STOCK RECOMMENDATION

Stock recommendation paper

Table of contents

Executive Summary3

Stock Selection5

Industry, Company, and Competitor Description7

Financial Analysis17

References27

Appendix28

Stock recommendation paper

Executive Summary

A start-up corporation may have its inception through privately invested funds or through procuring funds through a venture capital firm or a composite of both funding sources. Venture capital is defined as "money invested to finance a new firm" (Brealey, Myers, and Marcus, 2004, p. 368). Venture capitalists often hold seats on the company's board of directors and provide input in the composition of the senior management team that leads the company (Brealey et al., 2004, p. 369). In the chronological development of a successful company, likely there will come a time when growth opportunities and expansion plans call for more capital than can reasonably be obtained through continued investment by venture capitalists. How does a company raise the capital it needs to continue its development? One option is to sell shares in the company to the public, which is an "initial public offering (IPO)" (Brealey et al., 2004, p. 370).

On April 29, 2004, the internet search engine company Google filed a Form S-1 or registration statement with the Securities and Exchange Commission (SEC) under its chartered name of Google Inc. As news of the pending IPO spread, speculation ran rampant about the potential earnings that Google might anticipate. CNN Money reported that, "Wall Street has been eagerly anticipating a filing from Google so investors could finally get a glimpse into the company's finances (LaMonica, 2004, p. 1). In addition, the already intense competition between Google, Yahoo, and Microsoft's MSN was projected to escalate substantially as a result of Google's intent to move into the public domain.

A business moving toward an IPO has a number of requirements that it must meet in order to satisfy the SEC standards for issuing common stock. In order to achieve its objective of issuing common stock, Google first had to select an underwriter or "firm that buys an issue of securities from a company and resells it to the public" (Brealey et al., 2004, p. 370). Google selected two underwriters: Morgan Stanley and Co. Incorporated and Credit Suisse First Boston LLC (Form S-1, 2004, p. 39).In addition to underwriting the IPO, the two firms would also be expected to provide procedural and financial advice to Google (Brealey et al., 2004, p. 370).

In assessing and disclosing risk factors, Google reported challenges in a competitive market coming primarily from Microsoft and Yahoo, bundling of services by internet companies, competing for advertising shares, a slowing in its future growth rate and potential pressure on its operating margin, and fluctuation in its operating results (Form S-1, 2004, p. 5). Recognizing the need for continued innovation, Google crafted a strategy for the IPO to fund its development since its primary source of revenue is the advertising contained on its search pages. Google cautioned that there were risks associated with the potential failure to manage its growth, stating "we have experienced and continue to experience, rapid growth in our headcount and operations, which ...