Alphabet

GOOGL | 1
Analysts
Ryan Crockett
ryan-crockett@uiowa.edu
Nicholas Payne
nick-payne@uiowa.edu
Maxwell Neumann
maxwell-neumann@uiowa.edu
Trevor Heimke
trevor-heimke@uiowa.edu
Company Overview
Alphabet Inc. (GOOGL) is the contemporary goliath of
innovation and advertising powerhouse of the Internet
Software & Services industry. It was founded in 1998,
headquartered in Mountain View, California. Originally
providing just a search engine, Alphabet now holds 8 distinct
subsidiaries specializing from anti-aging research labs to
self-driving cars. As a company, they focus mainly on
cultivating creativity and solving large problems.
Implementing a “what if” attitude has allowed Alphabet to
become the second largest publicly traded company in the
world with an attractive future.
Stock Performance Highlights
52 week High $810.35
52 week Low $529
Beta Value 0.908
Average Daily Volume 2.48 m
Share Highlights
Market Capitalization $531.32b
Shares Outstanding 1.77 b
Book Value per share $175.07
EPS $23.59
P/E Ratio 32.72
Dividend Yield 0.0%
Dividend Payout Ratio 0.0%
Company Performance Highlights
ROA 11.74%
ROE 14.54%
Sales $73,590b
Financial Ratios
Current Ratio 4.67
Debt to Equity 4.34%
One Year Stock Performance
Continuing to Find Innovation in Desolation
 Google advertising revenues will continue to expand with the
economy at a stable pace. Costs of Revenues will simultaneously
increase at a decelerating rate with system innovation.
 Revenues coming from sources other than advertising
(Google Other Revenues) will start to make up a more significant
percentage of total revenues.
 Expect Research & Development costs to continue to climb
as Alphabet extends into research intensive ventures.
 Production of driverless cars will require Alphabet to greatly
increase their capital expenditures or will involve rapid expansion
with more operating lease expenses. Anticipate a large surge
within the next three fiscal years.
 Liquidation/ Sale of Yahoo will prove beneficial for Google
revenues as they pick up the deterred market share in the next
fiscal year.
 Nest & Other hardware sells will begin to show more promise
as workforce restructuring reinvigorates product line. Previous
sales failed to make an impact on overall revenues, future
performance will not reflect on past numbers.
Alphabet Inc. (NASDAQ: GOOGL)
Current Price: $751.72
Target Price: $843.94
TechnologyKrause Fund Research | Spring 2016
Recommendation: BUY April 13, 2016

GOOGL | 2
Executive Summary
For Alphabet Inc. our team of analysts suggests a BUY
rating. The current share price is trading at $751.72 but
we believe this is below the true intrinsic value of the
stock. The Discounted Cash Flow and Economic
Profit valuations yielded the most accurate forecasted
share price at $843.94. This price was then adjusted to
reflect partial year expired. Other valuations such as
the Dividend Discount Model and the Relative
Valuations yielded values below current day trading
prices and we believe they should not be used when
issuing a decision. We believe these models should be
discredited because Alphabet Inc. is drastically
different than any other company that currently exists.
Since the DDM uses industry average metrics and the
Relative Valuation is compared to other similar
companies, it is hard to trust the accuracy of these
results. Furthermore, we expect Alphabet to continue
developing and producing new technology that will
have large initial costs but will create new long-term
sources of revenue.
Economic Outlook
Real Gross Domestic Product
Real Gross Domestic Product for the United States
experienced an increase at an annualized rate of 2.4
percent in 2015 after the third revised estimate. After
these revisions, we have increased at the same rate as
2014.1
This increase signals a healthy economy, but
plateauing from the previous year hints at near future
uncertainty and should be handled with caution.
Revenues brought in from Google are heavily reliant
on advertising. As a top company in the massive online
advertising industry, GDP growth is a fair indicator of
the direction Google trends. Corporate profits
decreased by 159.6 billion in Q4 of 2015, compared to
a 33 billion decrease in Q3 of the same year.2
Alphabet
still managed to have an impressive growth despite the
large downfall in corporate profits.
The Personal Consumption Expenditures index slowed
down to a 1.1 Q4 increase in comparison to an increase
of 2.2 percent in the previous quarter.3
The
deceleration in PCE is likely heavily contributed to the
slowdown of GDP growth. PCE is necessary to
monitor for the rough estimates of disposable income
of consumers. According to the Federal Reserve, PCE
inflation is expected to rise significantly in 2016. This
is most likely attributable to the plans to gradually
increase interest rates and the proposed inflation target
of 2%. 4
Another factor which could drastically effect the Real
GDP is the impact of the presidential candidacy. The
Treasury Department in April of 2016 implemented
tighter restrictions on corporate taxation rules. Details
in this imposed change mean tax inversions have less
benefits towards earnings stripping and make
accessing foreign profits more difficult.5
New
regulations are expected to lower corporate profits for
international conglomerates, negatively effecting
GDP.
The capital markets started the year off with substantial
volatility. Significant positive correlation with oil
prices in combination with the poor economic
strategizing announcement from the Federal Reserve
are likely reasons for this. Near the end of Q1, the
markets have gained momentum and oil stagnation has
smoothed. We anticipate at least one rate increase this
year, rising to .75% and a supporting short term GDP
growth of 2.2% in 2016. In the longer horizon, we
expect the U.S. to increase GDP growth to an
annualized rate of 2.6%, contingent on the implied
independence between capital markets and oil prices.

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Consumer Confidence & Sentiment Index
Consumer confidence is a survey put out by the
Conference Board that measures the attitudes
consumers have towards the economy. Surveyors
answer questions about their current and potential
future income, employment, and business conditions
as a whole. Consumer sentiment is a survey conducted
by The University of Michigan. This survey is very
similar to the confidence survey, where both numbers
are generally very similar to the other. This survey has
questions geared toward the attitudes of the individuals
towards the economy, and the strength of consumer
spending. For Q1 in 2016, U of Michigan’s Consumer
Sentiment stayed between the 91 – 95 range, slowly
declining. April CSI came in at 89.7, which is lower
than the expected 91, but is still a healthy number
considering the recent political and macroeconomic
growth conditions. 6
We want to keep a close watch on
consumer confidence numbers to know what we can
expect in revenues from Google Network Members.
As confidence remains higher, inclinations to spend
more money leads to higher online traffic, and a greater
likeliness businesses will continue utilizing their web
services. Minor fluctuations in Consumer Confidence
will have little to no effect on traffic due to the
immense amount of data Google has access to that isn’t
related to financial spending habits.
Reports of a slowing in wage gains, inflationary
adjusted income weakening, and political uncertainty
as it pertains to the economy are contributing to the
lower CSI readings. Previous consumer survey data
remained extremely high despite more uncertain
economic conditions, making this sub-90 rating
partially admissible. Non- recessionary years average
at a rating of 87.6, while the five recession periods
averaged to 69.3; This signaling that we still have far
to fall before adjusting.7
We believe that Consumer Confidence will decrease
and hang slightly around 94 in the short term while
Consumer Sentiment will hit 87.5. These numbers
centered around the slight increases in employee
compensations, the deteriorating income expectations
and the assumption that oil will rebalance and rise in
the capital markets. In the long term we anticipate the
CCI to increase and stay around 97 and CSI to move
back to 93.
Employment
Employment in the U.S. has continued to rise, showing
the demand for a larger labor force while further
ascertaining the strength of the job market as a whole.
This hiring of employees can signal an expansive
economy, as companies can afford to hire more
workers. Hourly earnings have risen 2.3 percent
through 2015, and non-farm payrolls have increased
215,000 – which was 5,000 higher than the consensus.8
Alphabet is known for being one of the most desirable
companies to work for in the eyes of millennials and
other top programming talent. That being said, they
pay large premiums for the upper echelon of talent.
Wage growth increasing at a steady rate could induce
wage inflation in Alphabet’s corporate setting. Having
an already high salary percentage with the expectations
of growth may not bode well.
In 2015 employment rose from the previous year as a
whole, leaving less people without a job. This shows
that companies are feeling confident in their operations
and futures, as they are making the investment to hire
new employees. We feel this is one signal of a strong
economy.
The employment cost index (ECI) rose in the fourth
quarter of 2015 by .6%. The ECI is a measure of
employee wage growth in the United States. This
measure is important to monitor because it is useful to

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interpret cost pressures that can have an impact on the
inflation rate in the United States.9
The unemployment
rate has held steady for year-end 2015, through March
2016 at 5%.10
The graph below shows that unemployment has
continued to fall quarter after quarter for the last 2
years rather steadily. This could be because individuals
are now more optimistic about finding a job, which can
lead to a better performing economy, or because
companies are looking to expand their operations and
need new talent.
Bureau of Labor Statistics U.S. Department of Labor10
We feel that the economy is continuing to expand,
which leads to an increase in employment. In the short-
term (6 month outlook), we see the unemployment rate
staying at 5%. In the long-term (2-3 year outlook), we
see the unemployment rate dropping below 5%, to
around 4.7%.
Our belief in this comes from the consumer
confidence, which is at a high level right now, showing
consumers are feeling positive about their financial
future. For the technology sector, we can expect to see
an increase in the amount of skilled labor workers
getting jobs. The tech field is one of ever changing
needs and increased innovation, which will be spurred
on by the hiring of new employees.
The technology field is comprised of many successful
companies, which leads to cut-throat competition
between them, like Apple and Google. One of the best
ways for companies to stay innovative is to hire new
people who will in turn bring with them new ideas.
Exchange Rates
The exchange rate is the price of a nation's currency in
terms of another currency.11
For simplicity, we will be
analyzing current exchange rates using the US dollar,
as a base currency. Analyzing current exchange rates
plays an important role in the technology sector mainly
due to the large amount of sales from foreign markets.
There has been a notable correlation between the
strength of the US dollar and US technology
performance. The graph below shows that when the US
is dollar is weak, technology performance tends to
excel due to foreign buyers having more confidence in
the US market.12
Fisher Investments on Technology pg. 56-57
Conversely, there are also benefits for US industries
when the US dollar is strong. Products imported from
foreign markets will be cheaper to US corporations
resulting in lower costs. Companies who have more
imports than exports in times of a strong US dollar will
benefit more than those who don't.13
Source: Federal Reserve14

