Could This Be Google's Next Acquisition Target?

Google is making a push into the energy industry with its Nest line; Opower would be a perfect compliment to that effort.

Jul 17, 2014 at 1:55PM

Google (NASDAQ:GOOG)(NASDAQ:GOOGL) is getting ready to take on one of the utility industry's biggest problems. However, the tech giant's efforts to change the electricity world as we know it would get even better if it bought Opower (NYSE:OPWR). This newly public company already has an in with more than half of the largest 50 U.S. utilities—and their customers.

Is this a challenge?
Google's push into the utility world is coming via its Nest subsidiary. Nest was purchased earlier this year for $3.2 billion and is probably best known for making smart thermostats. Admittedly that's a pretty boring business, but Google is trying to make it a lot more exciting. It's even opening up the Nest platform to outside developers so it can get more brain power behind turning saving energy into the next cool thing.

(Source: grantsewell, via Wikimedia Commons)

And this is a really big deal. The newly proposed Environmental Protection Agency rules about carbon dioxide emissions in the utility industry allow states to meet reduction targets via energy savings. That means getting customers, the demand side, to reduce their power use will increasingly be an important tool for states and utilities. Google is basically trying to get in early on this opportunity with a cool consumer gadget.

But wait, there's more!
What Google really has to offer is the ability to sort through massive amounts of data. Connected thermostats will provide just such a data dump. Helping customers understand their own use and how it compares to others will be a first step. But then what?

Opower, which only went public earlier this year, is the perfect example of what Google could offer to utilities while still helping customers. Opower uses the cloud to track the usage patterns of utility customers. It then analyzes this data and creates easy to understand reports.

Opower's reports can then be integrated into utility communications with customers. That opportunity to share with customers spans paper, web, email, and applications. Basically, Opower is helping utilities and customers better track and understand usage trends by analyzing data. Isn't that what Google is trying to do?

Opower is losing money right now. However, it's selling a subscription based product that gets deeply integrated into its customers' businesses. Once it hits critical mass it should turn into a reliable money maker. And it's growing fast right now, with revenues increasing from $11 million in 2010 to nearly $90 million last year.

But, the big reason why Google should be looking at Opower is that the 90 plus utility customers it has around the world serve over 30 million power customers. That's a lot of data and would pretty quickly give Google scale in the utility world. And if it opened that data up to Nest developers Google's aspirations to change the face of the energy market would get a huge boost.

(Source: Air Force Camera Operator: CMSGT. DON SUTHERLAND, via Wikimedia Commons)

Could it be done?
Opower's market cap is around $825 million. That's a drop in the bucket for Google, which sports a market cap of nearly $390 billion and had first quarter net income of roughly $3.5 billion. Yeah, Google could afford Opower fairly easily.

Another nice benefit of Opower is that it's a pure play. That means that Google could get right to work integrating its Nest product with Opower's data services. And the biggest winners would likely be utility customers who would get a truly deep dive into their use as it compares to other customers across the globe. Meanwhile, Google's cash would go a long way to supporting the business' growth until it reaches breakeven.

This is, of course, purely speculation. However, when Google decides it wants to take on an industry it doesn't go at the effort half cocked (think cell phone operating systems). And it has proven time and time again that it's willing to spend money to get access to big ideas.

Nest itself is a great example, but so is YouTube if you want to see a big name purchase that has blossomed under Google's stewardship. Keep an eye on Google's thermostat efforts and watch Opower—the two could be a match made in digital heaven.

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Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Google (A shares) and Google (C shares). The Motley Fool owns shares of Google (A shares) and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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