Google Analysis

1633 Words May 23rd, 2005 7 Pages
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
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Overall profitability is slightly lower when comparing net profit margins. For fiscal year end 2004, Google reported a net profit margin of 12.52%, slightly lower than the industry 's 13.45%. It appears that this is largely due to the elevated effective tax rate that pertains to Google, as the company 's operating margin is actually superior to the industry average (Exhibit 5).

Two financial ratios will prove very important over the next several years: gross margin and return on assets. As mentioned earlier, cost of revenues increased significantly over the past 3 years. In turn, the gross margin percentage began to decline as well (Exhibit 3). For fiscal year end 2004, Google reported a gross margin of 54.29%, significantly higher than the industry average of 45.93% (Exhibit 5). This becomes particularly relevant when considering that Google is still in adolescent stages of efficiently generating traffic to its web sites. If Google can prove more efficient in this area, cost of revenues would decline, leading to a more dominant gross margin relative to the industry.

All companies in the technology sector experience high costs associated with asset acquisition. Google operations require a continuous investment in information technology assets to handle additional traffic. For this reason, Google must continue to demonstrate a strong return on its assets,

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