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Source: FactSet
Due to recent decline of production recorded by the
Purchasing Managers Index (PMI) manufacturing
report, we estimate the Trade Weighted US dollar
Index to increase to 130 in the next 6
months. However, we predict the Trade Weighted US
dollar Index to fall between 100-105 in the next 2-3
years. We believe the main reason for this long-term
Trade Weighted US Dollar Index decline is the US
export estimates to increase over the next two years.21
We expect Google will benefit from a slight decline in
the value of the US dollar due to the importance of
foreign revenue for Technology based companies.
Capital Markets Outlook
The technology industry as a whole has performed
very well over 2015 (3.39% return from S&P 500
Information Technology Sector), and we see this
continuing on into the future. With the increase in
online traffic, companies that provide online services
are benefitting from more advertising to a broader
range of consumers, enhanced developments in the
specific technology hardware, and the increases in
online sales.22
We feel this is a good time to invest in the internet
software and services sector of the tech industry.
Alphabet just announced a phenomenal beat on
revenue expectations (increase of 18%) as well as
beating the expected EPS of 8.09 (actual of 8.67).23
Alphabet is an anchor for the industry, weighted at
54.36% of internet Software and services and 20.65%
of the Technology industry as a whole.24
A company similar to Alphabet that has been thriving
as of late is Facebook. Over 2015, Facebook's P/E ratio
came in at 45.9, well over the S&P 500 average of
16.74. Facebook, due to its operations, makes majority
of its revenues off of selling targeted advertisements
on their website. Advertising revenue streams for
Facebook in 2015 were reported as $17,079 million
($17,928 total revenue), showing how strong they rely
on advertising to drive profits.25
With increasing numbers of people using the internet
every day, Facebook can expect this number to
continue to increase. Due to this, we feel the firm will
benefit greatly from the continued success of the
technology sector.26
World Index Tech Sector Alphabet Facebook
Industry Description
Internet Software & Services Industry
Alphabet Google falls under the Internet Software &
Services sub-industry. The sector has increased in
market capitalization by 17%, 16% and 14%
respectively over the past three years. 15
Business lines
most responsible for their success mainly fall under the
internet advertising category. The primary segments
offered by Alphabet include Web, Mobile, Business,
Media, Geo, Specialized Search, Home & Office,
Social, & Innovation. Product offerings from Alphabet
consist more of intangibles such as their web service
offerings, YouTube, & a wide array of advertising
programs. In terms of physical products, Google offers
their Chrome Cast media-streaming device and Nest
smart-home devices.
World Index Returns Compared to Tech
Sector, GOOGL, and FB

GOOGL | 6
Google Website Revenue Sources
 AdWords, Google Chrome, Google
toolbars, YouTube, Gmail, Google Finance,
Google Maps, Google Play
Google Network Members’ Website
Sources
 AdSense, AdExchange, AdMob,
DoubleClick
Google Other Revenues
 Apps and Media content sales in Google
Play, Chromecast, Cloud Service Fees, Nest
branded hardware, Internet & TV services
Recent Developments & Industry Trends
Google Website Status Update
As the largest portion of Alphabet, Google websites
contributed 67.4%, 68.6 % and 70.2% of their GAAP
adjusted earnings for the previous three fiscal years.16
We feel the omni-presence of Google will continue to
trend upward and preserve its ubiquitous level of
awareness. One massive shift currently effecting this
line of business is the movement towards more mobile
advertising expenditures. Already slightly penetrating
the mobile market with their Android operating
system, they likely have a capable workforce and solid
foundation to swiftly adjust to this new advertising
focus.
Another trend in this particular industry sub-section is
the growing number of those steering away from TV
subscriptions, better known as ‘cord cutters’.
Companies have started to prepare for the widespread
cancellation of television services as the popularity of
streaming media has become increasingly popular.
Alphabet holds a good position in this culture change,
as they would benefit greatly from an increase in
internet based advertising demand. A good
benchmarking measurement is the music streaming
industry and the impact YouTube creates on it. Record
companies have been attempting to negotiate better
terms with YouTube but have found they have minimal
leverage. 17
Mentioned later in this report, Alphabet is
in the process of launching a subscription based
service, YouTube Red, which has the power to attract
more traffic, and wider margins for recording deals.
Revenues deriving from programs and email databases
are likely to account for the same percentage of profit.
In a crowded market, Alphabet is positioned to remain
a big player, but unlikely to capture more market share.
Google Network Members’ Websites
Recognized income from Google’s other websites has
made up 24.6%, 22.1%, and 20.2% the past three years.
18
The decrease in growth can be explained by the
inability to keep up with the growth experienced from
Google websites. Revenues did manage a $500 million
increase, but this numbers’ reliance on the overall
growth of the global economy must be recognized.
Slowing development in this category reflects on the
deceleration experienced in the global economy for the
most recent fiscal year. Income from the rest of the
world (which excludes the United States & United
Kingdom) make up 44% of all Googles consolidated
revenues. 19
Coming off of a 23% increase in this
category, they weakened to a 10% growth in 2015.
Lackluster growth combined with the strong dollar
caused this category to have a less than impressive
year.
Google Other Revenues
Alphabet has much room to grow in this category and
the restructuring of ‘Google’ into ‘Alphabet’ was a
step in the right direction. Currently, there is not a wide
variety of contributors to this revenue stream.
However, the industry which this Alphabet’s other
revenues falls under is not clear cut; the plan being to
invest in new businesses, products, infrastructure
improvements and acquisitions. 20
Nest products make
up most of these figures, but we feel these products are
before their adoption time and are not accurately
represented well by their sales numbers. Forward
looking, this division of Alphabet should not be
categorized unambiguously. Our DCF model’s
assumptions anticipate these figures to grow
exponentially as they start to create new innovative and
lucrative products. Beginning with the driverless car,
Alphabet is arguably the front runner for this soon-to-

GOOGL | 7
Source: FactSet
market technological innovation which could deliver a
large shock to the transportation industry. This market
exalts a feast-or-famine product acceptance style
which is perfectly in line with Alphabet’s ability to
fund new projects.
Ticker
Market
Cap (b)
P/S
Cash
(b)
Cash as
% of Rev
GOOGL $ 535 7.33 $ 16.55 22.5%
MSFT $ 446.6 3.92 $ 5.60 6.03%
YHOO $ 34.5 6.28 $ 2.66 53.46%
AAPL $ 595.9 2.76 $ 21.12 9.13%
FB $ 314.4 16.66 $ 4.9 27.33%
TWTR $ 1.2 6.91 $ .91 31.38%
BIDUexp $ 6.6 6.27 $ 1.38 13.17%
Markets & Competition
While Alphabet is characterized in the internet
software and services industry, they operate under
many different subsectors. Majority of revenues
coming from advertising operations gives reason to
classify Alphabet under the advertising industry, but
their heavily technological weighted products give
reason to organize them elsewhere. Competitors work
under very similar principals, making it less clear who
their largest contenders are.
Emergence into this market is not an easy task, yet
those who have succeeded in earning relevance are
capable of capturing more market share. That is one of
the benefits of operating in such a large industry,
Alphabet can better adjust due to necessary capital
investment and time commitment. We feel our largest
overall threat in this industry is Facebook (FB). Our
reasoning for this is their versatility in the eye of the
consumer. Originally considered merely a social
networking platform, is now creating advanced
algorithms and being used for measurable analytics in
the presidential race. Facebook is another company
that does not shy away from entering a market which
it has no experience in- acquisition Oculus, a virtual
reality headset creator. We believe Apple (AAPL) is a
close second because of their product line offering in
comparison to Alphabet. They sell more tangible items
that don’t exactly align with Alphabet, thus capturing
less market share from their most profitable operations.
Microsoft (MSFT) while it is a large company, they
have focus more on polishing their current products,
focusing on better operating margins. Twitter (TWTR)
could have been considered a larger threat if it weren’t
for its recent downgrade in the eyes of investors and
their lack of confidence. Baidu (BIDU) is a popular
search engine in Asia. They operate the closest to
Google, however their size and niche target segment
minimizes their threat level. Lastly, Yahoo (YHOO) is
fighting a losing battle in the crowded search engine
market. Consecutive poor decisions deem them
irrelevant in the long term. Loyalty in the search engine
industry allows Alphabet to maintain its lead while
brushing off attempts of those that can’t keep up with
innovation.
Catalysts for Growth/Change
Companies in the Internet Software & Services
Industry are already some of the largest companies in
the world when compared by market cap, however they
all keep trying to grow through innovation and new
ideas. We believe new projects and product lines will
be catalysts for growth in these companies. Due to their
massive amounts of cash, these companies can afford
to invest in futuristic ideas with massive overhead
costs and little revenues, but massive potential for
another source of company revenue. 28
Aforementioned in this report, we foresee Alphabet
leading the charge into the driverless car age.
Visualizing future earnings potential for Alphabet,
Facebook, and Apple requires out of the box thinking
because they are in the business of innovation. For the
internet services industry as whole, the issue of server
bandwidth and physical computer space for said
servers is a significant factor. All companies capable
of heavy internet traffic need to be properly equipped
to handle the flow, if upgrades these system
efficiencies were captured, COGs could drastically
decrease. Cost of revenues for Facebook increased
33% or $714 million to keep up with data infrastructure
in 2015, accounting for 17% of overall revenues.29
Subsequently, traffic acquisition costs (TAC) for
Google make up 37.6% of their revenues.30
Google
Fiber is a project Alphabet has been pursuing which
provides fiber optic internet service in large cities. This
could be a precursor for reaching lower operating
costs.

