Where's the Payoff for Google Investors?
Google released its fourth-quarter earnings on Thursday, and those results were pretty lackluster. The company delivered decent, if disappointing, growth. GAAP earnings per share rose to $6.91 in the fourth quarter from $4.95 a year ago, but Wall Street expected $7.11 a share. Revenue rose by 15 percent over the previous year to $18.1 billion.
The company still makes most of its money by selling cheap online ads. Paid clicks in aggregate increased by about 14 percent over the past year. But the average cost per click -- the price advertisers are willing to pay Google to host an ad -- decreased by 3 percent. This slowdown in growth and in pricing is in keeping with the company’s last few quarters. Ultimately, the stock market shrugged.
If you want a staid company that’s a leader in a lucrative market -- say, selling cheap ads against search results and Web videos -- you might find Google very attractive. It could deliver not-terrible but not-spectacular numbers for many quarters to come.
Google may not end up dominating mobile search, and it will cede some online-search market share to the likes of Yahoo. But those trends won’t be enough to doom it for many years. The numbers will feel perfectly fine in the way that a burger from room service is perfectly fine: It'll get the job done, but it won’t be an In-N-Out.
As with any older company with lots of cash, a steady business and slowing growth, it’s time for Google to issue a dividend. When an analyst asked about the possibility of a shareholder payout, the company’s finance chief, Patrick Pichette, said he had “nothing to announce” on the issue. He did make reassurances that the company cares about share price and that it reviews the topic on a regular basis.
Pichette’s reassurance was nice, but let’s face it, nice doesn’t mean very much. His company, after all, spent untold hundreds of millions of dollars on a mysterious but ultimately scrapped barge project and the intriguing but ultimately doomed Google Glass.
Google has $64.4 billion in cash on hand and it produced $2.81 billion in free cash flow in the fourth quarter. That’s a lot of money for the moonshot stuff that Google says keeps the spirit of innovation alive at the company. It’s a lot of money for new business lines that could pay off, such as Google Fiber, the company’s plans to become a wireless carrier, or investments in companies that connect the world to the Internet via satellite. And it’s cash that can cover huge capital expenditures on the real estate and data centers that it needs to compete in the cloud.
But that kind of cash should also be enough to cover a modest dividend to reward investors who don’t mind slow growth, or who are patiently waiting for a balloon project, a satellite investment or a Wi-Fi carrier plan to pay off big time.
Google’s results weren’t that exciting, but there are plenty of reasons why investors gravitate toward unexciting companies. Dependability is one. Dividends are another. It would be nice if Google could offer both.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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