by Tom Taulli | May 22, 2014 11:20 am
To lower its tax burden, Google (GOOG) is holding about $30 billion outside the U.S. But that does little good for the company, especially considering interest rates are so low. Recent buzz suggests that GOOG will use the cash for mergers and acquisitions in foreign markets.
It seems like a pretty good idea. For the most part, GOOG has been adapt at dealmaking. If anything, it has allowed the company to get into lucrative markets in the early stages, such as with acquisitions of YouTube and Android.
But for GOOG to continue its growth ramp, it needs to get more aggressive in foreign markets, which have seen lots of innovation and interesting startups. Here’s a look at four companies Google might buy:
Basically, MobilEye is a top player for advance image sensing and processing – that is, it can identify lane changes, traffic signs and pedestrian activity. No doubt, all this can be extremely helpful in avoiding accidents. The companywould be a nice fit for GOOG, which has been aggressive in developing driverless cars.
The key for MobilEye is that its technology is fairly low-cost, relying on monocular cameras. In fact, the company has snagged big-time customers like Ford (F), BMW and GM (GM).
Keep in mind that MobilEye has filed for an IPO in the U.S. (but there is no S-1 yet because the company has used the “confidential” filing option). Recent chatter suggests that the valuation could be about $4 billion to $5 billion.
But perhaps the best reason for GOOG to acquire MobilEye? The company already has plans to create its own driverless car. Better to acquire the company before it becomes a competitor.
Founded in 2008, Spotify quickly turned into one of the world’s top music streaming services. Then again, the company was quick to focus on leveraging social networks like Twitter (TWTR) and Facebook (FB) as well as mobile platforms like Google’s Android and Apple’s (AAPL) iOS.
Just this week, Spotify announced that is has more than 10 million paying subscribers and 40 million monthly active users. With numbers like those, it’s a good bet that the company generates $1 billion-plus in revenues.
GOOG would certainly want to get a bigger share of the growing market for streaming music. And yes, Spotify may be interested in a deal, because the industry is getting more competitive. After all, Apple appears to be in talks to buy Beats, and other mega Internet operators like Amazon (AMZN) are pumping up their efforts. There are also many startups gunning for the opportunity.
Besides, a Spotify IPO could be tough to pull off now that social stocks have been cooling off. Just look at Pandora (P) to see what kind of a roller coaster this kind of stock can be for investors.
Since going public in late March, King Digital Entertainment (KING) has been a horrible performer, with the stock off nearly 30% from its IPO price. Yet the company continues to grow nicely — and remains a dominant player in the fast-growing mobile gaming market.
Of course, the main driver is the wildly popular Candy Crush Saga game. But King has also been churning out other popular titles like Pet Rescue Saga, Farm Heroes Saga, Papa Pear Saga and Bubble Witch Saga. And Candy Crush Saga may be getting even more lasting power, as King recently struck a distribution deal with Tencent (TCEHY), which operates China’s most trafficked messaging service (WeChat).
As for King’s financials, they continue to be robust. In the latest quarter, revenues came to $606.7 million, up almost 200% for the same period a year ago. There company also posted a profit of $27.2 million.
Despite all this, Wall Street isn’t too interested in mobile gaming, which could make a GOOG acquisition attractive. In fact, the valuation would likely be fairly cheap. Consider the price-to-earnings ratio of King is only 8. But GOOG’s is a much heftier 28.
Founded only 4 years ago, iZettle has quickly turned into a contender in the person-to-person mobile payments business. The company not only has a cool app but also a chip-card reader (similar to Square’s). But for the most part, the company’s footprint is only in Europe.
Last week, iZettle snagged a venture round of about $55.5 million from investors like Zouk Capital, Intel Capital (INTC), Greylock and Index. The company also raised money from notable strategic investors, such as American Express (AXP), MasterCard (MA) and Banco Santander (SAN).
With the capital, iZettle plans to ramp up its expansion in Europe. But the company also wants to get more aggressive in Latin America.
GOOG has tried to get traction in the payments space, but the results have been mixed. In other words, acquisitions will likely play a role — and iZettle could be a good option, in terms of its mature technology and customer adoption.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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