GOOGL | 8
Transitioning to new ways of accessing technology has
a large impact on the industry. Moving towards more
mobile devices is one direction of adjustment which
came to strictly because of the way consumers chose
to digest their information. Consumer behavior will
have the largest effect on the internet industry due to
its ever-changing structure. Using their extremely
popular and free analytics and data analysis software,
Alphabet has the tools to stay ahead of this curve and
prevent missing out on opportunities. Google
previously attempted to get into the wearable market
with their ‘Google Glass’ design- their take on smart
glasses. However, this product was unsuccessful and
they have since completely stopped supporting it.
Wearable technology has become more accepted and
present an opportunity for future advertising methods
and taking advantage of the internet of things.
Key Investment Positive & Negatives
Positives Electronic Device Demand
The largest distributor of internet enabled devices
(phone, computer, tablet), Apple, continues to see
increases in sales numbers year by year. Apple sold
28% more internet enabled devices in 2015 than in
2014. 31
This is an important metric for companies that
deal in the internet software and services industry,
showing the increasing number of users they can reach
and monetize. Google, Twitter, and Facebook will all
benefit by there being more internet traffic,
theoretically allowing them to charge more for their
advertising. This industry depends on users owning
devices that enable them to connect to the internet, and
with increasing sales in these devices brings more
traffic to their websites.
Comfortably Levered in Industry
Alphabet operates at very comfortable debt-to-equity
in accordance with such a cut throat, research and
development intensive industry. If a recession were
occur, Google would remain a sound investment
without carrying too much market risk. Having this in
combination with creating efficient operating margins
makes this stock an attractive value opportunity.
Relentless Innovation
Innovation in the internet software and services
industry is key for a company to be successful. Without
this quality, other companies can easily come up with
a product or service that is more user friendly or better
made than the previous, rendering a product obsolete
with little warning. This competition between the three
main companies here is a positive for the investor
because it shows the growth in the industry as a whole.
There are big players in this field, such as Alphabet and
Facebook, but new companies continue to try rise up
in this industry, which forces other companies to push
the envelope. A quality benchmark measurement of a
firm’s innovation can be seen through R&D. In 2014,
Facebook purchased WhatsApp for $17.2 billion. This
move was done to try and expand services into
different parts of the world, as the app had users from
many different countries, including third world
nations. This move enables them to reach different
markets and users from all around the world, and gave
them an advantage over other platforms. 32
Negatives All Eyes on Alphabet
This is more of a caveat to the positive investment keys
of large competition and constant innovation. Both of
those factors, while positive, lead to a large threat of
substitution. Google has recently been getting
themselves in hot water due to the neglect to abide by
foreign laws. The EU in particular, has filed multiple
law suits toward them for disregarding their ‘failure to
be forgotten law’. 33
This is cause for some concern due
to their track record- they have already been banned
from China for similar reasons. In a more recent case
with Google, they have been scrutinized and
subpoenaed for scanning in over 20 million books into
their own database for searching purposes.34
In this
Source: Alphabet 10-K, Yahoo 10-K, Facebook 10-K
2015

GOOGL | 9
Google
Other
Revenues,
$7,151
Other
Bets,
$448
Google
Websites,
$52,357
Network Members'
Websites, $15,033
Advertising
Revenues,
$67,390
REVENUE STREAMS
industry where bold decisions make or break
companies, being the first to revolutionize will come
with difficulties which can include unexpected
financial hemorrhaging.
Cyber Threats
Cyber security is a severe issue that can arise in the
internet software and services industry. The increasing
amount of users online, makes much information
susceptible, putting it at risk for being stolen or used
illegally- discrediting the company’s reputation. To
Alphabet’s benefit, Facebook is also at risk getting into
trouble with cyber security. Unlike alphabet, Facebook
takes users information into account when supplying
adds to users. Advertisements on their website drive
92% of their revenues, a massive portion of the firms
overall revenues. If this information that they have
stored on their users gets out, users could feel unsafe
with having their information on there, and leave
Facebook, which would then subsequently lower the
going rate for advertisement deals.35
Company Specific Analysis
Company Overview
Alphabet Inc. (GOOGL) is the contemporary goliath
of innovation and advertising powerhouse of the
Internet Software & Services industry. It was founded
in 1998, headquartered in Mountain View, California.
Originally providing just a search engine, Alphabet
now holds 8 distinct subsidiaries specializing from
anti-aging research labs to self-driving cars. As a
company, they focus mainly on cultivating creativity
and solving large problems. Implementing a “what if”
attitude has allowed Alphabet to become the second
largest publicly traded company in the world with an
attractive future.
Products & Revenue Generation
Previously Google, the company announced in August
2015 the creation of their new holding company,
Alphabet – with the intention to broaden its
product/service offerings. Posting an 89.8% revenue
from advertising shows the company operates with
great margins and minimal inventory requirements.
Google Websites – An account on the financials which
includes AdWords on their personal website. Also
includes other first tier products such as YouTube,
Gmail, Maps and Finance. Paid per clicks
advertisements in 2015 increased 4% to reach 33%,
mainly attributed to the increase in engagement ads.
Adoption of this new style ad may increase the
popularity and effectiveness of these tools.36
We
anticipate 22% growth for this division for the next 2
years from success capture of mobile market share and
Yahoo’s losses. After we expect it to slow by 4% each
year until reaching economic growth.
Google Network Members’ Websites – Revenues that
derive from AdSense, AdExchange and other websites
that use Googles advertising services. These streams
rely on the health and growth of other businesses. We
can expect these revenues to be positively correlated
with the growth of the online shopping, and consumer
confidence. This division is also very reflective on the
economic growth. However, due to the cord cutting
phenomena we feel 2016 will deliver an 8% grow rate
relative to previous year performance, then decelerate
to 6 - 7 % before reaching economic growth.
Google Other Revenues– Inflows from operations
other than advertising include the sale of content via
the Google Play store, licensing, and the sale of
hardware – Chromecast and Nest. We believe
Chromecast is nearing market saturation. As year-
over-year sales halved in 2015, lowering to 18.2%
from previously reaching 36.4%. Revenues from Nest
products have increased 121 million from 327 to 448
in 2015. The division being acquired in early 2014,
these numbers don’t give much insight for future
expectations.37
We expect rapid growth in this division
Source: Google 10-K 2015

GOOGL | 10
Source: Yahoo Finance, ThomsonONE
Source: FactSet
at 35% due to the perceived success of new ventures
near completion.
Analysis of Recent Filings (Earnings & Guidance)
Alphabet has beaten their expected EPS as well as
revenues for 3 of the 4 quarters in 2015. The Google
segment of Alphabet doesn’t commonly release
guidance around earnings time, however they have
continued to grow exponentially alongside lackluster
analyst speculations. Upon receiving the successful Q4
2015 earnings report, few important key metrics stand
out. Google’s operating margins have consistently
reached high levels above 25% - currently at 26.2%.38
In comparison to other competition in the Internet
Search industry, Alphabet’s numbers have shown great
profitability from operations while expecting long term
increases. Posting these types of operating margins
whilst simultaneously working towards monetizing
new ventures reflects their conscientiousness to
expand at a healthy rate.
Ticker
OP
Margin
OPM YoY
Change
D/E
GOOGL 26.20% 3.16% 4.34%
MSFT 29.65% ‐7.43% 44.07%
YHOO ‐2.72% ‐157.26% 4.25%
AAPL 33.68% .61% 54.01%
FB 45.57% ‐4.19 ‐40.98%
BIDUexp 15.77% ‐24.94% 48.44%
Comparison between Alphabet’s profitable
competitors in FY2015 allows investors to find solace
when trying to justify the company long term plans.
Relying heavily on R&D, Alphabet will need to
continually find sources of funding. Maintaining an
extremely low debt responsibility they should have
little obstacles funding future endeavors, regardless of
the economies’ status.
Competition & Differentiation
The Google segment faces the most search engine
opposition, however they currently pose little threat.
Globally – as of January 2016, Google holds 65.44%
of the market share. Remaining usage falls primarily
into the hands of Bing (15.82%), Baidu (8.3%), and
Yahoo (8.28%). Moving ahead, we anticipate multiple
opportunities for other companies to cannibalize
market share.
Bing – Microsoft’s Bing poses the biggest potential
threat to Google in the search engine industry. In 2012,
they launched the campaign “Bing it on” as an attempt
to demonstrate they were the better search engine via
blind comparison. Advertising for search engine use
was uncommon up to this point; the campaign
increased visibility. Browser use is a significant
contributor when determining search engine use.
People using Windows Operating Systems are more
likely to use Bing, as it automatically is chosen as the
browser. 39
Facebook – Previously mentioned in this report, we
feel Facebook is the largest overall competitor which
is most capable of capturing pertinent marketshare. We
believe Alphabet is an unorthodox company, leaving
its biggest threat to be those that are more
unconventional. In a study of 5,000, 60% of
Millennials said that keeping up with news is a daily
online activity. Directly lagging behind at 59%, is
keeping up with what friends are doing.40
Facebook
updates their product weekly, moving closer to
6.93
6.74
7.21
8.10
6.88 6.99
7.35
8.67
6
6.5
7
7.5
8
8.5
9
Q1 Q2 Q3 Q4
EPS Actual vs Estimates (FY 2015)
EPS Estimates EPS Actual
65.44%15.82%
8.30%
8.28%
0.24%
0.15%
Total Global
Market Share
(US searches per yr)
Google
Bing
Baidu
Yahoo
Ask
AOL
Source: NetMarketShare

