Big G is about to get even bigger.
In an interview with Bloomberg last week, Google's
"The world changes really quickly, and companies that were small two years ago are huge today," he told Bloomberg last Wednesday. "It wouldn't surprise me to see more large opportunities for us."
In other words, Google is eyeing speedsters. Obviously, this pushes Facebook, Twitter, and even Groupon to the top of the pack, but it shouldn't surprise anyone to find that:
- Facebook isn't interested in any kind of buyout.
- Twitter's inability to effectively monetize itself makes it too flat a purchase for Google.
- Groupon clones are popping up at an alarming pace, making it less necessary to buy the category leader in a crowding niche.
For this column's purposes, I should also point out that they're privately held companies. Investors can't easily participate in any potential appreciation if any of those Web 2.0 darlings get snapped up at a premium.
Thankfully, there are plenty of capable targets that are publicly traded.
Let's look at some of the potential buyout candidates, with large enough market caps and impacts to make it worth Google's time.
We may as well start with AOL, despite its obvious shortcomings.
After all, the conventional wisdom would be to wait on AOL. Five years ago, Google paid $1 billion for a 5% stake that it has since divested. With AOL currently commanding a market cap of $2.8 billion -- and more importantly enterprise value of $2.1 billion -- Google can buy all of AOL for just a little more than it shelled out for a tiny position to secure its spot as exclusive paid search provider through AOL's properties.
AOL's a mess. Everyone knows that it has been shaking off access subscribers like a wet dog. The number of folks paying AOL for experiences between the "Welcome" and "Goodbye" audio clips has gone from 26.7 million at its peak in 2002 to a mere 4.1 million subscribers today. However, even AOL's online advertising business is in a funk, falling by 27% in its latest quarter.
Wait. AOL will get cheaper, right? Not exactly. There are far too many rumblings of AOL combining with other companies, primarily Yahoo!
Despite its stint on Undercover Boss, GSI isn't exactly a household name. It doesn't aim to be. GSI helps companies beef up their online retail presence, through everything from virtual storefront design to mobile marketing to managing email campaigns.
GSI is coming off a lousy quarter, and the stock got dinged after posting a loss, but GSI is better than that. During the same quarter, revenue soared 49% and non-GAAP operating income was positive and growing.
GSI isn't the same kind of high-margin endeavor as Google's flagship paid search. GSI expects to generate $1.35 billion in revenue this year, and only 10% of that will trickle its way down to its adjusted operating profit. However, Google already reaches many of GSI's customers as a generator of e-commerce leads. It should be able to expand its operations accordingly, helping push some of its enterprise solutions and its fledgling Google Checkout initiative.
Nearly a year ago, several reports surfaced indicating that Google was making a play for community-driven restaurant review site Yelp.
It didn't pan out, but now there's a more intriguing play in the Web-based eatery market through OpenTable.
OpenTable runs the industry-leading platform for Web-based restaurant reservations. Eateries install OpenTable's electronic reservations book, which merges phone and walk-in ressies with those placed online.
It's very cost-effective for restaurants, which is why its base of restaurants has grown by 26% over the past year, with seated diners up by 52% (so the average restaurant is attracting a lot more OpenTable reservations than it was a year earlier). Revenue soared 44% in its latest quarter, with adjusted earnings growing even faster.
Running a proprietary enterprise platform may seem out of Google's comfort zone, but keep in mind that OpenTable has also seated 5 million hungry foodies through its mobile app -- delivering an estimated $250 million in restaurant tabs for participating eateries.
The fourth and final company with a market cap of $1 billion or greater that should be on Google's short list is Ancestry.com.
The leading genealogy site has nearly 1.4 million subscribers paying an average of nearly $18 a month to dig deeper into their generational roots. One would think that folks can just snoop around on their own for free or quit after a month of pruning the family tree, but Ancestry.com's monthly churn rate of 4% compares respectably with Netflix's
What's the secret sauce here? It could be the billions of digitized records, covering everything from rite certificates to yearbook photos to ancient immigration records. Yes, there are free network-based solutions -- from Geni to Facebook that rely on viral relationship ties -- but Ancestry.com is the only serious site for heavy digging. Subscription revenue for an online service would be welcome at Google, and if there's a free ad-based model to be had, there's no one better than Google to make it happen.
More to come
With a nearly $9 billion market cap, I did leave Netflix off this list. It would obviously be a good fit, especially for a company whose own Google TV efforts are spiraling out of control.
Google is one of the few companies that could realistically swallow Netflix, but it's probably a better fit for the other companies with that kind of greenery in the bank.
How about smaller companies that can still move the needle? Come back later this week, when I'll go over four of the companies with market caps smaller than $1 billion that would look great on Big G's arm.
Who do you think Google should buy next? Share your matches in the comment box below.
Google is a Motley Fool Inside Value pick. Ancestry.com, Google, and OpenTable are Motley Fool Rule Breakers recommendations. Netflix is a Motley Fool Stock Advisor selection. The Fool owns shares of Google. 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.
Longtime Fool contributor Rick Munarriz thinks the "M" in M&A should stand for marriage. He does not own shares in any of the stocks in this story, except for Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.