GOOGL - Google

[silverhawk]

New players such as twitter and snapchat are likely to take share from print advertising and the savings from television advertising due to programmatic advertising.  Their advantage will be the large number of users they are able to provide, attractiveness of user demographics, cheapness relative to audience reach and better targeting and measurement.  New players are much more of a threat to facebook rather than google because they don't compete on search which is generally performance and intention based.

 

The margin of safety is that ex stock based compensation google trades at 18x forward earnings despite the fact that it has 15%+ growth and 40% EBITDA margins.  For the next couple of years, google has bought itself runway with the growth in mobile search, youtube and the google play store.  The company has $60bn in cash and is generating $20bn a year and is very likely overspending in capex, acquisitions and operating expenses because it's fun and the company wants to avoid anti-trust allegations.  Below is a presentation on internet trends from a vc about trends in tech and advertising.

 

http://kpcbweb2.s3.amazonaws.com/files/85/Internet_Trends_2014_vFINAL_-_05_28_14-_PDF.pdf?1401286773

[klarmaniac]

Does anyone know why the gap between GOOGL and GOOG has been increasing over the last 3 months? It's now ~4%.

Does this mean the market thinks GOOGL's higher voting rights deserve a premium (despite the fact that the third class of shares really have most of the voting power)?

I got a distribution of ~$1.50/share on 5/2/15 for my GOOG shares. Is that the only payment there will be? If so, then it seems that Google took GOOGL from its shareholders and gave them something that the market now says is worth $20 less, and paid them $1.50 for it. Am I confused?

[Haasje]

I don't know why it is increasing. People are writing articles about how the non-voting shares suck all the time and I think these are kind of off-base so that's why I wrote this article:

 

http://seekingalpha.com/article/3236926-google-why-i-prefer-the-non-voting-shares

 

I only own non-voting shares and this  is roughly how I think about these but I could be wrong ofcourse :), I kinda hope the discount widens a lot more. Really makes no sense to me.

 

[Liberty]

Kind of wishing I had just held Google since I first started this thread in 2011. It's now done almost as well as Apple since 2011. Oh well, I redeployed the capital in other things that did well too and that I like more, so no point having regrets :)

[TwoCitiesCapital]

https://investor.google.com/releases/2015/0810.html

 

Google announces restructuring and renaming holding company to "Alphabet"

[berkshire101]

https://investor.google.com/releases/2015/0810.html

 

Google announces restructuring and renaming holding company to "Alphabet"

 

So like a version of brk?

[Jurgis]

The Rise of Conglomerates

[KCLarkin]

What the...? Huh? Wha? If this company wasn't uninvestable before, it surely is now. Any idea why this is jumping after hours? Is it because Larry and Segei will leave Google alone?

 

I guess from a SOP, you can separate the core search business from all the value destructive activities that Larry and Sergei enjoy.

[jawn619]

What the...? Huh? Wha? If this company wasn't uninvestable before, it surely is now. Any idea why this is jumping after hours? Is it because Larry and Segei will leave Google alone?

 

I guess from a SOP, you can separate the core search business from all the value destructive activities that Larry and Sergei enjoy.

 

what you say is value destructive some view as the needed investment in innovation that corporate America is afraid to make. I think this is a savy way to structure what others have seen all long about Google's operating structure.

[Liberty]

Interesting reversal. Not so long ago, everything was supposed to become more integrated into Google+ and more focused (they even killed Google Reader, which everybody loved and used, to 'focus' more). Now they kill Google+ and decide that everything should be more siloed and they should go into more separate directions. It will be interesting to see if this approach will be more succesful.

[Palantir]

I'm so confused.

[cogitator8]

There is only one Warren Buffett, Brin and Page can try and emulate him but don't think they will succeed. But I could be wrong, however what I have seen so far doesn't add up.

[rkbabang]

There is only one Warren Buffett, Brin and Page can try and emulate him but don't think they will succeed. But I could be wrong, however what I have seen so far doesn't add up.

 

I've never heard either one say they wanted to emulate Buffet. They are 100% technology focused and Birkshire isn't tech focused at all. Also they try to develop new ideas in house and grow them, or buy companies while they are fairly small, neither tactic I'd Birkshire's M.O.

 

The only similarity you could possibly make is the corporate structure, but not every conglomerate is BRK, or even trying to be.

[rb]

what you say is value destructive some view as the needed investment in innovation that corporate America is afraid to make. I think this is a savy way to structure what others have seen all long about Google's operating structure.

Yea, but Google is supposed to be a business that makes money for shareholders, not a patriotic venture. If Brin and page want to do their patriotic duty to invest is cool innovation that don't provide return on capital they could do it with their private funds, not with all of the shareholders' money.

[Jurgis]

Yea, but Google is supposed to be a business that makes money for shareholders, not a patriotic venture. If Brin and page want to do their patriotic duty to invest is cool innovation that don't provide return on capital they could do it with their private funds, not with all of the shareholders' money.

 

They are doing it with their private supervoting funds.

 

;)

[adesigar]

There is only one Warren Buffett, Brin and Page can try and emulate him but don't think they will succeed. But I could be wrong, however what I have seen so far doesn't add up.

 

I've never heard either one say they wanted to emulate Buffet. They are 100% technology focused and Birkshire isn't tech focused at all. Also they try to develop new ideas in house and grow them, or buy companies while they are fairly small, neither tactic I'd Birkshire's M.O.

 

The only similarity you could possibly make is the corporate structure, but not every conglomerate is BRK, or even trying to be.

