Three Things to Like about GOOG Stock
Nest: I’m talking about the manufacturer of thermostats and smoke alarms, which Google is acquiring for $3.2 billion. The key to this deal is Nest CEO Tony Fadell, who designed the iPod during his seven years at Apple (AAPL). Forced out in 2008, Fadell would establish Nest less than two years later with financial backing from Google Ventures. Google gets a very talented team of people who can actually design and sell useful products. With Google selling Motorola Mobility for $2.91 billion — $9.6 billion less than it paid — the acquisition of Nest becomes even more vital to the future of GOOG stock.
Free Cash Flow: Despite spending $7.4 billion (more than double the year before) purchasing property and equipment in 2013, free cash flow for GOOG stock amounts to more than $11.3 billion, or 19% of revenue. In comparison, AMZN stock has never delivered free cash flow above $3 billion in any given year; nor has its free cash flow as a percentage of revenue been anywhere near 19%. If you believe the best investments involve companies with positive free cash flow, GOOG stock is clearly a better choice.
Google Fiber: Google first introduced gigabit internet in Kansas City in November 2012. It’s currently rolling out the internet service in Provo, Utah with Austin, Tex. as the third city on its hit list. While it’s debatable whether Google has the patience to roll this out across America, there’s no argument against the usefulness of Internet service that’s 100 times faster. The fact that Google’s trying to close the circle by capturing internet users at the source makes complete business sense for GOOG stock. Whether it will work is another matter. But GOOG stock gets an “A” for effort.