A new era has truly began at Google (GOOG)

By: ispeculatornew
Date posted: 04.15.2011 (6:00 am) | Write a Comment  (0 Comments)

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Google might be one the top tech companies competing what sometimes seems like hundreds of companies at once through its dozens activities but Larry Page, one of the initial co-founders is now back on top and he seems on a mission. What is the mission? Quite simply to bring back Google to its roots, to what it was a decade ago when it was still operating in a start up way. Easy? Hardly! Running a public company with tens of thousands of employees as if it were still ran by Larry and his closest associates is no easy task. How is he doing it? Let’s take a deeper look at the company I love so much (as an investor of course!).

Using cash aggressively

Yesterday, Google announced its latest earnings and the stock is likely to drop 2-3% this morning as analysts were disappointed and surprised by the high level of spending that occurred (I still see the company as very undervalued) Revenues were in line but expenses were not and it showed as a large portion of the analysts asked questions regarding the revenues in attempts to determine if those will be recurring. It’s unlikely they all will be but I think it’s also obvious that the new Larry Page ran company will certainly be spending more.

Start ups must raise money at a rapid pace when they are successful in order to reinvest, improve products, attract top talent, etc. In just a couple of weeks, Larry Page has already bid about $900 million for a portfolio of patents that belonged to the now bankrupt Nortel Networks

Then, it became known that Google had thrown out tens of millions of dollars to retain a couple of high level product managers from defecting to Twitter. That is certainly aggressive and not something a more traditional public company would often do. Larry has also been increasing hiring in a few key sectors, increasing salaries to be more competitive, etc.

So what about all of the other employees? Google has basically deemed social to be critical for its future success and what are deemed to be growing challenges from Facebook. Larry page did not simply send out an email outlining the importance of the social projects success. Rather, he told employees of the entire company that a 25% bonus would depend entirely on the success of these initiatives. It’s unclear how much measures like this will help but it’s certainly a way to get employees back in the start up mentality.

Taking control of Android

Now that Google has basically captured all of the mobile momentum and that Android will soon own half of the smartphone market share, Google is bringing in some controls that while necessary will also mean more control and more revenues down the line. It will not become the next Apple but the notion of Android being open source is already questioned. That tendency is likely to continue over the next few years as Google starts making plans for increased profitability.

What about the shareholders?

I don’t think it’s difficult to see that management has changed and a new era has begun. The guy who thinks way outside of the box is now in charge and his priorities are not about pleasing shareholders but about taking Google stock to the next level but rather taking the company. In the long run it comes out to the same thing but I fear that in the short term such initiatives will mean increased costs with flat revenues. Why? The experiment for social is a good example as even success would bring limited short term benefits but would bring major costs because of those bonuses. So yes, that would mean diminished profits.

Another challenge will be that Page is not known for liking to communicate with the press or with financial analysts. He is shy and prefers to work on products than trying to explain what the vision or long term projects are and that will certainly result in less transparency for the shareholders which he will certainly be criticized for. It certainly would have been interesting for him to join yesterday’s Q&A portion of the call but I guess that will not happen very often unfortunately.

In the end

I think Page’s increased spending, big ideas and vision for a much more agile, faster, and better version of Google will mean diminished returns over the next few years if investors do not get a clear vision of what is going on (which they likely won’t) but will mean great things in the long term. So while I still believe in the short to medium term future of Google’s stock, I think the long term perspectives are even better and will remain a long term Google bull.

Disclosure: Long Google

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