Selling Google was a heart wrenching decision for the Forager investment team. Its core business is one of the world’s best and it is available at a very reasonable price. But how can you value a business where the CEO states he wants to use the profits to solve the world’s problems?
I’ve always maintained that when you make a big decision, you know the next day if you made the right call. Whether it’s ending a relationship, quitting a job or selling a stock, you are going to be feeling relief or regret the next day. If it’s relief, more often than not you have made the right decision.
We sold our Google shares at the start of this year, and I haven’t felt comfortable with the decision since.
A month after we sold, the company hired a new CFO, Ruth Porat. Since joining the team, she seems to have made a clear impact on a number of the issues we lamented. She refocused the company’s cost discipline, curtailing expense growth to much more moderate levels. She also reined in capex spending – an area that had ballooned in recent periods. Most importantly, she changed the nature of the dialogue away from one obsessed with “growth for growth sake” to one about seeking attractive returns and shareholder consideration.
Given CEO Larry Page’s public comments about his desire for Google to solve the world’s problems, this shift felt to us like Ruth was successfully championing a more pragmatic approach within the company. The recent announcement outlining a reorganisation – a core Google unit which includes Search, YouTube and Android will operate and report separately from Google’s more speculative endeavors – further suggests that shareholder interests are being valued in a manner previously unthinkable within the Googleplex.
Why the change? It is hard to say and, perhaps, it is only cosmetic. But one factor could be Google’s highly talented employees. Page might be rich enough to ignore the Google share price, but the rest of his employees, for whom equity is a significant component of remuneration, don’t have that luxury. If he wants to retain and attract the world’s best and brightest, Page needs to start giving his share price some attention.
On the back of these developments and last week’s market whipsaw, we have opportunistically bought a little stock. We still have concerns. Ironically, this realignment could give Larry even greater license to pursue ever loftier moon shots. And the issues with European (and now Indian) antitrust authorities aren’t going away any time soon.
But the global transition to online advertising is only getting started and Google has a chokehold on the infrastructure that underpins the digital world. We love Google’s position in mobile, and believe that YouTube is in the early stages of dramatically growing its profitability.
It’s only been a week but I’m feeling better already.
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