Technology & Media Companies Wednesday, February 08, 2012 Richard Chan*EDUCATIONAL USE ONLY!
Capital Management Overview Finance Strategically Establish Communicate determine right Corporate Planning Plan Formally mix Targets Business Ensure Assets Plan Technical Think Financial Idea Generation are Tactically Units Requirements Value Deployed Finance Support Review Ensure Accurate Provide Strong Business Financial Financial Capital Oversight Partners Impacts Reporting Staged Review Sponsorship Ensure Strategic Fit of from Begin to Substantial Gatekeepers Projects End Value is Created
Gatekeepers/Level of Effort Network Legal IT Project Leader (Prod Mgr) Finance Device Marketing
Effective Capital Processes Plan High Set CommunicateFinance Level Yearly to BusinessPlanning Capital Targets Units 2 Sponsor/Budget Determine BusinessBusiness Units Idea Y Proceed with Feasibility OK? Unit Generation plan requests & Scope Review N Recycle Idea Finance Consolidate FY 1Finance Review CapitalCapital Prelim. List requirementsStagedGatekeepers
Effective Capital Processes (Continued)FinancePlanningBusiness Units 2 Push to Recycle / Business Unit Kill N Prepare Review Y Consolidate/ 3Finance 1 Initial Financial Complete? CoordinateCapital List document Presentation NStaged Review YGatekeepers Capital Approve? requirements
Effective Capital Processes (Continued)FinancePlanning Denied/ Hold 4Business Units N Y Requisitioner Workflows Y PO creates PO Approval Approved? Generated Modification? against Authority via Sourcing budgets N Provide Monthly Establish Implement SupportFinance 3 Review Reporting, Project Sound Future Plan/Capital Data Analysis, Forecast Funds/PS Policies Target SettingStagedGatekeepers
Effective Capital Processes (Continued)FinancePlanningBusiness Units Receive 3-Way 4 Post to Paid, ‘Credit Goods/ Match Cash’ out the door Services ProcessFinanceCapitalStagedGatekeepers
Why does it matter? Capital Management is a function that provides continuous transparency in product development Higher Value Projects and capital deployment to optimize resource Transparency allocation through clear prioritization Some Key Objectives: Risk Based Decisions Transparency to the Whole Holistic, risk-managed investment decisions Optimization for improved ROI Higher value product and capital implemented Objective and timely Approve/Recycle/Kill Decisions Improved ROI Ultimately you want to ensure value is added to a business!
SWOT Summary - Google Strengths include: Economies of scale, brand name, innovation, business structure, strong management, innovative, unique product, advanced technology, loyalty, adwords, adsense, and navigation. Weakness include: Poor corporate investments, search engine reliant, data center costs, weak social media, YouTube profitability, and not quick to market. Opportunities: Acquisitions for growth, regulation in China/Emerging markets, new products, global internet, wireless technology, and web media. Threats: Search engine substitutes, anti-trust laws, online security, technology margins, Microsoft, and browser standard changes.
Model Summary - Google Assumes Risk Free Rate of 2.00% via Treasury 10-yr bonds Assumes weighted cost of debt borrowings at 7.1% Assumes Equity Risk premium of 7.5% Model only as fluid as timing on daily share price Overall ROIC is roughly 21.7% and 19.3% in 2010/2011 vs. industry WACC of 9.3% $911.56 per share based on DCF estimates
Google - Share Price675625575525475 GOOG425375325275 1/2/2009 4/2/2009 7/2/2009 10/2/2009 1/2/2010 4/2/2010 7/2/2010 10/2/2010 1/2/2011 4/2/2011 7/2/2011 10/2/2011 1/2/2012 Working with Intel/Sony on TV YouTube defeats Viacom Larry Page becomes CEO Stops censoring web searches (China) ITA Software Acquisition Acquisition of beatthatquote Nintendo/Google to jointly develop web-game Yahoo Japan switches search Working on Mobile payments Acquisition of Slide Verifone/Sprint partners mobile pay Acquisition of Jambool Google labs winds down DTV and Google Ad sale partnership Acquisition of Zagat Acquisition of Like.com Visa/Google partnership Acquisition of Angstro Acquires Motorola Mobility
Model Summary – News Corp Parent Assumes Risk Free Rate of 2.00% via Treasury 10-yr bonds Assumes weighted cost of debt borrowings at 7.1% Assumes Equity Risk premium of 7.5% Model only as fluid as timing on daily share price 2009 restructuring costs normalized for DCF analysis 2010 used as a base year to compare similar industries Overall ROIC is roughly 8.9% and 9.4% in 2010/2011 vs. industry WACC of 9.7% $17.79 per share based on DCF estimates