Why Are The Stakeholders of Google Inc. (GOOGL) So Unhappy?


Google Inc. (NASDAQ:GOOGL) was started as a research project by two graduate students at Stanford back in 1995. It was a pioneer in the internet search with the development of its page rank algorithm. When the company went public in August 2004, the sale of shares raised $1.67 billion and provided a market capitalization to the tune of $23 billion. Since then there has been no looking back. It has gone to become one of the most sought after companies worldwide; both for employees and investors.

However, there is one place it falls short today, to the extent of inviting stakeholder discomfort. And that is, Google has never issued any product wise or by region report on its revenue.

The secrets of revenue

As Google has earned lots of good reputation worldwide, it is also proving to be difficult for several market analysts and investors alike. The reason being its secretive behavior towards the release of revenue reports. Given the large number of products owned by Google, a detailed breakdown of revenue is of utmost importance in the present scenario. On the contrary, the firm has never been keen on doing this. The Google investor page displays revenue under two broad categories; advertising revenue and other revenues. The detailed quarterly report illustrates only US, UK and rest of the world in its revenue earnings displayed by region. This leaves everyone perplexed as to how well do the famous products such as Google Play, YouTube, Gmail feature on the revenue chart. With the global boom in internet technology, it has become prominently important to know the focus regions for each product. As China and India contribute the largest number of internet users, it would make more sense to analysts and investors if their regional share in earnings could be revealed by Google.

Latest revenue report

The Q4 2014 revenue report shows a major increase in earnings from advertising on Google websites (20%) while those from other network websites remained almost same (0.6%). “Other revenue” saw a leap of almost 40% in YOY revenue. This is the category where Google plays its safest bet. It never makes clear what the contribution of each product or region was towards its consolidated revenue. As per a recent report in Business Insider, Morgan Stanley has advised Google, through a letter to Ruth Porat, Google’s new CFO, to be more transparent in its revenue breakdown if it wants to increase its stock prices. The report also mentioned that several other internet giants like Facebook, Amazon and Expedia have received better stock valuation only due to a detailed breakdown of the numbers. Although Facebook and Amazon don’t break their revenue right up to the product level like Apple does; still it is unanimously agreed upon that Google is the most stringent when it comes to revealing revenues.

After all efforts of Morgan Stanley failed to extract any response from Google, Credit Suisse stepped up to handle the task. On investigating Google’s revenue, they discovered that Youtube and Google Play comprise almost 15% of total revenue. This might be considered to be a huge increase as compared to the 4% share in 2010. Going by their predictions, this number is supposed to rise to 24% by 2020.

In the light of these events, it seems likely that Google should budge a little from its rigid standpoint to avoid rubbing its stakeholders and well-wishers the wrong way. Since, the nature of such a behaviour is not very clear until now, it might be difficult to predict a timeline for any such action to be taken. The only thing that is certain is Google must react to this and do it pretty soon as the heat is rising and this doesn’t seem in favor of Google.

To Top