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1. Introduction - The purpose of the paper. 2. Discussion - Consideration of dividend payout - Cash flows - Investment value - Long term focus - Fundamental analysis technique 3. Conclusion - Decision to invest in Google Abstract The paper analyzes what company Google, eBay or McDonalds is the best stock investment. Research is based on investor information with implementation of fundamental analysis technique. Gathered information allows making a decision to invest in Google.
eBay, Google, and McDonalds - Which of These Is the Best Investment The purpose of this paper is to analyze which company out of three would be the best investment. eBay and Google are relatively new IT companies compared to McDonalds. Nevertheless, I believe nowadays these companies are well established. Investing in IT companies today is more secure that it was in 2000 following IT market stock crash, because today it is clear that both eBay and Google are worlds leading Internet companies and year after year their positions become strengthened. On the other hand McDonalds has also perfect reputation and longer business history. Each year McDonalds opens new restaurants worldwide and this company can be also a good investment.
I would prefer to invest in Google, but my preference is based solely on my intuition. Therefore, I will examine the trends of each industry, gather investor information and compare three companies and after that using some investment techniques and analysis I will be able to decide which company will be the best investment. Let us consider share prices of eBay, Google and McDonalds first. Googles today price of share is $ 473. 55, e Bays $ 32. 81, McDonalds $ 41. 97.
Google and eBay do not pay dividends, while McDonalds has recently raised their dividend payout. Dividends on stocks can also be great additional source of income. McDonalds Board of Directors today approved an increase of nearly 50 % in the Company's dividend, raising the annual dividend from 67 cents to $ 1. 00 per share, totaling about $ 1. 2 billion. This dividend will be payable on December 1, 2006 to shareholders of record as of November 15, 2006. (web) As we know, free cash flow reflects the true health of a business. Firms with cash can buy back their shares which will cause the raise of their stock prices. If such firms have debts, cash income can easily cover them.
Also, companies with great cash flow buy other profitable businesses. Google is a perfect example they recently acquired Wiki and Youtube. For these reasons cash flow is the single most important factor that determines value of a company on the market. Google reported revenues of $ 2. 69 billion for the quarter ended September 30, 2006, an increase of 70 % compared to the third quarter of 2005 and an increase of 10 % compared to the second quarter of 2006. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC. In the third quarter of 2006, TAC totaled $ 825 million, or 31 % of advertising revenues.
TAC - Traffic Acquisition Costs, the portion of revenues shared with Googles partners, increased to $ 825 million in the third quarter of 2006. This compares to TAC of $ 785 million in the second quarter. TAC as a percentage of advertising revenues decreased to 31 % in the third quarter from 32 % in the second quarter. (web) Now lets focus on eBay. eBay reported consolidated net revenues of $ 1. 441 billion in Q 3 - 06, representing a growth rate of 30 % year over year which is primarily due to continued Marketplaces and PayPal growth and acquisitions made in the past 12 months, including Shopping. com and Skype. On a sequential basis, net revenues increased 1 % and were positively impacted by foreign currency translation in Q 2 - 06 by approximately $ 27 million. (web) McDonalds net revenue for the Q 3 - 2006 $ 5. 882 billion and net income was $ 843. 3 millions, while net income per share was only $ 0. 68.
U. S. comparable sales rose 5. 6 % for the month fueled by the Companys robust breakfast business and customer enthusiasm for McDonalds Monopoly game, which featured our appealing Chicken Selects and Premium Chicken Sandwiches. In addition, the ongoing popularity of the Snack Wrap continued to contribute to results. McDonalds Europe posted a 5. 5 % increase in comparable sales for the month driven by strong performance in Germany and France. McDonalds European business continues to benefit from a combination of initiatives including locally relevant menu selections, dependable everyday affordable options and engaging and innovative promotions. (web) Googles net income was $ 733. 36 million and e Bays net income was $ 280. 89 million for Q 3 - 06.
As we see, Google had the highest net income, which is a very positive trend for investment. However, one should not focus on income without growth. A successful business should expand. As I have discussed earlier, Google is rapidly growing.
More services are offered each day and more income Google obtains from online advertising. Also, the implementation of Google Store and payment processing may weaken e Bays positions on the market. eBay in my opinion has less bright future that Google. The companys ability to deal with the increasingly competitive ecommerce environment, including competition for its sellers from other trading sites and other means of selling, and competition for its buyers from other merchants, online and offline. (web) Now let us focus on McDonalds plans. In 2006, we expect to invest $ 1. 8 billion to open about 800 new McDonalds restaurants and remodel 2, 500 locations worldwide.
In 2006 and 2007 combined, we expect total cash returned to shareholders via dividends and share repurchase to be between $ 5 billion and $ 6 billion. (web) I have analyzed three companies using fundamental analysis technique, which represents the evaluation of the cash flows, share value and dividend payout. Investing in each company may have different characteristics. However, investment opportunities can be evaluated using the discounted cash-flow approach that takes the present value of anticipated future cash flows. I have decided to invest in Google because now my intuitive decision is backed up by healthy financial information about the company. I believe that Google is the best investment because of its expansion strategy, while e Bays perspective is somewhat uncertain.
McDonalds stock is also a good investment, but I do not believe it will bring high profits even though it is a trusted and stable business backed up with most assets out of three. Bibliography: Yahoo! Finance, web McDonalds Press Release, web web Google Investor Relations, web eBay Quarterly Results, web
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