Google is the most profitable company on the web, and one of the more profitable companies in the world, yet since 2013, the company is down about 2 percent, while the S&P 500 is up around 11 percent. In an economy when virtually every company–especially the big tech-based companies–seem to be able to do no wrong, this is a surprising fact. What is it about Google that has driven down its price while almost everyone else has been able to go up in price?
There are a couple reasons for this, and one of them is that Google has many expensive side projects going on besides their web search and advertising tools that most people look to them for. There are things like driverless cars, medical driven contact lenses, and a multitude of other projects that Google is spending a lot of money on. While these could offer huge long term gains for the company, right now, they are not giving anything back to the profit rate that Google reports upon, and it has stalled their growth numbers.
This leads us to the other big reason why Google is not showing a growth in value. There are a lot of issues with the ownership of their stock right now. Execs within Google have engineered ways to give themselves more say in what happens within the company and keep the majority of voting rights by issuing three different types of stock: A, B, and C shares. C shares have no voting rights, and B shares have 10 votes per every A share right. It’s a confusing set up, and it looks like it’s going to become even more confusing soon. It’s been decided that C shareholders are entitled to extra cash because they are not allowed to vote in company elections. The market has not fully responded to this issue because it’s a fairly new one, but it’s been decided officially that the right to vote has a value, so each shareholder of C stock will be entitled a small amount of cash per share. That number has not been fully determined yet, but it looks like it will end up costing the company about $500 million. That’s right–a half of a billion dollars. It ends up being about $1.74 per share of this type of stock.
The situation could have been much worse. Original estimates said that it would cost the company $22 per share–or about $7.5 billion. This would have devastated the company, but instead, it’s only a small dent. The holdings for Google are currently at $64 billion, but the previous thought would have hindered many of the long term projects that Google has lined up.
The long term prognosis for Google is good. If only one of their many projects are successful, they will be set for years to turn a profit. In the meantime, short term traders should be prepared for Google to drop a bit more until this next hurdle is well behind them. This goes mostly for swing traders–the The Markets we choose that look for trades of more than a few days long, but less than a month in length. Day traders, and the binary traders that look at ultra short timeframes like 60 second options, will need to look at technical indicators to get a good feel for what to do as there is potential for ups and downs during a given day or shorter period of time.
Of course, this can change at any time as Google is a hugely inventive and intuitive company. They have their favorite pet projects, but they also have a superior product within their standard web based business, and this can easily sway things in their favor all by itself if a few things go well for them.