Google (GOOG) is the ultimate search engine used and trusted by millions around the world, including me. For most Internet users, Google has become a way of life and its effects on our everyday lives are so huge that we have come to use the phrase "Google it," whenever we want to find out about something.
Current situation: The Good…
With China's slowdown moving investors to the edge of their seats and nerves, managers globally are worried that they will be next in line to see the effects of a weaker China affecting their companies. And with all that happening in the background, Google announced a 2-for-1 stock split that may have helped the Internet giant achieve one of the biggest declines in its share price.
For the first quarter of 2012, Google reported total revenue of $10.65 billion and a profit of $2.89 billion, which is very impressive when compared to last year's same quarter figure of $8.57 billion net revenue and $1.8 billion net income. Google reported first-quarter earnings of approximately $10 a share. Total revenue from the U.S. for the first quarter saw an impressive increase of 22% to $4.9 billion, and revenue from outside the U.S. doing even better with a 26% increase to $5.8 billion. This was a huge surprise for analysts who had been expecting revenue of $8.2 billion and earnings of $9.65 a share.
Its innovation and ability to react quickly to changes effectively is what keeps Google at the top with an 82% share of search engine market globally, compared to its competitors Yahoo (YHOO) and Microsoft's (MSFT) Bing at 7% and 4%, respectively. And the company's success is not going unnoticed. According to Schaeffer's Investment Research, as of April 2012, the last 10 trading sessions witnessed investors buying 1.8 calls to each put in Google on three different U.S. options exchanges as new position. That's a whopping 86% increase over all readings taken in the past year.
Current situation: The Bad and The Ugly … and The Future
Google's shares slumped last week -- a lot -- and not just because of the new class of "nonvoting" stock it introduced. Google gave up $26.41 a share and saw its all-time largest "one-day" loss since the beginning of this year in January, when it went down more than $53. Shareholders certainly did not like news of the new stock and revealed their distaste with the company's new plans, which was largely responsible for the$8.6 billion drop in Google's market capitalization. While the company has over $200 billion market cap, that figure is still significant and one that left more than just a little dent.
Why is everyone unhappy and what does this new line of stock mean for shareholders? Basically, over time, this will preserve 2/3 majority that CEO and owners Page, Brin and Schmidt have over the company's proxy voting structure. For example, if you have 200 (voting) shares of Google at the price of $600 per share (assumption) right now, after the split you will have 400 shares (200 voting shares and 200 non-voting shares) of price $300 per share. This way, your voting right of 200 remains with you and your investment also stays the same. As an investor, I see this split as an opportunity for many small-time investors to have an opportunity to invest in this ever-growing company.
There has been a lot of stir in the financial community since release of this latest piece of news, with CalSTRS, the $145 billion retirement system that owns over $400 million shares in Google, giving a statement to Reuters that it is unhappy with these latest developments and will be letting management know as much. However, even with all the opposition going on, the proxy authority that is already set by the founders will ensure that this new measure will go through. But all the same, the company reminded its shareholders this week that people who invested in Google in 2004 did so after putting a lot of "blind faith" in management -- and look at where it got them.
It's worth noting that Google was not the only company to suffer a decline in its stock, with Apple (AAPL) down over 3% to around $605 along with Cisco Systems (CSCO), Hewlett-Packard (HPQ) and Intel (INTC). So, the question many are asking is this: Is the stock split really responsible for Google's decline in profits, or has the stock split actually helped the company from losing more than it would have without it? Well, from my perspective, as Google was up 15% the previous day, the drop could have been people selling off on a profit plus the obvious slowdown in the global economy -- which has affected all sectors of the industry. I'd be really interested to see what Apple's figures were like in the first quarter. When it all comes down to it, investors like you and me couldn't care less about voting power and legal technicalities -- at least not when it comes to Google. We only really care about money and making a profit off our investments as we all expect to do when putting cash into a stock like Google.
Clearly, the latest report released shows that Google is doing significantly better than it was last year, with a $2.08 billion increase in profit -- that's a 24% rise this year from last year's figure! And those figures revealed above will be the last thing we read before leading social media website and top rival Facebook's $5 billion IPO, which was filed in February, happens in May. But we will see how that goes with the current plummets in the global market.
Whatever happens, though, you can rest assured that Google has no plans to stop acting bold, nor is it slowing down on new projects, with investments in self-driving cars and the digitalized eyewear that few people endorsed initially making headlines all over the world. Google also tapped into the world of application development, and this is becoming a fast income earner for the search engine giant. While clearly nowhere near the biggest source of income, it helps to keep the Internet giant competing with other competitors and prevents Apple from taking over the market completely. Some of the most popular products currently offered include YouTube, Google Chrome, Gmail, Orkut, Google Calendar, Google Group, Blogger and the Android technology. Of all the product lines, the most promising in my opinion is its mobile technology, or more specifically, the Android. The Android technology in mobile phones has brought a whole new wave in the communication industry through which developers can write programs in the Java language and can be managed virtually. Google also released a tablet-optimized version of its popular OS, the Honeycomb. This will be the first device based on this system, which is expected to be sold on the market later this year.
More recently, Google has been actively making a large number of acquisitions, especially in the SMB sector. The largest acquisition was that of AdMob, which was strategically made keeping in mind the company's future "mobile plans." Other acquisitions include ITA Software and Motorola Mobility. Google is trying to bring a large amount of patented software, which should help the Android Mobile advance in the market too.
Perhaps it's time that shareholders learn to simply let go of the reins and trust a management that has made plenty of sound investments that may have seemed uncanny or unlikely to succeed to the untrained eye at one point, but made shareholders and the company more successful than anyone could have possibly imagined. There's a reason why Google is currently the No. 1 search engine and is profitable in its other Internet endeavors, after all.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.