Google Crushes Q1 Earnings; Announces Stock Split
“This is not the usual yada yada... so please read on.”
Those were the first lines from David Drummond's, Chief Legal Officer of Google Inc., postscript on Thursday's investors call.
Straight from the horse's mouth.
Claiming any news out of Google as “big” is typically an understatement for the mega search engine. But yesterday, in the company's quarterly earnings statement, alongside it's massive revenue jump, they announced a lot of new plans that will make investors' ears perk up.
Google's Q1 2012 revenues are up 24% year-over-year to a massive $10.65 billion. And practically within the same breath in Thursday's investors call, Google CEO Larry Page said, “Today, we announce plans to create a new class of non-voting stock.”
Page made sure to calm investors' minds by pointing out that the new class of stock would not have a significant impact on the way Google is controlled, but rather, as he put it, the stock “will only have an effect on governance in the very long term... We are honored that so many of you have put your trust in us.”
The proposition effectively means that shares are being split two-for-one while Google will have to spend a serious amount of their cash (although still having a massive amount hoarded) strictly on dividend payouts. As our friends at ZeroHedge sum it up, “In other words, Google is the next Apple forced to start paying dividends, a decision which took the board 15 months... At least AAPL did not become the NYT in the process... Thank you Fed for forcing every company's capital allocation decisions.”
Thanks to the zero interest rate policy (ZIRP), companies like Google and Apple have had its interest income completely collapse.
But what about Google's other tech competitor, Facebook? It looks as though the two are beginning to follow suit. Google's founders were to be put at ease by Page's gratitude of trust, as each founder get ten votes per share of stock they hold. This arrangement is quite similar to how Facebook CEO Mark Zuckerberg arranged to maintain control of his company and board following the social network's highly anticipated IPO.
Facebook is Google's largest competitor, becoming fierce rivals in recent years. Fighting for the ad dollars that make up the humongous 96% of Google's revenue with Facebook has led to the search engine strategically splitting its stock just weeks before the Facebook IPO.
The message is loud and clear to potential tech investors: Go with Google, forget Facebook.
But is it a wolf in sheep's clothes move? Friday, just less than 24 hours after this “big” news of the booming Q1 2012 revenue figures and the stock split plans, shares for GOOG fell as much as 4% after a second straight quarterly slip in search advertising rates. Ultimately whipping away the excitement from the previous day's announcement.
Perhaps it's a power move by Google to look more attractive to its investors as they venture into unexplored territory for the company? It's unknown right now, but as for the stock split, it looks as if it was a necessary step forward to keep up with Facebook's IPO.
In today’s two-for-one split, each current shareholder will get an additional non-voting share for each share of Google stock he or she currently holds. In other words, if I owned 100 shares of Google stock, I would close the day with 200 shares of Google stock.*(For illustrative purposes only.)
Google SVP David Drummond gave more details about the stock split, saying that Class C stock will have equivalent rights to Class A and Class B stock, but without voting privileges. Existing shares will continue to trade, and Class C shares will also be publicly listed.
Normally in a two-for-one split, the share price is adjusted accordingly so that Google shares (currently trading around $650 each) will see a dip down to half that amount (roughly $325 per share). But for investors thinking to jump on board at the lower price, they must do so quickly, as this price will not stay down for long. Less wealthy investors, that potentially want a piece of the Google pie, must grab it while it's hot (or cheap), so to say.
In 2004, Google made it's first public offering at $85 per share, which spiked to a high of $714.87 on December 7, 2007. At that time following the peak, Google executives had to fight off the swirling rumors that the stock would split.
It's not big news that Google has topped tech stocks for years now; in fact, Apply stock prices surpasses Google's for the first time ever just earlier this month, which is said to be an apparent if you look at the search engine's share price compared to Apple's. Google's price is currently hanging around $36 higher than that of the manufacturer of devices like the iPad and iPhone that so frequently use the huge search engine's platform.+5
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