Firms splits stock to keep founders in driving seat
Search engine behemoth Google announced its first quarter revenue after the bell last night, meeting analyst expectations but also announcing that it is doing a stock split that sees its founder retaining their controlling stake.
First quarter revenue came in at $8.14 billion, in line with investor and analyst expectations. Shares rose 0.6 percent to $655 in after-hours trading. But perhaps the bigger news was that the firm is going to do a stock split, essentially giving a tranche of stock to existing shareholders as a dividend in the ratio of two for one. But the split has been carefully engineered so that Google’s founders Larry Page and Sergey Brin retain control of the search engine firm.
"When we went public, we created a dual-class voting structure. Our goal was to maintain the freedom to focus on the long term by ensuring that the management team, in particular Eric, Sergey and I, retained control over Google’s destiny," Page said in a letter explaining the moves.
"We are creating a corporate structure that is designed for stability over long time horizons. By investing in Google, you are placing an unusual long term bet on the team, especially Sergey and me, and on our innovative approach."
"This stock split dividend, a dividend of a non-voting shares, is really just so the company can maintain control," BGC analyst Colin Gillis said.
The announcement comes just as Page completes a year of his return as chief executive.
Net revenue, excluding fees paid to partners, came in at $8.14 billion in the three months ended March 31, compared with $6.54 billion in the year-ago period. Analysts had expected $8.15 billion according to Thomson Reuters. Earnings came in at $10.08 per share, excluding certain items, surpassing the $9.65 that analysts had predicted – a welcome relief after Google had missed earnings estimate in its previous quarter.
Net income was $2.89 billion, or $8.75 per share, compared with $1.80 billion, or $5.51 a share, in the year-ago period (when Google also wrote down a $500 million charge to settle a government probe into its advertising practices).
The results show that Page has settled into his new role as CEO well since he took the reins a year ago. He’s steadied the ship, got Google+ towards some semblance of proper competition against Facebook (though it has an awfully long way to go) and also signed a $12.5 billion deal to acquire smartphone maker Motorola Mobility Inc to help get its Android and phone businesses kicking harder. For now, Google is still every bit the search engine advertising king.
Perhaps tellingly, on the earnings call Page dodged questions as to whether Google will release its own tablet to compete with the Apple iPad and its ilk. Watch this space.