 

https://investor.google.com/corporate/2004/ipo-founders-letter.html

 

 

1 Much of this was inspired by Warren Buffett's essays in his annual reports and his "An Owner's Manual" to Berkshire Hathaway shareholders.

[cubsfan]

There is quite a lot of admiration from Google management for Berkshire. Ron Olson, BRK board member,

represented Sergey and Larry during Google IPO and has stayed quite involved with both on other matters.

So to maybe see a similar corporate structure that emulates Berkshire shouldn't be too shocking.

[rpadebet]

What are the chances that they will go full blown john Malone next by shuffling pieces around, creating trackers, spin offs etc

 

Individual trackers for Google search, for gmail, for android, for YouTube, Google ventures and Google global would be great. Of course we would also need the A, B & K  class stocks with different voting rights and liquidity.

[meiroy]

BRILLIANT move by the owner operators of this fantastic business. This is so good on so many levels.

 

I've been riding this for a long time and will stay on, far easier to bet that Goog.. I mean Alphabet will be a fantastic company 5, 10 or 20 years from now compared to Apple or Facebook. Oh and BTW, China has just started to devalue the RMB. Watch apple crash. Not that Alphabet will escape the coming global slowdown due to this, but still far less direct exposure.

 

Fantastic!

 

 

[Palantir]

I guess somewhere in these moonshots people can forget that Google is a search advertising company that has regularly failed on most of its projects outside of advertising. Google has a great business model that makes money for vanity projects. This is cart driving the horse.

[Liberty]

Search is a fantastic business, and Google has been diluting it with all kinds of other stuff because they don't have reinvestment opportunities in their core business to use all the cash it generates. This is like Visa or Mastercard buying movie studios and shrimp farms, to use the old Coke story...

 

This stuff might be good for society (R&D), and I'm not against it on that level. But I don't think it's very good for shareholders. The chances that these moonshots will ever be anywhere near as good businesses as search+advertising is very slim, so it's diworsification from a shareholder's point of view. Enough years of reinvestment in inferior businesses and at some point they become bigger than the fantastic core. For shareholders, they'd be much better off focusing on search and a few ancillary things that strengthen search and then doing buybacks and/or dividends with the cash.

 

But since I'm not a shareholder and it's not my capital, I'm glad they are doing R&D in clean energy and self-driving cars and medical science and all that. I love it! :)

 

IMO the best solution would be: If Larry and Sergey want to do moonshots, they can use some of their personal billions to do venture investments rather they use a public company as their piggy bank. Heck, if they had Google use its FCF to mostly do buybacks and dividends, they could fund their venture investments just from the divvys...

[rb]

I think that's pretty much perfectly put.

[TwoCitiesCapital]

I think that's pretty much perfectly put.

 

It sure is, but you should've known this was a company not run for the shareholders. It's a great business - phenomenal actually. Much of that benefit accrues to employees, customers, and users, and not all to shareholders. But that being said, shareholders still have quite the investment on their hands if they held long-term. Even those who bought at the very peak of 2007 haven't done too badly for themselves after this year despite paying 45x earnings right before a monstrous 60+% decline.

 

I don't think a 30x multiple is reasonable for this company. It might be if it wasn't blowing so much FCF, but not when it is going to continue to do that. YouTube and Google Search are insanely valuable propositions. Gmaps and Gmail/Inbox and Chrome also have extreme value when tied into these other resources. I'd be happy to pay 30x for just these, but you can't. I sold all of my shares in tranches back in 2013/2014 when prices were around $900-1200 ($450-600 adjusting for split). After the blowout earnings and this announcement, it's up from that point, but it took it nearly 2 years to do it and this new announcement to do it.

 

I'd imagine the price stagnates around here and that we won't see a significant new high for awhile. I can never be sure how ridiculous the market is willing to get, but it's far too high a price for me. I'd be happy to buy again if we see a 30-40% correction on weak earnings/economy/etc.

[DCG]

Search is a fantastic business, and Google has been diluting it with all kinds of other stuff because they don't have reinvestment opportunities in their core business to use all the cash it generates. This is like Visa or Mastercard buying movie studios and shrimp farms, to use the old Coke story...

 

This stuff might be good for society (R&D), and I'm not against it on that level. But I don't think it's very good for shareholders. The chances that these moonshots will ever be anywhere near as good businesses as search+advertising is very slim, so it's diworsification from a shareholder's point of view. Enough years of reinvestment in inferior businesses and at some point they become bigger than the fantastic core. For shareholders, they'd be much better off focusing on search and a few ancillary things that strengthen search and then doing buybacks and/or dividends with the cash.

 

But since I'm not a shareholder and it's not my capital, I'm glad they are doing R&D in clean energy and self-driving cars and medical science and all that. I love it! :)

 

IMO the best solution would be: If Larry and Sergey want to do moonshots, they can use some of their personal billions to do venture investments rather they use a public company as their piggy bank. Heck, if they had Google use its FCF to mostly do buybacks and dividends, they could fund their venture investments just from the divvys...

 

 

Agreed.

[mcliu]

I actually think it's great for shareholders that Google's investing in these new areas. Technology moves so quickly that if you just focused on a core area, you may be missing out on the next big thing.

 

I mean if Google never made Google Maps, or acquired YouTube, it would be a much less valuable business today. Likewise, areas like self-driving could be the next $100 billion dollar business.

 

If you have to capabilities, why pigeon-hole yourself into a narrow segment? Technology is more IQ intensive than capital intensive. If you create great technology, the cost may be in the millions, but the potential benefits in the billions or trillions.