Google – Adjusting for Stock Splits

GOOG : NASDAQ : US$543.14
BUY 
Target: US$700.00

Technology — Internet
ADJUSTING MODEL AND PRICE TARGET FOR STOCK SPLIT
Key points
 We are adjusting our estimates and price target purely to reflect
Google’s previously announced 2-for-1 stock split.
 Class A shares will trade under the new ticker GOOGL, while Class C
shares will assume the GOOG ticker. Newly issued shares going
forward will be Class C shares. Class A shares will have one vote
each, while the non-traded Class B (management) shares will have
10 votes each.
 Given that Class C GOOG shares should be more liquid than Class A
GOOGL shares and that there is a “make-good” provision in place to
close any potential value spread arising from the voting
discrepancy, we do not expect a significant spread to materialize
between the Class A and Class C shares.
Estimate changes
We are adjusting the number of shares to incorporate the stock
dividend. As a result, our share count goes to 685m, 689m and 693m
from 342m, 344m, and 346m in 2014, 2015 and 2016. As a result, our
non-GAAP EPS estimates go to $28.52, $33.61 and $39.01 from $57.04,
$67.22, and $78.02 in 2014, 2015 and 2016.
Valuation
We maintain our BUY recommendation and cut our price target from
$1,400 to $700 to adjust for the stock split. Our new target is based on
21x (unchanged) our 2015 non-GAAP EPS estimate of $33.61 (adjusted
from $67.22).

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