A nice set of numbers are obscuring the indelible stain of a company beginning to be run for the benefit of employees over shareholders.
- Google reported in -line Q4 numbers as advertising revenues rose for the traditional Q4 push to consumers.
- The shares experienced what I would consider to be a relief rally as the advertising revenues are holding up better than many had feared given the economic outlook.
- Revenues, EPS were $12.2bn, $10.65 compared to Bloomberg consensus at $12.4bn, $10.50.
- No meaningful guidance was given.
- UK and US remain the major markets while southern Europe dragged down the overall growth rate somewhat.
- Losses at Motorola Mobility declined compared to last quarter but the company managed to lose another $152m equating to margins of around -10%.
- Bear in mind that this was a company that Google acquired for $12bn, where it has made nothing for shareholders from the patents and which has persistently lost huge sums ever since acquisition.
- Despite big talk on the call about developing the business, the background of new management of Motorola paints a picture of bean counting rather than innovation.
- This means to me that, at best Motorola will dwindle further into insignificance in mobile phones with the exception of rivers of red ink presented each quarter.
- Why Google holds onto Motorola remains a total mystery as it adds nothing but losses and I am sure that the Chinese would jump at the opportunity to own something in the US.
- This combined with the fact that Google is ranked by Forbes as the best place in America to work for the fourth time and the $1bn being blown on a swanky new London HQ (of which more tomorrow), leads to me think that Google is starting to look like Siemens.
- Siemens is a company, which to my mind has long been run for the benefit of the employees to the detriment of shareholders.
- Companies that prefer employees to shareholders are more often than not serial underperformers and I am starting to get worried that Google is edging in this direction.
- Don’t get me wrong, I like Google for the position that it has craved for itself in the new economy and its long-term outlook but these red flags are becoming too numerous to ignore.
Blog Comments
tatilsever
January 23, 2013 at 9:43 pm
Actually, if you take GAAP numbers, so that many one time charges are not excluded just because it does not reflect well on the company, Motorola Home has a $353 million loss, bringing the full year loss to over $1 billion. If you add that to $12.5 billion cash purchase and subtract $2.35 billion (not all of it in cash) it is supposedly earning from selling the Home unit, we end up with $11.2 billion overall spending on Motorola. Some of those Motorola losses become tax deductions (at 18% effective tax rate), but in the end that is probably still a little more than how much it would have earned (as net income) in all of 2012 without Motorola and substantially more than what it has earned in 2011.
During the sale, may news sites mentioned $3 billion cash Motorola was carrying and subtracted that amount from $12.5 billion price to get the supposedly effective price, but I don’t think such a simple subtraction makes much sense as Motorola had liabilities that could easily take out a good chunk of that cash over and above the non-cash assets. That might be why Google did not argue that point.
windsorr
January 24, 2013 at 3:37 pm
I think you are stregnthening my argument that this was a disasterous acquisition that has delivered nothing but pain for shareholders,
tatilsever
January 24, 2013 at 10:00 pm
Certainly. I am not as upbeat about Microsoft’s future as you seem to be, but otherwise, it is difficult to argue against your bullet points.
If Google could articulate a vision for what it wants to accomplish by owning a handset maker, shareholders should not complain that Google may have overpaid a little. It is not like there are many other handset makers that were available for purchase, especially if geographical proximity is a concern. Unfortunately, it looks like Google simply overpaid for a patent portfolio, after making fun of the price paid for Nortel’s patents, without a strategic plan in mind. This looks like a write-off waiting to happen.