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Global Markets

Will Google’s shopping spree pay off?

30 July, 2014 | Posted By: Oren Laurent

By Oren Laurent
President, Banc De Binary

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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