 16.0% 16.5% 16.0% 16.6% 16.9% 0.5% 16.3% 12.8%

31.2% 68.8% 8.5% 8.9% 7.5% 6.2% 37.8% 4.3% 33.5% 43.3%

29.7% 70.3% 10.2% 9.3% 8.0% 6.8% 35.9% 5.2% 30.6% 41.7%

27.3% 72.7% 12.1% 9.5% 8.0% 7.2% 36.0% 5.1% 30.9% 42.9%

25.8% 74.2% 11.0% 9.2% 7.6% 7.2% 39.2% 5.1% 34.2% 48.9%

23.9% 76.1% 12.1% 9.8% 8.5% 7.7% 38.1% 5.5% 32.6% 48.7%

22.3% 77.7% 12.2% 10.1% 8.6% 7.8% 39.0% 5.5% 33.5% 50.8%

21.0% 79.0% 12.3% 10.3% 8.8% 7.9% 39.8% 5.5% 34.2% 50.1%

19.8% 80.2% 12.4% 10.4% 8.9% 8.0% 40.5% 5.6% 34.9% 48.9%

18.6% 81.4% 12.5% 10.5% 9.0% 8.2% 41.2% 5.7% 35.5% 48.2%

Source: Company data, Credit Suisse estimates

Companies Mentioned (Price as of 16 Jun 09) Amazon.com Inc. (AMZN, $82.15, NEUTRAL [V], TP $60.00) eBay Inc. (EBAY, $17.23, NEUTRAL [V], TP $15.00) Google, Inc. (GOOG, $416.14, OUTPERFORM [V], TP $475) Microsoft Corp. (MSFT, $23.45, OUTPERFORM, TP $27.50) Yahoo Inc. (YHOO, $15.96, NEUTRAL [V], TP $14.00)

Google, Inc. (GOOG)

12

18 June 2009

Disclosure Appendix
Important Global Disclosures I, Spencer Wang, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. See the Companies Mentioned section for full company names.
3-Year Price, Target Price and Rating Change History Chart for GOOG
GOOG Date 10/9/06 11/15/06 4/13/07 4/16/07 10/19/07 11/20/07 5/16/08 10/27/08 Closing Price (US$) 428.61 492.06 466.29 474.27 644.71 648.54 579.96 329.49 Target Price Initiation/ (US$) Rating Assumption R 600 O R O 800 900 NC 400 O X
900 857 800 757 657 600 557 457 357 257 U SD 27-Oct-08 O R O R 400 O NC

The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities. Analysts’ stock ratings are defined as follows: Outperform (O): The stock’s total return is expected to outperform the relevant benchmark* by at least 10-15% (or more, depending on perceived risk) over the next 12 months. Neutral (N): The stock’s total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months. Underperform (U): The stock’s total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months. *Relevant benchmark by region: As of 29th May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe**, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors. For Latin American, Japanese, and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional index; for European stocks, ratings are based on a stock’s total return relative to the analyst's coverage universe**. For Australian and New Zealand stocks a 22% and a 12% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively, subject to analysts’ perceived risk. The 22% and 12% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively, subject to analysts’ perceived risk. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector. Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expected performance of an analyst’s coverage universe* versus the relevant broad market benchmark**: Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. *An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector. **The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months. Credit Suisse’s distribution of stock ratings (and banking clients) is: Global Ratings Distribution Outperform/Buy* 36% (58% banking clients) Neutral/Hold* 43% (59% banking clients) Underperform/Sell* 20% (47% banking clients) Restricted 2%

6/ 18 /0 6 8/ 18 /0 6 10 /18 /0 6 12 / 18 /0 6 2/ 18 /0 7 4/ 18 /0 7 6/ 18 /0 7 8/ 18 /0 7 10 /18 /07 12 /18 /0 7 2/ 18 /0 8 4/ 18 /0 8 6/ 18 /0 8 8/ 18 /0 8 10 /18 /08 12 /18 /0 8 2/ 18 /0 9 4/ 18 /0 9
Closing Price Target Price Initiation/Assumption Rating O=Outperform; N=N eutral; U=Underperform; R=Restricted; NR=Not Rated; NC=Not Covered

Google, Inc. (GOOG)