GOOGL | 11
capturing more of the search engine market.
Millennials are the largest populated age cohort, a shift
towards Facebook’s search engine could be
detrimental to Alphabet’s revenues.
Baidu – After more Google products were banned in
China in late 2014, it proposed a great entry point for
another company to step in. With the search engine
already prohibited in 2009, Baidu was still unable to
capitalize and create significant growth in revenue for
the subsequent quarter. CEO Robin Li believes Google
wouldn’t pose a major threat, and claims mobile will
eventually render their core business obsolete.41
Inability to adapt to the obvious market demands
signals contempt in their current state. Before being
banned, Google held around 33% of the market while
Baidu held a little over 60% Google has been fighting
to reestablish itself in China, if successful, they have a
much higher chance of capturing the mobile market.
Apple – While not considering Apple as our most
viable competition, they still have the potential to leave
a big impact. As the clear front runner for phone sales,
they have a large following which has a strong
influence on Alphabet’s Android sales. iPhone
products have many ‘make or break’ qualities that
consumers feel are a nowhere near being replicated by
competition. Damaging phone sales is a serious issue,
however if they were able to proprietarily hold mobile
advertising market share unique to iPhones, Alphabet
would suffer massive loss. This may not be an issue at
hand but with Apple cutting iPhone output by 10%,
they may aggressively search for new sources of
revenues such as this. 42
Yahoo – Out of Google’s largest competitors, Yahoo is
the least likely candidate to capture any more market
share. Losing touch with their demographic and failing
to improve has led them to their current position of
non-profitability. CEO Marissa Mayer has announced
a restructuring strategy that appears more as a last
stand to turn the company around. Trading at a
considerable acquisition price, we believe they are
preparing to change hands and should continue to lose
market share.
Catalysts for Growth/Change
Advertising revenue is the clear victor when
determining branches of profitability within Alphabet.
Carrying expectations for future growth in Network
Members Websites will also bring an increase in
Traffic Acquisition Costs (TAC). Revenues increased
$494 million in 2015 to reach $15,033 million. TAC
costs to Google Network Members increased $378
million to reach $10,242. Cost of revenues as related
to network members increased from 67.85% to 68.13%
in 2015. 43
In order for Alphabet to make efficient use
of their future growth in this category, they will need
to focus more on ways to reduce operating costs. If a
method of higher profit retention is discovered, it will
present a considerable opportunity for future
performance.
Key Investment Positives & Negatives
Positives Diversified Entity Structure
Alphabet has deeply rooted itself into the
advertising market but has also branched itself into
a widely diversified product variety- bestowing a
stop-loss benefit for revenue forfeiture. Pushing
new revolutionary products first, they have much
more flexibility with margin spreads, avoiding
status quo pricing models. Alphabet exercised
great timing by restructuring their company at the
time they did. Having high cash profits gives them
lots of free reign to finance new ventures, making
them less risky for investment.

GOOGL | 12
Attracting Talent
Google’s work environment is considered utopic in
the eyes of millennial workers entering the work
force. Exposure as a company who takes pride in
their employees as well as compensating them
extraordinarily well with benefits goes a long way
with younger talent. These Google specific
benefits allow them to recruit top talent without
having spent too much time recruiting. Yearly
events at the HackMIT hosted by Massachusetts
Institute of Technology is an event where Google
discovers top computer hacking at a low cost while
simultaneously improving their security.44
Negatives Acquisition Turmoil
Taking over companies for the foreseen potential is
fair reasoning to acquire a company up to a point.
Alphabet has previously obtained companies with
great intentions but have found themselves
somewhat in over their heads. Boston Dynamics- a
robotics company Google took over in 2013-
seemed like a radical decision at first. However, the
once CEO of that had passed, they lost the
ingenuity and hit a brick wall with progress. Boston
Dynamics has since been put up for sale from
Google- with no potential buyers.45
Another
example of this comes from the management
brought over from Nest. Productivity had
experienced a drastic slowdown as the work force
of the subsidiary felt overworked. 46
Since then,
Nest has had a shakeup with executive and lower
level positions. These are signals that Alphabet
needs to qualify their impending acquisitions with
more thorough examination.
Valuation Analysis
Key Assumptions
Revenue Decomposition
Alphabet Inc. obtains roughly 90% of its current
total revenue from advertising operations. This
business segment is vital for Alphabet to focus on.
Therefore, we predict advertising revenues to
increase at a decreasing rate until final growth year
2020, where it converges at 4.5%.
In 2012 and 2013 Alphabet earned close to $8
billion in revenue from Motorola Mobility. This
acquisition showed the ability to diversify revenue
sources outside the realm of advertising. The idea
of Alphabet expanding into new products is
consistent with our belief for their future as a
company. We expect Alphabet to be a leader in
cutting-edge technology over the next 5 years, and
can expect revenue sources labeled “other” to be
broken down into specific categories. Our
forecasted growth rates for other revenues
increases by 35% in 2016 and converges down to
4.5% in 2020.
Cost of Goods Sold/R&D
For the past 10 years Alphabet’s COGS and R&D
have increased every year. These numbers support
our belief that Alphabet is a leader in innovation
and product development. In our 5 year forecast
we believe Alphabet will continue to expand into
new products which will cause COGS to increase
by more than 30% and R&D to rise by
approximately 18%. Alphabets historical R&D
numbers and company vision align with our future
predictions.
Weighted Average Cost of Capital
Alphabet’s Weighted Average cost of Capital
(WACC) was calculated at 6.92%. To obtain this
number we first calculated the Cost of Equity using
the Capital Asset Pricing Model approach. To
complete this model we used Bloomberg to find the
raw Beta of Alphabet and the risk free rate. We
then calculated the Market Risk Premium to get a
final cost of equity value of 7.02%.
We then continued on to compute the Cost of Debt
by multiplying the Pre-Tax Cost of debt by the
Marginal Tax Rate to yield an after-tax cost of debt
at 2.32%. Capital Structure Weights were than
applied to calculate the market value of equity by
multiplying current shares outstanding by the
current market price to equal $521,967. The book
value of debt was then calculated by adding long-
term debt, short-term debt, and present value of
operating leases equaling $10,699. The WACC of
6.92% was then applied to the DCF and EP
approach, presented next.

GOOGL | 13
Discounted Cash Flow and Economic Profit
Our DCF and EP model both yielded an intrinsic
value of $843.94 which was then adjusted to
$861.32 for the elapsed fraction of the year. This
model predicts a 14.5% increase from the current
value of $751.72. The market is possibly
underestimating Alphabet’s future potential to
generate revenue from other sources. So, based on
this approach we believe that the stock is currently
undervalued.
Dividend Discount Model
Before performing any valuation models we
estimated Alphabet’s stock price to increase by
15%-20% over the upcoming year. The Dividend
Discount model yielded an intrinsic stock price far
below the current trading value at $495. Alphabet
does not currently pay a dividend so we used
industry averages to complete this model. Since
Alphabet is a high-growth company and is not
similar to many companies in their industry, we
believe that this model should be discredited due to
its lack of accuracy.
Relative Valuation
Comparing Alphabet to other similar companies is
a tough task. Alphabet is in a stage of high-growth
with an incomprehensible level of future potential.
However, we were able to find 4 companies that
had similarities suitable for this model. After
removing several company outliers we chose
Apple, Twitter, Baidu, and Facebook. We
calculated each companies’ EPS and P/E ratio for
2016 and 2017 to finally obtain the PEG ratio in
each of those years.
We then compared the previous companies to
Alphabets similar ratios, obtaining the Relative P/E
for 2016 at $591.81 and the PEG ratio for 2016 at
$219.60. These values are considerably low and
should not be acknowledged when issuing a rating.
As stated earlier, Alphabet is a very unique
company and relying on valuations that only
compare ratios to other companies is not adequate.
Sensitivity Analyses
PP&E Growth Rate to Other SG&A Expense:
These two variables were chosen to reflect
potential growth in Google’s long-term assets and
other expenses not related to production of goods.
SG&A expense is one of the biggest operating
expenses Alphabet currently shows on its income
statement. PP&E has a very large impact on Total
assets and testing these two important metrics
yielded us a intrinsic value range between $1,047
and $639.
COGS Growth Rate to Marginal Tax Rate: Cost of
Goods Sold (COGS) is another important operating
expense that must be monitored. An increase in
COGS can represent better company performance
or a need to look at pricing of production. Marginal
Tax Rate is a simple yet important company
specific factor but it is also affected by government
policies. These comparisons yielded us a stock
price between $1,069 and $619.
Economic Growth Rate to Network Member Ad
Growth Rate: Advertising revenue is currently a
majority of total revenue for Alphabet. Tracking a
specific sector of that revenue is important to watch
how Alphabet maintains its dominance. The
economic growth rate is a great metric to track how
Alphabet advertising revenue correlates to the
overall economy. These two variables were
positively correlated and this sensitivity analysis
yielded a range between $934 and $751.
R&D Growth Rate to WACC: Research and
Development growth rate is a significant variable
surrounding Alphabet. We predict that this number
will increase over the next 3-4 years and it is an
interesting comparison to the weighted average
cost of capital. As predicted a higher share price is
created when R&D growth rate increases and the
WACC decreases. The range for this analysis is
$1,010 to $740.
Important Disclaimer
This report was created by students enrolled in the
Security Analysis (6F:112) class at the University of
Iowa. The report was originally created to offer an
internal investment recommendation for the University
of Iowa Krause Fund and its advisory board. The report

