Will Google’s shop­ping spree pay off?

Financial Mirror (Cyprus) - - FRONT PAGE -

It is no se­cret that Google didn’t have the great­est start to the year. Its stock failed to im­press amid the bad press that the firm re­ceived as it be­gan to erase search re­sults in re­sponse to EU pri­vacy laws and as it im­ple­mented a stock split that con­sol­i­dated the power of its founders, sidelin­ing the mi­nor share­hold­ers. How­ever, the tech su­per­power has been flex­ing its mus­cles again. Can it re­store the faith of in­vestors in its long-term global vi­sion?

Google re­ported its sec­ond quar­ter earn­ings in July, its first re­port since split­ting the stock into two classes, and the re­sults were mixed but over­all pos­i­tive. Rev­enue was up 22% from last year, with net rev­enues to­tal­ing $12.67 bln, higher than the $12.39 bln that an­a­lysts had fore­cast. Yet earn­ings per share were lower than ex­pected, and pre­dictably, the rise of mo­bile us­age meant that the cost per click of web-based ads was down, now 6% lower than last year.

It is im­por­tant for in­vestors to keep in mind that the growth of the mo­bile mar­ket is not a neg­a­tive for Google per se but it does re­quire the ad-based busi­ness to adapt. Google’s share of mo­bile ad spend­ing in the U.S. dropped from close to 50% in 2012 to 41.5% in 2013, while Face­book’s share rose. Google has said pub­licly that it is work­ing on bet­ter un­der­stand­ing how users ex­pect their var­i­ous de­vices to com­mu­ni­cate and hopes to take ad­van­tage of the re­sul­tant busi­ness op­por­tu­ni­ties. The goal is to stream­line the user ex­pe­ri­ence be­tween mo­bile and desk­top.

It’s not only their pub­lic state­ments that ex­ude con­fi­dence. Google en­joyed a hir­ing spree in the last quar­ter, adding over 2,000 peo­ple to its ex­ist­ing 50,000 strong team. The world’s largest on­line ad­ver­tiser also more than tripled its spend­ing on ac­qui­si­tions to $4.2 bln in the first six months of the year, com­pared with $1.3 bln for the same time pe­riod in 2013. In a fil­ing last Thurs­day, the com­pany ex­plained how the ac­qui­si­tions “en­hance the breadth and depth of our ex­per­tise in engi­neer­ing and other func­tional ar­eas, our tech­nolo­gies, and our prod­uct of­fer­ings.” The im­mense scale of spend­ing proves that Google is ex­plor­ing new mar­kets and is in­deed look­ing to adapt its busi­ness model to the quickly chang­ing tech scene. With­out a doubt, Google’s deep pock­ets make it a se­ri­ous com­peti­tor in any field it chooses to en­ter. While we may not yet be see­ing the full re­sults of Google’s ac­tiv­ity re­flected in the stock price, many an­a­lysts are con­fi­dent that the sec­ond half of 2014 could con­tinue on a pos­i­tive note; it may only be a mat­ter of time un­til the firm’s in­vest­ments lead to prof­its.

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