Google and its bid to keep having its cake and eating it, too

Control, a cash hoard, continued revenue and profit growth, happy shareholders — can Google have it all? ?

In a letter to investors Thursday, CEO Larry Page made it clear: He and co-founder Sergey Brin attribute Google’s success to the power of long-term thinking, something that’s harder to engage in when faced with pressure from Wall Street.

“We have protected Google from outside pressures and the temptation to sacrifice future opportunities to meet short-term demands,” Page writes. He cites Android as an example of “investments not for the faint-hearted,” and points to Chrome and YouTube as successful products of long-term investments.

That’s why, as some clamored for dividends, Google on Thursday unveiled a stock split that will preserve the Mountain View company’s piles of cash and ensure that Page and Brin, and Chairman Eric Schmidt, retain voting control. (See the Biz Break(down) by Jeremy Owens for more details on the stock split.)

When you look at Google’s track record, such as the first-quarter earnings the company reported Thursday, what Page writes in his letter seems to make plenty of sense. The big question now: Can Google keep it up?

There are, of course, signs that the company isn’t invincible. The 61 percent increase in first-quarter profit came from keeping costs down, and revenue growth of 24 percent was slower than last year’s, the Wall Street Journal points out. Analysts cite the drop in cost-per-click ad revenue amid computing’s increasing shift from desktop to mobile. “No matter what they say, advertisers are valuing Google’s inventory less,” Colin Gillis, an analyst with BGC Partners, told the New York Times.

Google shares are down sharply today, more than 3.5 percent to $627.58 as of this post, after rising in after-hours trading Thursday. But the stock markets are having a bad Friday overall.

Critics of Google might also point to its share of missteps — including its approach to privacy policy — that have, to some degree, affected its reputation. (Although the company bested Apple, Facebook and Twitter in a recent tech-company popularity poll by ABC News.)

Corporate-governance watchers aren’t pleased with Google’s latest scheme to keep its tight grip on the company.

“That is anti-best practice as far as best governance, but so was the dual-class structure in the first IPO,” Paul Hodgson, a researcher at Governance Metrics International, told Bloomberg.

In his letter, Page acknowledges that those who weren’t happy with Google’s initial stock structure probably still won’t be happy. Google’s message today is the same as it was when it went public in 2004: The founders are saying “trust us, we know what we’re doing.” Now all they have to do is keep delivering.


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  • ToNYC

    So Larry says, if it ain’t broke don’t fix it; and by the way, father knows best.
    Trade away as always and enjoy your ride.

  • All of this handwringing about profits and splits and dividends is going to have the end result of cutting open the golden goose. It’s been done so many times it isn’t funny. I suppose that’s all based around the (mostly true) notion that once the corporation reaches a certain size, new innovation is more of an illusion than reality.

  • Markus Unread

    “long-term thinking, something that’s harder to engage in when faced with pressure from Wall Street.”

    Understatement of the year. Nice to see someone “real” say it.