8 ms·

I think this makes a lot of sense. I believe the company is better tightly held, but this will allow them to do "start-upy" things like continuing to grant larg

by bobz 14y ago

I think this makes a lot of sense. I believe the company is better tightly held, but this will allow them to do "start-upy" things like continuing to grant large equity bonuses without diluting the company control. I'm curious to see how much those voting rights will end up being worth. Assuming the two classes have the same payout "precedence" and receive the same dividends, any share price difference will be attributable to that voting right. (Probably not worth very much I would imagine, but someone could speculate that they will be more valuable in the future where a takeover was possible).

dpark 14y ago
> and receive the same dividends Yeah, they'll probably be the same there, at $0/year. I think there will be a slight skew toward the voting shares, but probably not a lot, since a vote at GOOG doesn't presently do anything.
- jimmyvanhalen 14y ago
  On a related note: I really think analysts aren't looking at Google's income statement properly. I don't think Google is doing some kind of financial engineering, but their numbers doesn't look that great if you look closely: 1st Q 2011 GAAP net income $2.3B (adjusted to $1.8B after DOJ investigation, we'll use $2.3B anyway). 1st Q 2012 GAAP net income $2.89B ~$600 Million increase in GAAP net income. BUT WAIT 1st Q 2012 Traffic acquisition cost totaled $2.51 billion 1st Q 2011 Traffic acquisition cost totaled $2.04 billion ~$500 Million increase in TAC Google had to spend an additional $500 Million to earn an additional $600 Million net income. And it's the same thing if you compare other quarters YOY. The increase in TAC is almost equal to the amount of increase in net income. It's easier for Google to just withdraw money from it's own bank account and deposit it to another one and call it "net income". ;) jk
  - pessimist 14y ago
    Net income is after subtracting TAC. Revenues increased by $2.1b, so Google paid $500m to acquire $2.1b in revenue. Of the $1.6b in "real" revenue growth, they made around $600m in profits. In other words their profit margin is roughly 40%. Also if you're worried about such shenanigans, you can look at free-cash-flow, which was $3.1B for the quarter (astonishing for any non-oil/AAPL company).
    - jimmyvanhalen 14y ago
      >Net income is after subtracting TAC. I'm aware Net income is subtracted after TAC. >Revenues increased by $2.1b, so Google paid $500m to acquire $2.1b in revenue. Of the $1.6b in "real" revenue growth, they made around $600m in profits. In other words their profit margin is roughly 40%. You didn't address my original post. Google's net income grew almost AS MUCH as the increase in TAC. and it's the same pattern for years. and Google's TAC has been steadily increasing over the years. I'd be more impressed if net income increased but TAC decreased. Also I wouldn't focus on Revenue since Google's revenue INCLUDES their TAC. > Also if you're worried about such shenanigans, you can look at free-cash-flow, which was $3.1B for the quarter (astonishing for any non-oil/AAPL company). A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities as a means for evaluating Google is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it excludes cash used for capital expenditures during the period. And if you're going to talk about free cash flow, look at Google's return on invested capital. Google's 5-year average ROIC is only 17.1% and currently it's only at 15.9%.
      - nostrademons 14y ago
        TAC is largely AdSense partner payouts - and likely things like Chrome distribution deals and Android partner agreements now. Saying "net income grew almost as much as TAC" is basically saying "Google's AdSense, Chrome, and Android businesses are a healthy and growing segment of its total revenues." Note that you can spin this to look bad for Google either way. If TAC was low, it'd be "Google gyps their AdSense partners, and soon there'll be a publisher revolt", something I've occasionally seen complained about on HN. If TAC is high, it's "Google's numbers don't look good; clearly their business is in trouble." The numbers are what they are; if you want a useful picture of whether to invest, you need to understand the business better than that.
        jimmyvanhalen 14y ago
        I'm not trying to spin this to make Google look bad. It just looks like that their spending an awful lot of money to arrive at a net income which is almost equal to the amount of money they spent.
  - jcampbell1 14y ago
    How is a 120% ROI in 1 quarter a problem? You just let me know where I can spend $500M and get $1.1B back in the same quarter. I have no idea what point you are making.
- jcampbell1 14y ago
  It doesn't matter what the dividends are today. A rational stock valuation is the NPV of all future dividends. There must be a guarantee that dividends will be paid equally, otherwise there would be no rational way to price the class C stock. In short, the class C stock must have identical dividends to the other classes.
  - adrianbg 14y ago
    I have longstanding confusion on this subject. What if dividends are never paid? To my layman's intuition it seems like a more sensible basis for stock valuation is as a fraction of the value of the entire company. This is only equivalent to your definition if profit is equivalent to dividends.. right?
    - coopdog 14y ago
      If they were never paid one day either the company finally dies or it gets wound up. On wind up day, assuming the company was profitable there'd be one huge pay out (ie dividend) More realistically if you look at Microsoft and Apple, they were trying to never pay dividends, but they finally just had so much cash it was the only sensible thing to do
      - adrianbg 14y ago
        I don't agree. A company can never pay dividends then be bought out by a company that also never pays dividends. I'm thinking now that there are two components to a stock's value: a concrete component, since a share represents a part of the company, and a volatile abstract component depending on the amount of market demand for it at the moment (eg. in case of a hostile takeover).
  - sopooneo 14y ago
    I have been looking for this answer since I first heard about the idea of stock as a kid. No one else could ever provide it. Thank you. "A rational stock valuation is the NPV of all future dividends"

by bobz 14y ago

dpark 14y ago

> and receive the same dividends Yeah, they'll probably be the same there, at $0/year. I think there will be a slight skew toward the voting shares, but probably not a lot, since a vote at GOOG doesn't presently do anything.