13

18 June 2009

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

See the Companies Mentioned section for full company names. Price Target: (12 months) for (GOOG) Method: We use the discounted cash flow (DCF) method to calculate our $475 target price for GOOG. Our 5-year DCF uses a 3% terminal growth rate and a market-implied discount rate derived by discounting our unlevered FCF (free cash flow) estimates from 2008 through 2013 to arrive at the stock's current trading price. We then applied this discount rate to our 2010-2014 unlevered free cash flow estimates for GOOG. Risks: We see several risks to the achievement of our $475 target price for GOOG. (1) New technologies and new business models make for a less than stable operating environment. In addition to the threat of new technologies, the Internet is prone to criminal attacks in the form of viruses, denial of service attacks, and other malicious acts that could threaten Internet usage. (2) GOOG faces heavy and growing competition from companies pursuing advertising dollars in general and more specifically competitors in the online search industry. (3) Almost all of GOOG’s revenue is generated through the sale of online advertisements and a disruption in the trend of online advertising would prove detrimental to the business. The amount advertisers are willing to spend online directly correlates with the health of the economy; therefore, a downturn in the economy will result in less advertising dollars being spent. (4) Google currently plans to give no forward guidance and provide little to no operating metrics beyond Risks to our price target include a meterial slowdown in online advertising, particularly search, the need for the company to sustain innovation and manage growth, and the possibilty that the company will enter into an increased investment cycle. Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names. The subject company (GOOG) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (GOOG) within the past 12 months. Credit Suisse provided non-investment banking services, which may include Sales and Trading services, to the subject company (GOOG) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (GOOG) within the past 12 months. Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (GOOG) within the next 3 months. As of the date of this report, Credit Suisse Securities (USA) LLC makes a market in the securities of the subject company (GOOG). Important Regional Disclosures The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (GOOG) within the past 12 months. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. The following disclosed European company/ies have estimates that comply with IFRS: MSFT. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at anytime after that. CS may have issued a Trade Alert regarding this security. Trade Alerts are short term trading opportunities identified by an analyst on the basis of market events and catalysts, while stock ratings reflect an analyst's investment recommendations based on expected total return over a 12-month period relative to the relevant coverage universe. Because Trade Alerts and stock ratings reflect different assumptions and analytical methods, Trade Alerts may differ directionally from the analyst's stock rating. The author(s) of this report maintains a CS Model Portfolio that he/she regularly adjusts. The security or securities discussed in this report may be a component of the CS Model Portfolio and subject to such adjustments (which, given the composition of the CS Model Portfolio as a whole, may differ from the recommendation in this report, as well as opportunities or strategies identified in Trading Alerts concerning the same security). The CS Model Portfolio and important disclosures about it are available at www.credit-suisse.com/ti.

Google, Inc. (GOOG)

14

18 June 2009

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.creditsuisse.com/researchdisclosures or call +1 (877) 291-2683. Disclaimers continue on next page.

Google, Inc. (GOOG)

15

18 June 2009 Americas/United States Equity Research

This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse, the Swiss bank, or its subsidiaries or its affiliates (“CS”) to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients as its customers by virtue of their receiving the report. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to your individual circumstances or otherwise constitutes a personal recommendation to you. CS does not offer advice on the tax consequences of investment and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. CS believes the information and opinions in the Disclosure Appendix of this report are accurate and complete. Information and opinions presented in the other sections of the report were obtained or derived from sources CS believes are reliable, but CS makes no representations as to their accuracy or completeness. Additional information is available upon request. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, a trading call regarding this security. Trading calls are short term trading opportunities based on market events and catalysts, while stock ratings reflect investment recommendations based on expected total return over a 12-month period as defined in the disclosure section. Because trading calls and stock ratings reflect different assumptions and analytical methods, trading calls may differ directionally from the stock rating. In addition, CS may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. CS is involved in many businesses that relate to companies mentioned in this report. These businesses include specialized trading, risk arbitrage, market making, and other proprietary trading. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgement at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR’s, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment, in such circumstances you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS’s own website material) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through this report or CS’s website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is regulated in the United Kingdom by The Financial Services Authority (“FSA”). This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States by Credit Suisse Securities (USA) LLC ; in Switzerland by Credit Suisse; in Canada by Credit Suisse Securities (Canada), Inc..; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A.; in Japan by Credit Suisse Securities (Japan) Limited, Financial Instrument Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan; elsewhere in Asia/Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited , Credit Suisse Securities (Thailand) Limited, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse Singapore Branch, Credit Suisse Securities (India) Private Limited, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse Taipei Branch, PT Credit Suisse Securities Indonesia, and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse Taipei Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn. Bhd., to whom they should direct any queries on +603 2723 2020. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this report was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the FSA or in respect of which the protections of the FSA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. Any Nielsen Media Research material contained in this report represents Nielsen Media Research's estimates and does not represent facts. NMR has neither reviewed nor approved this report and/or any of the statements made herein. If this report is being distributed by a financial institution other than Credit Suisse, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Copyright 2009 CREDIT SUISSE and/or its affiliates. All rights reserved.

CREDIT SUISSE SECURITIES (USA) LLC United States of America: +1 (212) 325-2000

GOOG 2Q09 Preview.doc


				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:2498
posted:6/19/2009
language:English
pages:16