Why I'm Selling Google

Well, Google (NASDAQ: GOOGL  ) , 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.)

Goodbye, Google
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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Comments from our Foolish Readers

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  • Report this Comment On December 19, 2012, at 7:20 PM, SuntanIronMan wrote:

    I agree with you about the stock split. Considering your Prosocial Portfolio and this was announced in April, I was curious why this move took so long.

    Not sure if I see #1 and #3 reasons as particularly anti-prosocial (for lack of a better phrase).

    #1

    Nothing wrong with charging money for products you sell. Just because you didn't charge money before doesn't mean you aren't allowed to ever charge money for them in the future. If you think it is a bad business decision, that's one thing. But you argument just seems to be that the move "is, in a word, lame"

    #3

    History has shown as what happens when tech companies don't try to spend money on lobbying efforts (Microsoft in the 90s, back when they prided themselves on NOT lobbying politicians). I wish this wasn't so (or how I wish this wasn't so), but if you don't try to influence the politicians, the politicians will try to influence you. While I don't like companies spending large sums of money to influence politicians, it is unfortunately a necessary evil created by politicians. One of those "Don't hate the player. Hate the game." realities of the world.

  • Report this Comment On December 20, 2012, at 11:54 AM, TMFLomax wrote:

    Hi WhichStocksWork,

    I think I am generally not going to make any move all that fast. I was waiting to see what happened with the shareholder lawsuit about it (and I haven't heard any updates since), and just sat and seethed about it over the ensuing months, also curious if Google might do some other things that impressed me so much that I might let them offset that a bit. And then in that time, these other aspects started to bug me more.

    I think for the most part, it's going to take me a very long time to decide to sell any of the stocks since I really don't want to be trading frequently. A quick sell would probably be a true emergency.

    Points well taken on the other issues you bring up. It just seemed so sad to me since small businesses like those described (THAT small) are having a difficult enough time surviving right now. And yes, I do hate that "game" you describe. And granted there are a lot of players who see no other way.

    Thanks for the thoughts!

    Best,

    Alyce

  • Report this Comment On January 02, 2014, at 7:57 PM, anindakumars wrote:

    In hindsight Alyce, would you that you shouldn't have sold Google?

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