jimmyvanhalen 14y ago
On a related note: I really think analysts aren't looking at Google's income statement properly. I don't think Google is doing some kind of financial engineering, but their numbers doesn't look that great if you look closely: 1st Q 2011 GAAP net income $2.3B (adjusted to $1.8B after DOJ investigation, we'll use $2.3B anyway). 1st Q 2012 GAAP net income $2.89B ~$600 Million increase in GAAP net income. BUT WAIT 1st Q 2012 Traffic acquisition cost totaled $2.51 billion 1st Q 2011 Traffic acquisition cost totaled $2.04 billion ~$500 Million increase in TAC Google had to spend an additional $500 Million to earn an additional $600 Million net income. And it's the same thing if you compare other quarters YOY. The increase in TAC is almost equal to the amount of increase in net income. It's easier for Google to just withdraw money from it's own bank account and deposit it to another one and call it "net income". ;) jk
- pessimist 14y ago
  Net income is after subtracting TAC. Revenues increased by $2.1b, so Google paid $500m to acquire $2.1b in revenue. Of the $1.6b in "real" revenue growth, they made around $600m in profits. In other words their profit margin is roughly 40%. Also if you're worried about such shenanigans, you can look at free-cash-flow, which was $3.1B for the quarter (astonishing for any non-oil/AAPL company).
  - jimmyvanhalen 14y ago
    >Net income is after subtracting TAC. I'm aware Net income is subtracted after TAC. >Revenues increased by $2.1b, so Google paid $500m to acquire $2.1b in revenue. Of the $1.6b in "real" revenue growth, they made around $600m in profits. In other words their profit margin is roughly 40%. You didn't address my original post. Google's net income grew almost AS MUCH as the increase in TAC. and it's the same pattern for years. and Google's TAC has been steadily increasing over the years. I'd be more impressed if net income increased but TAC decreased. Also I wouldn't focus on Revenue since Google's revenue INCLUDES their TAC. > Also if you're worried about such shenanigans, you can look at free-cash-flow, which was $3.1B for the quarter (astonishing for any non-oil/AAPL company). A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities as a means for evaluating Google is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it excludes cash used for capital expenditures during the period. And if you're going to talk about free cash flow, look at Google's return on invested capital. Google's 5-year average ROIC is only 17.1% and currently it's only at 15.9%.
    - nostrademons 14y ago
      TAC is largely AdSense partner payouts - and likely things like Chrome distribution deals and Android partner agreements now. Saying "net income grew almost as much as TAC" is basically saying "Google's AdSense, Chrome, and Android businesses are a healthy and growing segment of its total revenues." Note that you can spin this to look bad for Google either way. If TAC was low, it'd be "Google gyps their AdSense partners, and soon there'll be a publisher revolt", something I've occasionally seen complained about on HN. If TAC is high, it's "Google's numbers don't look good; clearly their business is in trouble." The numbers are what they are; if you want a useful picture of whether to invest, you need to understand the business better than that.
      - jimmyvanhalen 14y ago
        I'm not trying to spin this to make Google look bad. It just looks like that their spending an awful lot of money to arrive at a net income which is almost equal to the amount of money they spent.
- jcampbell1 14y ago
  How is a 120% ROI in 1 quarter a problem? You just let me know where I can spend $500M and get $1.1B back in the same quarter. I have no idea what point you are making.
jcampbell1 14y ago
It doesn't matter what the dividends are today. A rational stock valuation is the NPV of all future dividends. There must be a guarantee that dividends will be paid equally, otherwise there would be no rational way to price the class C stock. In short, the class C stock must have identical dividends to the other classes.
- adrianbg 14y ago
  I have longstanding confusion on this subject. What if dividends are never paid? To my layman's intuition it seems like a more sensible basis for stock valuation is as a fraction of the value of the entire company. This is only equivalent to your definition if profit is equivalent to dividends.. right?
  - coopdog 14y ago
    If they were never paid one day either the company finally dies or it gets wound up. On wind up day, assuming the company was profitable there'd be one huge pay out (ie dividend) More realistically if you look at Microsoft and Apple, they were trying to never pay dividends, but they finally just had so much cash it was the only sensible thing to do
    - adrianbg 14y ago
      I don't agree. A company can never pay dividends then be bought out by a company that also never pays dividends. I'm thinking now that there are two components to a stock's value: a concrete component, since a share represents a part of the company, and a volatile abstract component depending on the amount of market demand for it at the moment (eg. in case of a hostile takeover).
- sopooneo 14y ago
  I have been looking for this answer since I first heard about the idea of stock as a kid. No one else could ever provide it. Thank you. "A rational stock valuation is the NPV of all future dividends"