GOOGL | 14
also provides potential employers and other interested
parties an example of the students’ skills, knowledge
and abilities. Members of the Krause Fund are not
registered investment advisors, brokers or officially
licensed financial professionals. The investment
advice contained in this report does not represent an
offer or solicitation to buy or sell any of the securities
mentioned. Unless otherwise noted, facts and figures
included in this report are from publicly available
sources. This report is not a complete compilation of
data, and its accuracy is not guaranteed. From time to
time, the University of Iowa, its faculty, staff, students,
or the Krause Fund may hold a financial interest in the
companies mentioned in this report.
1
Bureau of Labor Statistics
2
3
Bureau of Economic Analysis
4
Federal Reserve ( Chart & Data used for predictions)
5
Wall Street Journal
<http://www.nasdaq.com/article/us-sets-tougher-rules-on-tax-
deals-20160405-00054 >
6
The Conference Board, Consumer Research Center
7
Surveys of Consumers University of Michigan
< http://www.sca.isr.umich.edu/ >
8
< http://www.bls.gov/web/empsit/ceshighlights.pdf >
9
BloombergNews
http://www.bloomberg.com/news/articles/2016-01-29/fourth-
quarter-growth-sentiment-cool-u-s-economic-takeaways
10
Bureau of Labor Statistics U.S. Department of Labor
http://www.bls.gov/news.release/pdf/empsit.pdf
11
Investopedia
http://www.investopedia.com/terms/e/exchangerate.asp
12
Fisher Investments on Technology (pg. 56-67)
13
Investopedia
http://www.investopedia.com/articles/forex/051415/pros-cons-
strong-dollar.asp
14
Investopedia
http://www.investopedia.com/terms/t/trade-weighteddollar.asp
15
NetAdvantage Standards & Poors: < Sub Industry review IT
Software & Services >
16
Alphabet 10-K, 2015
17
Wall Street Journal < Streaming Gives Music Industry a
Lift—Global Revenue from recorded music grew 3.2% >
18
Alphabet 10-K, 2015
19
Alphabet 10-K, 2015
20
Q4 Earnings Report Minutes
21
Factset
22
S&P500InformationTechnology
<http://us.spindices.com/indices/equity/sp-500-information-
technology-sector/>
23
Alphabet 10-Q, Q4
24
Factset
25
Facebook 10-K, 2015
26
FactSet S&P 500 index
27
FactSet Data
28
The Guardian
<https://www.theguardian.com/technology/2016/feb/05/x-
projects-alphabet-moonshot-ventures-change-world-robots>
29
Facebook 10-K, 2015
30
Alphabet 10-K, 2015
31
Apple 10-K, 2015
32
Tech Radar
< Facebook Buying Whatsapp- it’s about the Developing World>
33
Bloomberg: Technology
<Google and EU Wrangle Over ‘Right To Be Forgotten’>
34
Wall Street Journal <Supreme Court Rejects Challenge to
Google book-scanning Project>
35
Facebook 10-K, 2015
36
Alphabet 10-K, 2015
37
Alphabet 10-K, 2015
38
FactSet
39
Forbes
<http://www.forbes.com/sites/jaysondemers/2015/02/04/is-bing-
finally-catching-up-to-google/3/#5ed26ec86e72>
40
AmericanPress Institute: Media Insight Project
41
Wall Street Journal
<http://blogs.wsj.com/chinarealtime/2016/02/15/baidus-robin-li-
on-search-giants-success-it-isnt-because-google-left-china/>
42
Credit Suisse Analyst Report
43
Alphabet 10-K, 2015
44
Massachusetts Institute of Technology: HackMIT
45
Bloomberg: Technology < Google Seeks Buyer for BD >
46
Business Insider < What is going on at Nest>

Other SG&A Expense
843.94$ 17.00% 18.00% 19.00% 20.00% 21.00% 22.00% 23.00%
0.31 1047.55 974.08 900.62 827.15 753.68 680.22 606.75
0.29 1053.24 979.77 906.30 832.83 759.37 685.90 612.43
0.27 1058.83 985.37 911.90 838.43 764.96 691.50 618.03
PP&E Growth Rate 2016-2017 0.25 1064.34 990.88 917.41 843.94 770.47 697.01 623.54
0.23 1069.77 996.30 922.83 849.36 775.90 702.43 628.96
0.21 1075.10 1001.64 928.17 854.70 781.23 707.77 634.30
0.19 1080.35 1006.88 933.42 859.95 786.48 713.02 639.55
Marginal Tax Rate
843.94$ 22% 23% 24% 25% 26% 27% 28%
35.70% 618.56 620.22 621.88 623.54 625.20 626.86 628.52
34.70% 692.03 693.69 695.35 697.01 698.67 700.33 701.99
33.70% 765.49 767.15 768.81 770.47 772.13 773.79 775.45
COGS Growth Rate 32.70% 838.96 840.62 842.28 843.94 845.60 847.26 848.92
31.70% 912.43 914.09 915.75 917.41 919.07 920.73 922.39
30.70% 985.89 987.55 989.21 990.88 992.54 994.20 995.86
29.70% 1059.36 1061.02 1062.68 1064.34 1066.00 1067.66 1069.32
Network Member Ad Growth Rate
843.94$ 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 11.00%
4.80% 934.88 937.47 940.08 942.73 945.39 948.08 950.79
4.70% 899.33 901.81 904.31 906.83 909.38 911.95 914.55
4.60% 866.84 869.21 871.61 874.03 876.47 878.94 881.43
Economic Growth Rate 4.50% 837.03 839.32 841.62 843.94 846.29 848.65 851.04
4.40% 809.59 811.79 814.00 816.24 818.49 820.77 823.06
4.30% 784.25 786.36 788.49 790.64 792.82 795.01 797.22
4.20% 760.76 762.80 764.86 766.93 769.03 771.14 773.28
4.10% 738.94 740.91 742.90 744.90 746.93 748.97 751.03
WACC
843.94$ 6.32% 6.52% 6.72% 6.92% 7.12% 7.32% 7.52%
19% 1010.05 913.08 833.59 766.71 711.04 662.82 620.99
18% 1045.30 944.62 862.10 792.67 734.88 684.82 641.40
17% 1080.25 975.90 890.37 818.41 758.52 706.64 661.64
R&D Growth Rate 16% 1114.90 1006.92 918.41 843.94 781.96 728.28 681.71
15% 1149.26 1037.67 946.20 869.25 805.21 749.73 701.61
14% 1183.32 1068.16 973.76 894.34 828.25 771.00 721.34
13% 1217.09 1098.38 1001.08 919.22 851.09 792.08 740.90

Alphabet, Inc.
Revenue Decomposition
Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E CV 2020E
Advertising revenues
Google Websites 37,422 45,085 52,357 63,912 78,017 92,114 103,231 107,877
Growth YoY 19.86% 20.48% 16.13% 22.07% 22.07% 18.07% 12.07% 4.50%
Google Network Members 13,650 14,539 15,033 16,236 17,534 18,762 19,888 20,783
Growth YoY 9.51% 6.51% 3.40% 8.00% 8.00% 7.00% 6.00% 4.50%
Total advertising revenues 51,072 59,624 67,390 80,147 95,551 110,876 123,119 128,659
Growth YoY 16.91% 16.74% 13.02% 18.93% 19.22% 16.04% 11.04% 4.50%
Google other revenues 4,435 6,050 7,151 9,654 12,067 15,084 17,347 18,127
Growth YoY 88.48% 36.41% 18.20% 35.00% 25.00% 25.00% 15.00% 4.50%
Google segment revenue 55,507 65,674 74,541 89,801 107,618 125,960 140,466 146,786
Growth YoY 20.57% 18.32% 13.50% 20.47% 19.84% 17.04% 11.52% 4.50%
Motorola Mobility revenue 4,443 - - - - - - -
Nest & Hardware revenue 12 327 448 493 542 596 656 685
Growth YoY 0% 2625% 37% 10% 10% 10% 10% 4.50%
Total Revenue 59,962 66,001 74,989 90,294 108,161 126,556 141,121 147,472
Growth YoY 19.51% 10.07% 13.62% 20.41% 19.79% 17.01% 11.51% 4.50%

Alphabet, Inc.
Income Statement
Revenues 59,825 66,001 74,989 90,294 108,161 126,556 141,121 147,472
COGS Excluding D&A 21,919 20,712 23,101 29,526 35,368 41,384 46,147 48,223
Depreciation 2,781 3,523 4,132 4,253 5,094 5,961 6,647 6,946
Amortization of Intangibles 1,158 1,456 931 1,255 1,503 1,759 1,962 2,050
Gross Income 33,967 40,310 46,825 55,260 66,194 77,452 86,366 90,253
SG&A Expense
Research & Development 7,137 9,832 12,282 16,831 20,161 23,590 27,364 31,743
Other SG&A Expense 10,986 13,982 15,183 18,059 21,632 25,311 28,224 29,494
Total operating expenses 18,123 23,814 27,465 34,890 41,793 48,901 55,589 61,237
EBIT (Operating Income) 15,844 16,496 19,360 20,370 24,401 28,551 30,778 29,016
Interest Income 785 746 999 1,743 2,087 2,443 2,724 2,846
Interest Expense (83) (101) (104) (107) (109) (112) (115) (118)
Gains (losses) on investments and securities 201 312 (334) 451 541 633 706 737
Impairment of equity investments - - - - - - - -
Foreign exchange gains (losses) (379) (402) (422) (632) (757) (886) (988) (1,032)
Gain (loss) on divestiture of business (57) - - - - - - -
Other income (expense) 63 82 152 722 973 1,266 1,411 1,475
Pretax income 16,374 17,133 19,651 22,548 27,136 31,894 34,515 32,924
Income Taxes 2,798 3,331 3,303 6,041 7,236 8,467 9,441 9,866
Net Income 13,576 13,802 16,348 16,508 19,900 23,427 25,074 23,058
Basic EPS 20.21$ 20.29$ 23.78$ 23.66 28.09 32.58 34.36 31.14
Total Shares Outstanding 671.66 680.17 687.35 697.7 708.4 719.1 729.8 740.5
Dividend Per Share 0 0 0 0 0 0 0 0

