When Steve Jobs returned to Apple (Nasdaq:AAPL) as its CEO in 1997, he gave a presentation at the Boston Macworld (you can catch it on YouTube). On the verge of bankruptcy, he knew he had to make bold changes. He revamped the board and added biggies like Oracle’s (Nasdaq:ORCL) Larry Ellison. He also said the company needed to partner more. His first pick? It was the dreaded Microsoft (Nasdaq:
MSFT). The crowd actually booed.
But Jobs set forth a clear vision. In fact, the bullet points fit on just one slide.
Of course, leadership transitions are common in tech. The fact is that it can be extremely tough for successful companies to remain successful. If history is any indication, the transitions amount to very little.
And this may be the case with Google (Nasdaq:GOOG), which has recently brought back the company’s co-founder, Larry Page, as its CEO. While the company is a cash machine, there are some unnerving problems. Its latest earnings announcement showed spending was up 54% to $2.84 billion. Keep in mind that revenue increased by 29%. True, Google still has juicy margins — but Wall Street wants to understand how the spending will generate returns.
On Friday, Google shares were down nearly 7%.
Unfortunately, Larry Page spent only a few minutes on the conference call late Thursday. He said the company had a “tremendous quarter” and he was “excited” about the company’s prospects.
Think Jobs would have been excited? Probably not. He would have been firing people at will. What’s more, he would have quickly dumped wacky ideas, like Page’s self-driving car concept.
More importantly, Jobs would be focused on trying to build a few great products that make enormous amounts of profits. That’s the only way to move the needle for a multi-billion dollar tech operation. Instead, Google still looks like a fancy lab that has the support of one real business (that is, the online advertising division).
OK, the company has some standout offerings, especially the Android operating system for mobile devices. In just a few years, it has taken a big share of the market. But in terms of monetization, it has a run-rate of only about $1 billion. Consider that in its latest quarter, Apple generated $10.4 billion in iPhone sales — as well $4.6 billion in iPad sales.
Now Google claims that it needs to spend heavy amounts on hiring (there were roughly 2,000 new employees in the first quarter). And in Silicon Valley, it’s not easy to attract strong talent. Google is still having troubles getting traction against key rivals, like Facebook. Even though social media is becoming vitally important, Google remains a laggard (the buzz is that the company offered $10 billion for Twitter). If the problems continue, there may actually be more pressure on the valuable search business. After all, Facebook is rapidly becoming the hub of Internet activity.
Basically, Google needs a clear strategy and discipline. But so far, there is little evidence of both. So in light of this, the stock is likely to languish for some time.
Tom Taulli’s latest book is “All About Short Selling” and his Twitter account is @ttaulli. He does not own a position in any of the stocks named here.
