Table of Contents
Background Information on Google
Google was founded by Larry Page and Sergey Brin in 1998, supported by $100,000 from the co-founder of Sun Microsystems, Andy Bechtolsheim. Page and Brin were friends from Stanford University, where they were undertaking their PhD degrees in 1996 (Hayes & Bodhani 2011). The name ‘Google’ resulted from a wrong spelling of the word ‘googol,’ meaning 10100. Since then the name has stuck and is continuing to be used. Google’s domain name, google.com was registered officially in September, 1997, while the company was registered in 1998 in September with Page and Brin, using their friend’s garage located in Melno Park, CA. as their initial office. The company’s simplicity in website design and high quality of its search results has over the years attracted numerous users, enabling it to become the most used search engine in the entire globe, outperforming its competitors. As at 2007, Google had over 10,000 employees; however, the number increased to nearly 20,000 employees in the present (Hayes & Bodhani 2011).
The company has its headquarters in Silicon Valley with its offices located all over America, Asia and Europe. Google’s mission is to organize global information and make it accessible and useful throughout the world. Its vision is to develop a flawless search engine (Hayes & Bodhani 2011). Google’s core values include creating an atmosphere, where employees can grow and flourish, valuing people’s ideas and diversity, building the best technology in the world, having fun while working at Google, being actively involved and committed to Google as its representative. The company also values honesty and integrity, but shuns arrogance and evil deeds; it also encourages earning the users’ and customers’ respect and loyalty, which are achieved via creating and maintaining quality products and services (Hayes & Bodhani 2011). Other values of Google include supporting the society, where it lives and works, changing and improving the world. The company has numerous key stakeholders such as shareholders, customers, employees, suppliers, the community, trade associations, the media, activist groups, as well as the government (Hayes & Bodhani 2011).
Google has made over fifty acquisitions since it was formed. Its initial acquisition was the 2001 purchase of Deja Usenet, which was for the strategic purpose of obtaining information about nearly 500 M group postings’ discussions. Since then the company has acquired other several companies. For instance, in 2006 Google purchased YouTube website at $1.65 B (Hayes & Bodhani 2011). It was seen as a strategic move since YouTube at that time was not making profits. Nonetheless, it received over 100M visitors, who watched fifty five videos on average. Other acquisitions in 2006 included dMarc and Upstartle. It is worthwhile to mention that Upstartle Company assisted Google in spearheading Google Docs and Spreadsheets. Towards the end of 2007 Google had purchased four other companies i.e. Endoxon, PeakStream Technologies, Dodgeball and DoubleClick (Hayes & Bodhani 2011).
Products and Services
Most products from Google are in the form of software, which is accessible and free of charge, though there are some exemptions. The software products form the foundation for Google’s user services. Examples of Google’s products include Gmail, Google Chrome, Google Talk, Google SMS, Google Desktop, Google Spreadsheets & Docs, Google Analytics, Google Earth and Google Maps. Others include YouTube, Google Toolbar, Google Finance, Google Street View and Google for mobile phones among others (Kurtz 2010). Google Docs & Spreadsheets consist of a free spreadsheet and word processing software that can be used both online and offline. Gmail enables users to open email accounts freely on the web. Google Desktop, on the other hand, is used on the home computers of users for local searches, while Google Street View permits virtual tours in different cities. All of these products have had a significant impact in how people communicate, access data and locate various things. It is important to mention that free products offered by Google have earned the company a huge everyday audience, thus attracting advertisers.
Google’s core business includes Google Search, advertising and apps (Kurtz 2010).The company’s web search engine, Google Search, is the most popular search engine throughout the United States with a market share of 65.6 %. The company indexes numerous web pages to enable its clients to search for any information they need via the use of keywords and operators (Kurtz 2010). Google Search has extended its scope to searching images, i.e. Google Maps. Though the company launched Google Video in 2006 to enable users to search, watch and upload videos online, it discontinued the service to concentrate on its search aspect (Kurtz 2010). Advertising programs of Google are offered to businesses of all sizes with quantifiable outcomes, while improving the general web experience of the users.
According to Vise (2005), Google obtains 99% of its revenues from its advertising services. For instance, in 2006 the company made revenue worth $ 10.492 billion, as opposed to just $ 112 million from other sources, such as licensing. Google’s advertising revenue rose significantly to $ 21.8 billion in 2008. Google’s ads can be put on the websites of the third parties using the two-part program, Google AdWords and Google AdSense. The AdWords program permits advertisers to exhibit their advertisements within the Google content network via two schemes: cost per view or cost per click. Google AdSense, a sister service to Google AdWords, permits website owners to display ads on their websites and make money each time advertisements are clicked. In an effort to advertise its products Google launched Demo Slam, a website developed to display technology demonstrations of Google products. Demo Slam offers an opportunity for creative people to showcase the greatest and newest technology to the world.
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Google has numerous key competitors which include Facebook, Microsoft, Apple and Yahoo. In 2008 Google commanded 57 percent of internet searches within the United States (Agence France-Presse 2008). Yahoo, which was its main competitor then had a market share of 23 %, while Microsoft lagged behind with 11%. The company has maintained its leading position in the Search business in the USA, with increased market shares of over 65.6 % presently. Yahoo offers products that are comparable to those of Google, like maps, e-mail, advertising, search and toolbar among others, and that is why it was considered a key competitor to Google. Currently, Google’s main competitor is Microsoft, which according to Liedtke (2009), has attempted to overtake Google through its huge investments in the company’s advertising systems and Internet search.