Alphabet, Inc.
Balance Sheet
Assets
Cash and Cash Equivalents 18,898 18,347 16,549 24,160 40,516 61,924 87,626 113,373
Marketable Securities 39,819 46,048 56,517 57,543 58,588 59,652 60,736 61,839
Accounts Receivable, Net 8,882 9,383 11,556 11,787 12,023 12,263 12,509 12,759
Inventories 426 - - - - - - -
Deferred Income Taxes, net 1,526 - - 198 237 277 309 323
Other Current Assets 3,335 4,878 5,492 7,124 8,534 11,251 12,546 13,111
Total Current Assets 72,886 78,656 90,114 100,813 119,898 145,368 173,726 201,404
Prepaid Revenue share, expenses and other assets, non-current 1,976 3,187 3,181 4,063 4,867 5,695 6,350 6,636
Non-marketable equity securities 1,976 3,079 5,183 5,545.81 5,934.02 6,349.40 6,730.36 7,033.23
Property and equipment, net 16,524 23,883 29,016 36,270 45,338 52,138 57,352 59,933
Intangible Assets, net 6,066 4,607 3,847 3,270 2,779 2,363 2,008 1,707
Goodwill 11,492 15,599 15,869 15,869 15,869 15,869 15,869 15,869
Deferred Income Taxes net, non-current - 176 251 422 506 592 660 690
Total Assets 110,920 129,187 147,461 166,253 195,191 228,374 262,696 293,272
Liabilities
Accounts Payable 2,453 1,715 1,931 1,978 2,369 2,772 3,091 3,230
Short-term debt 3,009 2,009 3,225 2,933 3,514 4,111 4,584 4,791
Accrued compensation & benefits 2,502 3,069 3,539 3,825 4,582 5,361 5,978 6,247
Accrued expenses & other current liabilities 3,755 4,408 4,768 3,849 4,610 5,395 6,015 6,286
Accrued revenue share 1,729 1,952 2,329 2,709 3,245 3,797 4,234 4,424
Securities lending payable 1,374 2,778 2,428 2,386 2,858 3,344 3,729 3,897
Deferred revenue 1,062 752 788 1,156 1,385 1,621 1,807 1,889
Income taxes payable, net 24 96 302 188 226 264 294 308
Total Current Liabilities 15,908 16,779 19,310 19,024 22,788 26,664 29,733 31,071
Long-term debt 2,236 3,228 1,995 1,596 1,277 1,021 817 654
Deferred revenue, non-current 139 104 151 154 185 216 241 252
Income taxes payable, net, non-current 2,638 3,340 3,663 4,594 5,503 6,439 7,180 7,503
Deferred income taxes, net, non-current 1,947 758 189 1,353 1,620 1,896 2,114 2,209
Other long-term liabilities 743 1,118 1,822 1,209 1,449 1,695 1,890 1,975
Total Liabilities 23,611 25,327 27,130 27,930 32,822 37,932 41,975 43,664
Class A & B common stock & additional paid-in capital 25,922 28,767 32,982 34,466 38,612 43,258 48,461 54,291
Accumulated other comprehensive income 125 27 (1,874) (1,874) (1,874) (1,874) (1,874) (1,874)
Retained Earnings 61,262 75,066 89,223 105,731 125,631 149,058 174,133 197,191
Total Stockholders Equity 87,309 103,860 120,331 138,323 162,369 190,442 220,720 249,608
Total Liabilities and stockholders equity 110,920 129,187 147,461 166,253 195,191 228,374 262,696 293,272

Alphabet, Inc.
Cash Flow Statement
Fiscal Years Ending Dec. 31 2013 2014 2015
Operating Activities
Net Income 12,920 14,444 16,348
Adjustments:
Depreciation & amoritization of property & equipment 2,781 3,523 4,132
Amoritization of intangibles & other assets 1,158 1,456 931
Stock-based compensation 3,343 4,279 5,203
Excess tax benefits from stock-based award activity (481) (648) (548)
Deferred Income taxes (437) (104) (179)
Impairment of equity investments - - -
Other, net (594) (938) 546
Changes in assets and liabilitites:
Accounts Receivable (1,307) (1,641) (2,094)
Income taxes, net 401 283 (179)
Prepaid Revenue share, expenses & other assets (930) 459 (318)
Accounts Payable 605 436 203
Accrued expenses & other liabilities 713 757 1,597
Accrued revenue share 254 245 339
Deferred revenue 233 (175) 43
Net cash flows from operating activities 18,659 22,376 26,024
Investing Activities
Purchases of property & equipment (7,358) (10,959) (9,915)
Purchases of marketable securities (45,444) (56,310) (74,368)
Maturities and sales of marketable securities 38,314 51,315 62,905
Investments in non-marketable equity securities (569) (1,227) (2,172)
Cash Collateral received (returned) from securities lending (299) 1,403 (350)
Investments in reverse repurchase agreements 600 (775) 425
Business acquisitions (1,448) (4,888) (236)
Other 2,525 386 -
Net cash flows from investing activities (13,679) (21,055) (23,711)
Financing Activities
Net proceeds (payments) from stock-based award activities (781) (2,069) (2,375)
Excess tax benefits from stock-based award activity 481 648 548
Repurchase of common stock in connection with acquisitions - - -
Proceeds from issuance of debt, net 10,768 11,625 13,705
Repayment of Debt (11,325) (11,643) (13,728)
Net proceeds from a public offering - - -
Other (1,827)
Net cash flows from financing activities (857) (1,439) (3,677)
Effect of exchange rate changes on cash and cash equivalents (3) (433) (434)
Net increase (decrease) in cash & cash equivalents 4,120 (551) (1,798)
Cash & cash equivalents at the beginning of year 14,778 18,898 18,347
Cash & cash equivalents at the end of the year 18,898 18,347 16,549

Alphabet, Inc.
Forecasted Cash Flow Statement
Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E CV 2020E
Operating Activities
Net Income 16,508 19,900 23,427 25,074 23,058
Adjustments to reconcile net income to cash from operating activities:
Depreciation and Amoritization 5,508 6,598 7,720 8,608 8,996
Accounts Receivable, net (231) (236) (240) (245) (250)
Inventories - - - - -
Deferred Income Taxes, net (198) (39) (40) (32) (14)
Other Current Assets (1,632) (1,410) (2,717) (1,295) (565)
Prepaid Revenue share, expenses and other assets, non-current (882) (804) (828) (655) (286)
Deferred Income Taxes net, non-current (171) (84) (86) (68) (30)
Accounts Payable 47 391 403 319 139
Accrued compensation & benefits 286 757 779 617 269
Accrued expenses & other current liabilities (919) 762 784 621 271
Accrued revenue share 380 536 552 437 191
Deferred revenue 368 229 236 187 81
Income taxes payable, net (114) 37 38 30 13
Deferred revenue, non-current 3 31 31 25 11
Income taxes payable, net, non-current 931 909 936 741 323
Deferred income taxes, net, non-current 1,164 268 276 218 95
Other long-term liabilities (613) 239 246 195 85
Net cash flows from operating activities 20,434 28,084 31,517 34,777 32,388
Investing Activities
Marketable Securities (1,026) (1,045) (1,064) (1,083) (1,103)
Non-marketable equity securities (363) (388) (415) (381) (303)
Property and equipment (12,762) (15,665) (14,521) (13,822) (11,577)
Intangible Assets, net 577 490 417 354 301
Goodwill - - - - -
Securities lending payable (42) 472 486 385 168
Net cash flows from investing activities (13,616) (16,136) (15,097) (14,547) (12,513)
Financing Activities
Short-term debt (292) 580 598 473 206
Long-term debt (399) (319) (255) (204) (163)
Class A & B common stock & additional paid-in capital 1,484 4,146 4,645 5,204 5,830
Accumulated other comprehensive income - - - - -
Net cash flows from financing activities 793 4,407 4,987 5,473 5,873
Net increase (decrease) in cash & cash equivalents 7,611 16,356 21,408 25,703 25,747
Cash & cash equivalents at the beginning of year 16,549 24,160 40,516 61,924 87,626
Cash & cash equivalents at the end of the year 24,160 40,516 61,924 87,626 113,373

Alphabet, Inc.
Common Size Income Statement
Revenues 100.00% 100.00% 100.00% 100% 100% 100% 100% 100%
COGS Excluding D&A 36.64% 31.38% 30.81% 32.70% 32.70% 32.70% 32.70% 32.70%
Depreciation 4.65% 5.34% 5.51% 4.71% 4.71% 4.71% 4.71% 4.71%
Amortization of Intangibles 1.94% 2.21% 1.24% 1.39% 1.39% 1.39% 1.39% 1.39%
Gross Income 56.78% 61.07% 62.44% 61.20% 61.20% 61.20% 61.20% 61.20%
Research & Development 11.93% 14.90% 16.38% 18.64% 18.64% 18.64% 19.39% 21.52%
Other SG&A Expense 18.36% 21.18% 20.25% 20.00% 20.00% 20.00% 20.00% 20.00%
Total operating expenses 30.29% 36.08% 36.63% 38.64% 38.64% 38.64% 39.39% 41.52%
EBIT (Operating Income) 26.48% 24.99% 25.82% 22.56% 22.56% 22.56% 21.81% 19.68%
Interest Income 1.31% 1.13% 1.33% 1.93% 1.93% 1.93% 1.93% 1.93%
Interest Expense -0.14% -0.15% -0.14% -0.12% -0.10% -0.09% -0.08% -0.08%
Gains (losses) on investments and securities 0.34% 0.47% -0.45% 0.50% 0.50% 0.50% 0.50% 0.50%
Impairment of equity investments 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Foreign exchange gains (losses) -0.63% -0.61% -0.56% -0.70% -0.70% -0.70% -0.70% -0.70%
Gain (loss) on divestiture of business -0.10% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other income (expense) 0.11% 0.12% 0.20% 0.80% 0.90% 1.00% 1.00% 1.00%
Pretax income 27.37% 25.96% 26.21% 24.97% 25.09% 25.20% 24.46% 22.33%
Income Taxes 4.68% 5.05% 4.40% 6.69% 6.69% 6.69% 6.69% 6.69%
Net Income 22.69% 20.91% 21.80% 18.28% 18.40% 18.51% 17.77% 15.64%

