WSJ: A Very Gloomy Picture Of Larry Page's Short Tenure As Google CEO (online.wsj.com)
Challenges have piled up for Mr. Page since he assumed his post in April. They include a broad U.S. antitrust probe of the company's practices; the settlement of a long-running criminal investigation into Google's advertising business; and shifting industry forces that led him to make a deal to buy mobile-device maker Motorola Mobility Holdings..
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[ 2.3 ms ] story [ 73.7 ms ] threadActual Google search link that will work when clicking through to WSJ.
All the rest is short term ephemera. 9.1% vs. 8.4% is, as you note, nothing. The Motorala deal is for the patents, and they'll probably spin off the hardware end after the deal closes. Expensive but well within Google's budget. As for the $500 million payment, the federal government is suing every company it's not bailing out. Nowadays some sort of federal shakedown is just a cost of doing business in the US, unfortunately. Heck, some guy even recently tried to get Dropbox in trouble with the FTC. You get big enough and you're just a target for all kinds of this stuff.
In his short tenure, Page cleaned house, fired tons of nonperforming "VP Bizdev" types, and catalyzed nothing short of an engineering renaissance at Google. Google+ in particular is tremendous for internal company morale and has stemmed the tide of defections to FB. Page knows what's important, but Amir Efrati, the author of this Journal piece, clearly does not.
If Google+ stemmed defections to Facebook that is a good thing. But hopefully a lot more is in store than what Google+ delivered. It was not nearly enough to undo Facebook's market dominance.
Eric might have found another solution to the Motorola merger if he was heading the company. But who knows if it would have been better. He already passed on both Palm and Sun. Together they would still have been much less than Motorola and probably twice as useful.
Nortel: $4.5B / 6,000 patents = $750k per patent.
MMI: ($12.5B - $5.5B (cash and assets)) / 14,300 patents = $489,510.49 per patent.
Plus 6,700 patents pending.
Plus a hardware company.
It was a lot of money. But it looks like a pretty good deal against the market rate, if the Nortel deal was any indication.
Schmidt is still executive chairman.
[1]: http://blog.byjoemoon.com/post/9026076073/google-motorola-an...
A company's Return on Invested Capital is the ultimate measure of a company's valuation. Basically, ROIC is a measure of how efficient a company is in using its capital to generate returns.
Let's compare Apple and Google's ROIC. Last time I checked a few months ago, Apple's return on invested capital is 30.4% with 5 year average of 26.1% despite Apple having lower gross profit margins compared to Google. a 30.4% ROIC is amazingly high for a "hardware company". Google's return on invested capital is only 18.3% with 5 year aveage of 17.2%. Now why is that?
Different types of growth earn different degrees of return so not all growth is equally value-creating. Growth strategies based on organic new product development (ie. iPod, iPhone, iPad, iMac, etc.) frequently have the highest returns because they dont require much new capital. Apple can add new products to their existing factory lines and distribution systems, without much capital expenditure. The investments to produce new products are not all required at once. If preliminary results are not promising, future investments can be scaled back or canceled.
Contrast this with Google's growth strategy of acquiring companies (Motorola, Youtube, Android, Doubleclick, etc.). Acquisitions require that the entire investment be made up front. The amount of up-front payment reflects the expected cash flows from the target company plus a premium to stave off other bidders. So even if Google can improve the target company enough to generate an attractive ROIC, the rate of return is typically only a small amount higher than its cost of capital. Factor in the additional traffic acquisition costs and costs of running hundreds of thousands of servers to support Google search, Youtube, Blogspot, GMail, etc. and you'll see why Google's return on invested capital is much lower compared to Apple.
Google also has a habit of wasting money on money-losing initiatives with low ROIC (Google's $280-million solar power initiative, self driving cars, etc.) which further dilutes its average returns. Wall Street perceives the $12.5 Billion Moto acquisition as an expensive and inefficient use of capital that will further dilute the company's ROIC.The recent $500 million settlement with the DOJ is another concern.
and that is why Apple is the most valuable company in the world. Meanwhile, Google's market cap has been stucked in the $170-$200B range for a couple of years or so.
Here's the number one rule of conservation of value: "anything that doesn't increase cash flows doesn't create value".
(that was sarcasm of the Googley kind, you see when you work at Google and you say something like "Uh to do that wouldn't we have to violate the 2nd law of thermodynamics?" and someone will respond with "You can't use what you knew before to evaluate Google, we've changed the rulebook and its a whole different universe!")
(that was sarcasm of the ex-Googler kind :-)
So meta comments aside, this is an excellent insight into the key 'issue' that most investors have with Google, it doesn't provide a return. The reason for that is that a lot of the capital flowing into Google is being spent on speculative ventures, from self driving cars to alternative ways of converting solar energy into power. So billions come in, and they get spent on things which have a zero ROI, on the off chance that one of them will have a huge ROI. Sort of a VC firm wrapped inside of a search company.
Using the eponymous self driving car as a reasonable example, seriously, if you have the technology to build self driving cars at a modest premium over manually driven cars you can build a business around that. Automated taxi fleets for example would be a trivial way to disrupt an entrenched market, put a lot of people out of business, and get all that money. Calculating the ROI on that, you go from zero to a lot (I can't find a solid number for cab revenue in the major metro areas sadly, I'm sure the Uber guys know it though).
Wall street hates Google for pretty simple reasons, they don't tell them enough to evaluate their business, they have 'golden' (aka Class-A) shares that allow Larry, Sergey, and Eric to out vote all the other shares combined (so there is no share holder leverage) and they don't show any respect to wall street bankers. So far its working in Google's favor, but it is an open question as to whether or not they can keep it up.
Is there some reason to think that studying business will not contribute to your knowledge of business?
To those with MBAs, how am I wrong here?
While I can't vouch for business school curricula, I would think that a business school that only performed cases studies in a narrow range of industries would simply be a poor (or alternatively, a specialist) business school.
So who wants to speculate on motivations: Murdoch business interest? Or a sense that Google and Obama are friends?
Even if he wasn't focused on these long-term projects, it would be foolish to judge him this early on. This piece speaks more about the cynicism of WSJ than of Page & Google.
1: http://latimesblogs.latimes.com/technology/2011/04/exclusive...
In fact, two things that "destroyed" value (at least in the short term) happened under Larry's watch. 1) 12.5 Billion acquisition of Motorola 2) $500 Million settlement with the DOJ.
Read my other comment below for more details.