There's been plenty of controversy over the years about the insistence of Google's
Judging by how Brin, Page, and Schmidt run their company, I can see why they'd want such a safeguard in place against potential shareholder wrath.
Defenders of the dual voting-class structure might argue that Berkshire Hathaway's
Can you see Buffett signing off on the repricing of millions of Berkshire stock options by triple-digit dollar amounts, assuming he was even a fan of using stock options for compensation purposes? Me neither.
Google's leadership has produced plenty of value for shareholders since their company first went public. And it's quite possible that they'll produce more of it in the coming years. But all the same, investors should realize that they're putting their money into a company that, from the looks of things, also has other priorities in mind.
A different view of success
Investors definitely have a lot of reasons to like Google: While well off their 2007 highs, the company's shares are still up more than 80% over the last twelve months, and more than 580% from their IPO price of $85. Minor fluctuations aside, the company continues to throttle Yahoo!
And by such behavior, I'm not merely thinking about Google's headline-grabbing threat to exit the Chinese market rather than continue censoring its search results on Google.cn. In fact, I don't think it's worth dwelling on that move in particular. At least in the Chinese censorship case, Google's decision, while potentially damaging to shareholders (though less so to Baidu
In a nutshell, Google's leadership seems to think of "success" not just in terms of building shareholder value by growing earnings and cash flow per share, but also in terms of being able to create cool new products and services, and to remake the way that markets and even industries work. For sure, these goals aren't always incompatible: Google Maps and Gmail turned the online mapping and email markets on their heads, and they also seem to be generating meaningful advertising revenues for the company. And while YouTube has burned up quite a lot of cash, it looks like that site's finally on the verge of turning profitable -- if only after its huge losses raised some alarm bells.
Questionable business decisions
But how about Google Books? Between the cost of scanning and indexing its growing library of books and magazines, and the $125 million settlement that it reached with authors and publishers in 2008, I'll go out on a limb and assume that the modest amounts of advertising delivered by Google Books hasn't come close to recouping its costs.
Then there's the hundreds of millions that Google has committed to investing in alternative energy research -- not exactly a core business for the company. Going in hand with these investments is the creation of Google Energy, and its plans to gain access to and sell enough power from renewable sources to make Google as a whole "carbon-neutral." A laudable goal, but let's keep in mind here that Google's data center infrastructure, with its hundreds of thousands of servers, is one of the biggest IT power hogs on the entire planet. Unless the government proves willing to subsidize the company's efforts on a massive scale, expect this operation to be another cash sinkhole.
Let's also not forget Google's recent plans to enter the ISP business by launching an "experimental" fiber network that will provide 1 Gbps Internet access to as many as 500,000 homes. As AT&T
All of these initiatives give the impression of a company that's so confident that it can keep shareholders happy via the cash generated by its search advertising business that it can get away with putting some shareholder value at risk via actions that "feel good" to do. And as long as Brin, Page, and Schmidt keep signing off on such feel-good actions, Google is a riskier investment than you might otherwise consider it to be.
Eric Jhonsa does not have a position in any of the companies mentioned in this article. Berkshire Hathaway and Microsoft are Motley Fool Inside Value recommendations. Baidu and Google are Motley Fool Rule Breakers choices. Berkshire Hathaway is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Berkshire Hathaway New Com. Try any of our Foolish newsletters today, free for 30 days.