Alphabet, Inc.
Common Size Balance Sheet
Assets
Cash and Cash Equivalents 31.59% 27.80% 22.07% 26.76% 37.46% 48.93% 62.09% 76.88%
Marketable Securities 66.56% 69.77% 75.37% 63.73% 54.17% 47.14% 43.04% 41.93%
Accounts Receivable, Net 14.85% 14.22% 15.41% 13.05% 11.12% 9.69% 8.86% 8.65%
Inventories 0.71% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Deferred Income Taxes, net 2.55% 0.00% 0.00% 0.22% 0.22% 0.22% 0.22% 0.22%
Other Current Assets 5.57% 7.39% 7.32% 7.89% 7.89% 8.89% 8.89% 8.89%
Total Current Assets 121.83% 119.17% 120.17% 111.65% 110.85% 114.86% 123.10% 136.57%
Prepaid Revenue share, expenses and other assets, non-current 3.30% 4.83% 4.24% 4.50% 4.50% 4.50% 4.50% 4.50%
Non-marketable equity securities 3.30% 4.67% 6.91% 6.14% 5.49% 5.02% 4.77% 4.77%
Property and equipment, net 27.62% 36.19% 38.69% 40.17% 41.92% 41.20% 40.64% 40.64%
Intangible Assets, net 10.14% 6.98% 5.13% 3.62% 2.57% 1.87% 1.42% 1.16%
Goodwill 19.21% 23.63% 21.16% 17.57% 14.67% 12.54% 11.24% 10.76%
Deferred Income Taxes net, non-current 0.00% 0.27% 0.33% 0.47% 0.47% 0.47% 0.47% 0.47%
Total Assets 185.41% 195.73% 196.64% 184.12% 180.46% 180.45% 186.15% 198.87%
Liabilities
Accounts Payable 4.10% 2.60% 2.58% 2.19% 2.19% 2.19% 2.19% 2.19%
Short-term debt 5.03% 3.04% 4.30% 3.25% 3.25% 3.25% 3.25% 3.25%
Accrued compensation & benefits 4.18% 4.65% 4.72% 4.24% 4.24% 4.24% 4.24% 4.24%
Accrued expenses & other current liabilities 6.28% 6.68% 6.36% 4.26% 4.26% 4.26% 4.26% 4.26%
Accrued revenue share 2.89% 2.96% 3.11% 3.00% 3.00% 3.00% 3.00% 3.00%
Securities lending payable 2.30% 4.21% 3.24% 2.64% 2.64% 2.64% 2.64% 2.64%
Deferred revenue 1.78% 1.14% 1.05% 1.28% 1.28% 1.28% 1.28% 1.28%
Income taxes payable, net 0.04% 0.15% 0.40% 0.21% 0.21% 0.21% 0.21% 0.21%
Total Current Liabilities 26.59% 25.42% 25.75% 21.07% 21.07% 21.07% 21.07% 21.07%
Long-term debt 3.74% 4.89% 2.66% 1.77% 1.18% 0.81% 0.58% 0.44%
Deferred revenue, non-current 0.23% 0.16% 0.20% 0.17% 0.17% 0.17% 0.17% 0.17%
Income taxes payable, net, non-current 4.41% 5.06% 4.88% 5.09% 5.09% 5.09% 5.09% 5.09%
Deferred income taxes, net, non-current 3.25% 1.15% 0.25% 1.50% 1.50% 1.50% 1.50% 1.50%
Other long-term liabilities 1.24% 1.69% 2.43% 1.34% 1.34% 1.34% 1.34% 1.34%
Total Liabilities 39.47% 38.37% 36.18% 30.93% 30.35% 29.97% 29.74% 29.61%
Class A & B common stock & additional paid-in capital 43.33% 43.59% 43.98% 38.17% 35.70% 34.18% 34.34% 36.81%
Accumulated other comprehensive income 0.21% 0.04% -2.50% -2.08% -1.73% -1.48% -1.33% -1.27%
Retained Earnings 102.40% 113.73% 118.98% 117.10% 116.15% 117.78% 123.39% 133.71%
Total Stockholders Equity 145.94% 157.36% 160.46% 153.19% 150.12% 150.48% 156.40% 169.26%
Total Liabilities and stockholders equity 185.41% 195.73% 196.64% 184.12% 180.46% 180.45% 186.15% 198.87%

Alphabet, Inc.
Value Driver Estimation
NOPLAT Calculation
Revenues 59,825 66,001 74,989 90,294 108,161 126,556 141,121 147,472
Less: Cost of Goods Sold 21,919 20,712 23,101 29,526 35,368 41,384 46,147 48,223
Less: R&D 7,137 9,832 12,282 16,831 20,161 23,590 27,364 31,743
Less: Depreciation 2,781 3,523 4,132 4,253 5,094 5,961 6,647 6,946
Less: Amortization of Intangibles 1,158 1,456 931 1,255 1,503 1,759 1,962 2,050
Less: SG&A 10,986 13,982 15,183 18,059 21,632 25,311 28,224 29,494
Plus: Implied Interest on Operating Lease 168 186 274 343 428 492 542 566
EBITA 16012 16682 19634 20713 24829 29043 31319 29582
Marginal Tax Rate 18.54% 23.88% 19.29% 25% 25% 25% 25% 25%
Adjusted Taxes:
Income Tax Provision 2,798 3,331 3,303 6,041 7,236 8,467 9,441 9,866
Plus: Tax shield on interest expense 15 24 20 27 27 28 29 29
Less: Tax on interest income 146 178 193 436 522 611 681 712
Less: Tax on Investment Gains 37 74 - 113 135 158 176 184
Plus: Tax Shield on Investment Losses - - 64 - - - - -
Plus: Tax Shield on Loss on Divestitures 11 - - - - - - -
Less: Tax on Other Income 12 20 29 181 243 316 353 369
Plus: Tax shield on Operating Lease Interest 31 44 53 86 107 123 135 141
Plus: Tax shield on Foreign Exchange Losses 70 96 81 158 189 221 247 258
Total Adjusted Taxes 2,730 3,223 3,300 5,582 6,659 7,754 8,642 9,030
Deferred Tax Liability 2,424 2,645 6,076 7,428.66 7,696.31 7,971.88 8,190.08 8,285.21
Deferred Tax Asset 2,067 2,063 6,138 6,560.24 6,643.79 6,729.82 6,797.93 6,827.62
Net Deferred Taxes 357 582 (62) 868 1,053 1,242 1,392 1,458
Change in Deferred Taxes (371) 225 (644) 930 184 190 150 65
NOPLAT 12,911 13,684 15,690 16,061 18,354 21,479 22,827 20,617
Invested Capital
Operating Current Assets:
Normal Cash 13,203 14,566 16,550 19,928 23,871 27,931 31,146 32,547
Accounts Receivable 8,882 9,383 11,556 11,787 12,023 12,263 12,509 12,759
Inventory 426 - - - - - - -
Other Current operating assets 3,335 4,878 5,492 7,124 8,534 11,251 12,546 13,111
Current Operating Assets 25,846 28,827 33,598 38,839 44,428 51,445 56,200 58,416
Non-Interest Bearing Current Liabilities:
Accounts Payable 2,453 1,715 1,931 1,978 2,369 2,772 3,091 3,230
Accrued Expenses 3,755 4,408 4,768 3,849 4,610 5,395 6,015 6,286
Accrued Revenue Share 1,729 1,952 2,329 2,709 3,245 3,797 4,234 4,424
Accrued Compensation & Benefits 2,502 3,069 3,539 3,825 4,582 5,361 5,978 6,247
Deferred Revenue 1,062 752 788 1,156 1,385 1,621 1,807 1,889
Income Taxes Payable 24 96 302 188 226 264 294 308
Current Operating Liabilities 11,525 11,992 13,657 13,705 16,417 19,209 21,419 22,383
Net Operating Working Capital 14,321 16,835 19,941 25,135 28,011 32,237 34,781 36,033
Plus: Net PP&E 16,524 23,883 29,016 36,270 45,338 52,138 57,352 59,933
Plus: Net Other Operating Assets 6,066 4,607 3,847 3,270 2,779 2,363 2,008 1,707
Less: Other Operating Liabilities 139 104 151 154 185 216 241 252
Plus: PV of Operating Leases 3,104 4,570 5,479 6,465 7,628 8,696 9,566 9,996
Less: L-T Income Taxes Payable (non-deferred) 2,638 3,340 3,663 4,594 5,503 6,439 7,180 7,503
Invested Capital 37,239 46,451 54,469 66,391 78,069 88,778 96,285 99,914
Core Value Drivers
NOPLAT 12,911 13,684 15,690 16,061 18,354 21,479 22,827 20,617
Beginning Invested Capital 32,169 37,239 46,451 54,469 66,391 78,069 88,778 96,285
Return on Invested Capital (ROIC) 40.13% 36.75% 33.78% 29.49% 27.65% 27.51% 25.71% 21.41%
NOPLAT 12,911 13,684 15,690 16,061 18,354 21,479 22,827 20,617
Less: Change in Invested Capital 9,893 5,070 9,213 11,922 11,678 10,710 7,507 3,629
Free Cash Flow (FCF) 3,018 8,614 6,478 4,139 6,676 10,769 15,320 16,988
NOPLAT 12,911 13,684 15,690 16,061 18,354 21,479 22,827 20,617
Beginning Invested Capital 32,169 37,239 46,451 54,469 66,391 78,069 88,778 96,285
ROIC 40.13% 36.75% 33.78% 29.49% 27.65% 27.51% 25.71% 21.4121%
WACC 6.92% 6.92% 6.92% 6.92% 6.92% 6.92% 6.92% 6.92%
Economic Profit (EP) 10,684 11,106 12,475 12,291 13,759 16,075 16,682 13,952

Alphabet, Inc.
Weighted Average Cost of Capital (WACC) Estimation
Cost of Equity Beta Monthly Returns: 2000 - 2015
Risk Free Rate 2.70%
Market Risk Premium 4.00%
Beta 1.079
Cost of Equity 7.02%
Cost of Debt
Pre-tax Cost of Debt 2.88%
Tax Rate 19.29%
After Tax Cost of Debt 2.32%
Capital Structure Weights
Shares Outstanding 687.35
Current Price $759.39
Market Value of Equity 521,967
LT Debt 1995
ST Debt 3225
PV of Operating Leases 5479
Book Value of Debt 10,699
Total Firm Value (E+D) 532,665
Weighted Average Cost of Capital 6.92%

