Well, Google (NASDAQ: GOOG ) , thanks for the memories (and the positive returns). I've decided it's time to remove Google from the Prosocial Portfolio I'm managing for Fool.com.
My decision isn't about current valuation, although I do believe some of my concerns could relate to growth risk over the long haul. I am worried about Google's future on several levels, and some of them have to do with starting to operate more like an old-school wannabe monopolist than a forward-looking company.
Why I'm selling: The list
This decision has been brewing for a while. I've finally got a collection of enough factors that are now bugging me about the Google investment.
- Google Apps soaks small business: Recent news that Google will now not only charge big corporations but also small businesses for its Google Apps product is, in a word, lame. Google Apps may be meant to compete with Microsoft's (NASDAQ: MSFT ) Microsoft Office products, but man. Google didn't have to channel a little Microsoft mentality by charging even small businesses (think micro, 10 or less employees) for this product. Not to mention Google's usually known for free products.
- The shareholder-unfriendly stock split: This was one of the key moments when I started to feel negatively about Google. It already had a dual-class stock structure, which exhibits a management that doesn't want to cede any control or voice to shareholders. However, three classes of stock? The coming Class C shares just add insult to injury (and absolute power to management).
- Google learns to lobby: It's a sad world when the biggest tech companies have finally realized that lobbying in Washington is a "great" route to gaining a competitive advantage. A recent Fast Company article pointed out that Google's lobbying spending is accelerating. That kind of behavior makes you wonder exactly what Google's worried about. What's wrong with focusing on the strength of core products and making expenditures on actual innovation rather than lobbying?
- Acquisition fatigue: Granted, Google does have plenty of money for acquisitions, but the Motorola Mobility purchase seemed uninspired and tired from the get-go. Then it resulted in something I had hoped I'd never see: Google layoffs. So far, it's not even viewed as a particularly wise investment, given the unit's continuing drag on Google's profitability. Meanwhile, recent rumors that Google might even consider buying Groupon (NASDAQ: GRPN ) gave me a case of the willies, even if they are just rumors. The fact that Google once offered $6 billion for it is a bit disenchanting given what we know about Groupon now (like its serious accounting problems and a deteriorating business model). Bad acquisitions can make big messes. Just ask Hewlett-Packard (NYSE: HPQ ) .
- Taxation and reputational risk: Google has frequently ended up in the crosshairs for its offshored money to shield its assets from U.S. taxation, and Europe's been doing some saber-ratting about the company avoiding taxes. Very recently and specifically, the United Kingdom's Parliament has confronted Google, Starbucks (NASDAQ: SBUX ) , and Amazon.com (NASDAQ: AMZN ) about their lack of tax spending in the country. (Note that Starbucks and Amazon are also both in my portfolio.)
This isn't to say that Google's a terrible investment for all investors; there are still many things to like about the company, including its emphasis on green energy, innovative technologies, treating workers very well, and making information accessible to all. The jury's still out on things like Google's self-driving car project, of course.
It doesn't even look tremendously overvalued, trading at 15 times forward earnings. On valuation metrics alone, lately several similarly huge and respected tech companies like Google can be had for a relative steal (except for Amazon, of course).
Regardless, I believe Google's power and behemoth size threatens to hobble it, management hubris may be a bigger risk than many investors might think, and the semi-radical model and outlook leadership described long ago in the company's IPO letter to potential shareholders seems to be deteriorating.
I'll always keep my eye on Google, and who knows -- in the long run, maybe I will end up regretting this decision. However, I feel more comfortable on the sidelines now, watching how the future unfolds for a maturing Internet giant that has grown a lot -- and now has a lot to lose.
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