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What Does Google Do for an Encore?

By Tim Brugger - Jan 31, 2014 at 7:00PM

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After an outstanding month, quarter, and year, where does the search giant go from here?

If you've followed Google (GOOGL 2.39%) for any length of time, Thursday's stellar quarterly and annual earnings report wasn't a surprise. At least, sequential and year-over-year revenue and earnings growth was expected; the magnitude of Google's growth, however, may have caught some unawares.

But solid earnings tell only part of Google's story this week, let alone this month. The list of positives involving Google and its stock continues to grow longer. From patching up old partnerships and acquiring cutting-edge technologies, to shedding dead weight, Google's on the kind of roll its competitors can only dream about.

The specs
Counting Motorola Mobility's revenue of $1.15 billion in its recently completed fourth quarter, Google generated an outstanding $16.86 billion in total revenue, up 17% compared to 2012's fourth quarter. Removing Motorola Mobility from the revenue picture, which Google will do permanently after selling the money-losing unit to China's Lenovo (LNVGY 0.53%) for $2.9 billion, and Google's year-over-year revenue jump was even more impressive; up 22% to $15.7 billion.

But Google didn't just excel at top-line growth; its strong revenue made its way down the income statement to earnings, too. On a non-generally accepted accounting principles basis (removing one-time items and expenses), fourth-quarter earnings improved 12.8% compared to the year-ago period, to $12.01 a share from $10.65 a share in 2012. Same positive story for operating income, the volume of paid clicks, and padding the balance sheet last quarter.

About the only downside to Google's most recent quarter was an increase in expenses, both operating and total costs. Operating expenses rose to $5.5 billion compared to $4.81 billion in the year-ago quarter. Total expenses increased to nearly $13 billion from slightly more than $11 billion in 2012, but that's splitting hairs.

As is par for Google's course, management didn't have much to say about future expectations, other than "We expect to continue to make significant capital expenditures." "Continue" is the key word there, if January is any indication.

Now for the really good news
After clearing the legal air with shareholders, Google finally announced a stock issuance/split involving a "dividend" of nonvoting Class C stock for existing Class A shareholders. There had been concerns, which was the impetus for the recently settled shareholder lawsuit, that the stock split first discussed several years ago by founders Larry Page and Sergey Brin did little for stockholders, and everything for Page and Brin. To make certain everyone's happy -- founders and shareholders alike -- Google has agreed to the unusual arrangement of paying $7.5 billion if the split doesn't go as planned.

In addition to shedding Motorola, Google took steps to patch things up with Samsung (NASDAQOTH: SSNLF) in the last week. The two mobile behemoths agreed to a cross-licensing deal that they say will "lead to deeper collaboration on research and development of current and future projects." It's hard to imagine a more powerful alignment than the king of mobile operating systems and the world's leading phone manufacturer. Both Apple and Microsoft will feel the impact of the Google-Samsung alignment in the coming years.

Google also made some intriguing acquisitions this month, including artificial intelligence provider DeepMind for a reported $400 million and smart home appliance manufacturer Nest, which will set Google back $3.2 billion. It's not hard to see how Google can use DeepMind's solutions that include "learning algorithms" to push content and, of course, ads, to users based on predictive analysis. Google is likely to merge at least some of the capabilities of AI with its new, smart appliances from its Nest acquisition, too.

Final Foolish thoughts
It's been quite a month, and worthy of Google's stock price reaching an all-time high. In just 31 days, this tech giant delivered outstanding revenue and earnings, made strategic acquisitions that could define Google solutions in the not-too-distant future, shed money-losing Motorola, patched up relations with Samsung, and implemented a long-awaited stock split. One has to wonder what comes next.


Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. 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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