Alphabet, Inc.
Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs:
CV Growth 4.50%
CV ROIC 21.41%
WACC 6.92%
Fiscal Years Ending Dec. 31 2015 2016E 2017E 2018E 2019E 2020E 2021E
DCF Model
Free Cash Flow 6,478 4,139 6,676 10,769 15,320 16,988 30,927
Continuing Value (CV) 672,397
WACC 6.92%
CF to Discount 4,139 6,676 10,769 15,320 672,397
Period 1 2 3 4 4
PV (CF) 3,871 5,840 8,810 11,722 514,472
Value of Operating Assets 544,715$
Add: Excess Cash -
Add: Short-term marketable securities 56,517
Less: Short-term debt 3,225
Less: Long-term debt 1,995
Less: PV of Operating Leases 5,479
Less: PV of ESOP 10,451
Value of Equity 580,083
Shares Outstanding 687
Intrinsic Value of Stock 843.94$
EP Model
Economic Profit 12475 12291 13759 16075 16682 13952 23105
Continuing Value 576112
Beginning Invested Capital 54,469
WACC 6.92%
EP to Discount 12291 13759 16075 16682 576112
Period to Discount 1 2 3 4 4
PV (EP) 11496 12035 13151 12764 440801
Value of Operating Assets 544,715$
Add: Excess Cash -
Add: Short-term marketable securities 56,517
Less: Short-term debt 3,225
Less: Long-term debt 1,995
Less: PV of Operating Leases 5,479
Less: PV of ESOP 10,451
Value of Equity 580,083
Shares Outstanding 687
Intrinsic Value of Stock 843.94$
Today 4/19/2016
Next FYE 12/31/2016
Last FYE 12/31/2015
Days in FY 366
Days to FYE 110
Elapsed Fraction 0.301
Adjusted Stock Price 861.32

Alphabet, Inc.
Dividend Discount Model (DDM) or Fundamental P/E Valuation Model
Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E CV 2020E
EPS 23.66$ 28.09$ 32.58$ 34.36$ 31.14$
Growth -0.5% 19% 16% 5% -9%
Key Assumptions
CV growth 4.50%
Payout Ratio (Industry Avg.) 1.29%
CV ROE 9.24%
Dividend Yield (Industy Avg.) 0.02%
Future Cash Flows
P/E Multiple (CV Year) 20.38
EPS (CV Year) 31.14$
Future Stock Price 634.74$
Dividends Per Share 0.31$ 0.36$ 0.42$ 0.44$ 0.40$
Discount Period 1 2 3 4 4
Discounted Cash Flows 0.29$ 0.32$ 0.34$ 0.34$ 484.25$
Intrinsic Value 485.54$
Adjusted Price 495.38$

Alphabet, Inc.
Relative Valuation Models
EPS EPS Est. 5yr
Ticker Company Price 2016E 2017E P/E 16 P/E 17 EPS gr. PEG 16 PEG 17
AAPL Apple $109.58 $9.22 $9.09 11.9 12.1 33.6 0.35 0.36
TWTR Twitter $17.58 $0.55 $0.76 32.0 23.1 41.40 0.77 0.56
BIDU Baidu $189.81 $15.26 $6.80 12.4 27.9 57.4 0.22 0.49
FB Facebook $116.13 $2.28 $3.14 50.9 37.0 37.4 1.36 0.99
Average 26.8 25.0 0.7 0.6
GOOGL Alphabet, Inc. $759.39 23.78 23.66 31.9 32.1 15.5 2.1 2.1
Implied Value:
Relative P/E (EPS15) $ 637.76
Relative P/E (EPS16) 591.81$
PEG Ratio (EPS15) 249.67$
PEG Ratio (EPS16) 219.60$

Alphabet, Inc.
Key Management Ratios
Liquidity Ratios
Current Ratio (Current Assets/Current Liabilities) 4.58 4.69 4.67 5.30 5.26 5.45 5.84 6.48
Quick Ratio (Current Assets - Inventory)/Current Liabilities 4.55 4.69 4.67 5.30 5.26 5.45 5.84 6.48
Operating Cash Flow Ratio (Operating CF/Current Liabilities) 0.19 0.51 0.34 0.22 0.29 0.40 0.52 0.55
Activity or Asset-Management Ratios
Inventory Turnover (COGS/ Average Inventory) 43.40 48.62 N/A N/A N/A N/A N/A N/A
Receivable Turnover (Revenues/ Accounts Receivable) 6.74 7.03 6.49 7.66 9.00 10.32 11.28 11.56
Total Asset Turnover (Revenues/ Average Total Assets) 3.49 3.61 4.10 4.80 3.74 3.81 4.11 4.82
Financial Leverage Ratios
Debt/Equity (Total Liabilities/ Total Shareholders' Equity) 27.04% 24.39% 22.55% 20.19% 20.21% 19.92% 19.02% 17.49%
Debt Ratio (Total Liabilities/Total Assets) 21.29% 19.60% 18.40% 16.80% 16.82% 16.61% 15.98% 14.89%
Equity Ratio (Shareholders' equity/Total Assets) 78.71% 80.40% 81.60% 83.20% 83.18% 83.39% 84.02% 85.11%
Profitability Ratios
Gross Margin (Revenues-COGS)/ Revenue 63.36% 68.62% 69.19% 67.30% 67.30% 67.30% 67.30% 67.30%
Operating Margin (Operating Income/Total Revenue) 26.48% 24.99% 25.82% 22.56% 22.56% 22.56% 21.81% 19.68%
Net Profit Margin (Net Income/ Revenue) 22.69% 20.91% 21.80% 18.28% 18.40% 18.51% 17.77% 15.64%
Return on Assets (Net Income/ Total Assets) 12.24% 10.68% 11.09% 9.93% 10.20% 10.26% 9.55% 7.86%
Return on Equity (Net Income/ Total Shareholders' Equity 3.45% 1.93% 2.68% 2.12% 2.16% 2.16% 2.08% 1.92%
Payout Policy Ratios
Dividend Payout Ratio (Dividend per share/EPS) N/A N/A N/A N/A N/A N/A N/A N/A

Present Value of Operating Lease Obligations 2009 Present Value of Operating Lease Obligations 2010
Operating Operating
Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases
2010 310 2011 323
2011 296 2012 319
2012 276 2013 279
2013 237 2014 223
2014 188 2015 189
Thereafter 1237 Thereafter 1058
Total Minimum Payments 2544 Total Minimum Payments 2391
Less: Interest 370 Less: Interest 320
PV of Minimum Payments 2174 PV of Minimum Payments 2071
Capitalization of Operating Leases Capitalization of Operating Leases
Pre-Tax Cost of Debt 2.88% Pre-Tax Cost of Debt 2.88%
Number Years Implied by Year 6 Payment 6.6 Number Years Implied by Year 6 Payment 5.6
Lease PV Lease Lease PV Lease
Year Commitment Payment Year Commitment Payment
1 310 301.3 1 323 314.0
2 296 279.7 2 319 301.4
3 276 253.5 3 279 256.2
4 237 211.6 4 223 199.1
5 188 163.1 5 189 164.0
6 & beyond 188 965.2 6 & beyond 189 836.7
PV of Minimum Payments 2174.3 PV of Minimum Payments 2071.4

Present Value of Operating Lease Obligations 2011 Present Value of Operating Lease Obligations 2015
Operating Operating
Fiscal Year's Ending Leases Fiscal Years Ending Dec. 31 Leases
2012 389 2016 672
2013 377 2017 794
2014 357 2018 796
2015 311 2019 769
2016 256 2020 719
Thereafter 1264 Thereafter 3706
Total Minimum Payments 2954 Total Minimum Payments 7456
Less: Interest 383 Less: Interest 1062
PV of Minimum Payments 2571 PV of Minimum Payments 6394
Capitalization of Operating Leases Capitalization of Operating Leases
Pre-Tax Cost of Debt 2.88% Pre-Tax Cost of Debt 2.88%
Number Years Implied by Year 6 P 4.9 Number Years Implied by Year 6 P 5.2
Lease PV Lease Lease PV Lease
Year Commitment Payment Year Commitment Payment
1 389 378.1 1 672 653.2
2 377 356.2 2 794 750.2
3 357 327.9 3 796 731.0
4 311 277.6 4 769 686.4
5 256 222.1 5 719 623.8
6 & beyond 256 1008.8 6 & beyond 719 2949.0
PV of Minimum Payments 2570.7 PV of Minimum Payments 6393.7

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding
Number of Options Outstanding (shares): 31
Average Time to Maturity (years): 2.86
Expected Annual Number of Options Exercised: 11
Current Average Strike Price: 482.03$
Cost of Equity: 0.00%
Current Stock Price: $759.39
2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Increase in Shares Outstanding: 11 11 11 11 11 11 11 11 11 11
Average Strike Price: 482.03$ 482.03$ 482.03$ 482.03$ 482.03$ 482.03$ 482.03$ 482.03$ 482.03$ 482.03$
Increase in Common Stock Account: 5,157 5,157 5,157 5,157 5,157 5,157 5,157 5,157 5,157 5,157
Change in Treasury Stock 0 0 0 0 0 0 0 0 0 0
Expected Price of Repurchased Shares: 759.39$ 759.39$ 759.39$ 759.39$ 759.39$ 759.39$ 759.39$ 759.39$ 759.39$ 759.39$
Number of Shares Repurchased: - - - - - - - - - -
Shares Outstanding (beginning of the year) 687 698 708 719 730 741 751 762 773 784
Plus: Shares Issued Through ESOP 11 11 11 11 11 11 11 11 11 11
Less: Shares Repurchased in Treasury - - - - - - - - - -
Shares Outstanding (end of the year) 698 709 719 730 741 751 762 773 784 795

VALUATION OF OPTIONS GRANTED IN ESOP
Ticker Symbol GOOGL
Current Stock Price $759.39
Risk Free Rate 0.00%
Current Dividend Yield 0.00%
Annualized St. Dev. of Stock Returns 38.80%
Average Average B-S Value
Range of Number Exercise Remaining Option of Options
Outstanding Options of Shares Price Life (yrs) Price Granted
ESOs 4.9 221.31 3.70 544.05$ 2,665$
RSUs 25.7 531.74 2.70 298.74$ 7,690$
Total 31 376.53$ 0.21 382.87$ 10,355$

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