Despite dominating in the provision of Internetservices, Google is facing stiff competition from its competitors, especially within the search engine business. Its major competitors are Microsoft and Facebook. Google Search is the most used throughout the world every year, and its recent innovations like Google Street View and Earth, have left its competitors trying really hard to catch up (Liedtke 2009). It is a fact that Facebook and Microsoft are continually updating their products and services, but they are still far from nearing the Google’s success. The fact is that the financial stability and strength of a company play a key role in determining its success. Google being the leading company worldwide in the internet business makes people question whether it will be able to maintain its position in the coming years. That is why this research will focus on analyzing Google’s financial strength to be able to verify how well the company is positioned to continue dominating in the online and computer service industry in the years to come.
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The objectives of this research will be as follows:
- To conduct a financial analysis on Google.
- To determine Google’s financial position compared to its key competitors.
The following research questions will be answered during data collection:
- How has Google been performing financially in the recent years?
- Is Google able to survive if a major financial recession occurred today?
- What is the company’s financial position currently?
- How does the company plan to remain on top of the internet and computer service industry?
Motivation for the Study
This research is motivated by the worldwide success that Google Company is enjoying in the online and computer service industry currently. Being an era of technological change and innovation, computers and the internet have become a part of most people’s daily lives, not only increasing the effectiveness of their communication and connection, but also making their lives easier in general. People find Google’s various products and services useful in one way or the other, and that is why it would interest the company’s customers, as well as the general public to know if Google’s financial position is strong enough to be able to survive any financial challenges that would threaten its dominance in the internet industry. Therefore, this study is motivated by the desire to continue seeing Google as the worldwide market leader in providing computer and internet services in the future.
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Google is a fairly young company, which has been public since August of 2004, when the company’s shares were just $85 each. However, towards the end of 2007, the prices of shares had grown to a whopping $750 per share, which represented an 882% increase in three years (Investor Relations 2012). However, following the financial crisis in 2007, the prices of the shares dropped to $330, but rose again to $591.5 as at 1st Q 2012, indicating a 79% increase in the last five years. According to Investor Relations (2012), Google’s total revenues were $ 29,321 billion in 2010 and $ 37,905 billion in 2011, representing a growth rate of 29 %. In addition, the 1st Q revenue of Google grew from $ 2,254 billion in 2008 to $10,645 in 2012, indicating a 472 % increase in the past four years (Table 1).Google’s alarming growth rate over the years is also shown in its net income which was $ 100 million in the year 2002, but grew in 2006 to $ 3.077 billion. However, following the 2007 financial crisis, the company’s net income slowed down. It, however, increased steadily in the recent past as evidenced by the 2010 net income which was $ 8,505 billion, but increased to $ 9,737 billion in 2011 and $ 2,890 billion in the first quarter of 2012 (Investor Relations 2012).
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Analyzing the financial position of Google necessitates a comparison of the company’s financial ratios to its competitors. Google’s 2011 current ratio was 5.9, while that of its key competitor Microsoft’s was 2.9 (Investor Relations 2012). Google’s high current ratio indicates its strong asset base, which implies that it has a higher likelihood of withstanding a recession than Microsoft. In addition, Google’s 2011 debt ratio was 0.05, while Microsoft’s was 0.19. According to Walsh (2010), debt ratio is an indicator of the proportion of debt that a company has compared to its assets. It gives an idea to investors about the level of potential risks a company is likely to face, as well as its leverage, thus influencing their investment decisions. A debt ratio of more than one indicates that a firm has more debts compared to assets, while a debt ratio of less than one indicates that company’s assets are relatively bigger than its debts (Walsh 2010). This means that Google has fewer debts or more assets than Microsoft, implying relatively stronger financial position than its competitor. In general, Google has recorded exceptional growth figures in the recent year, which indicates its strong financial position currently and possibility of even better financial performance in the coming years. The findings of this study will therefore be instrumental in bringing to light how strong Google is financially, as well as, whether the company will still be able to retain its leading position in the computing and internet market.
The sample size for this study will be ten respondents i.e. ten managers of Google holding different positions. Ten questionnaires containing the research questions listed above will be constructed and emailed to the respondents. The aim of asking the same questions to different managers is to have a comprehensive understanding of Google’s financials and be able to come up with a conclusive report with regards to the company’s financial position and strength. One of my relatives works at Google, and I am expecting him to help me to get email addresses of the managers. Both primary and secondary data will be collected. Primary data will be collected through sending questionnaires to the respondents, while secondary data will be collected by analyzing financial ratios from the most recent financial statements and annual report of Google and comparing them with those of Microsoft, in order to determine Google’s financial strength. I expect that within two weeks I will have completed collecting both primary and secondary data. However, one of the limitations that may arise is the delay in the response or the total lack of response from some respondents, which may compromise the quality of the research findings. I expect that after analyzing the two sets of data (primary and secondary), I will be able to know Google’s financial strength and consequently, its ability to retain its position as the market leader in computing and internet services.