Google makes a big (little) acquisition

Over the past couple of years Google has become our 6th biggest position in New York. This has been the result of constant additions as well as a fast appreciating share price. The stock was up over 50% last year. The businesses initial focus is on advertising revenue through people using their search site. That makes sense as a very profitable business model. But the company has bucket loads of cash ($57bn at the end of last year) and a very ambitious and innovative management team.


This has resulted in Google dipping their fingers into all sorts of businesses with big focus on hardware. They paid $12.5bn for Motorola a few years back and yesterday announced a $3.2bn acquisition of a company called Nest. Basically Nest manufactures smart thermostats and smoke detectors. The thermostat is programmed to keep your home at the right temperature at all times. It even learns what time you wake up, have a shower, go to work and then come home. This obviously has great benefits when it comes to energy saving.


According to the WSJ estimates are that the company is selling 100 000 thermostats a month. At $250 a pop that means annual revenue of around $300 million. Paying over 10 times revenue sounds expensive but as you can imagine there is a lot more to it. With the company comes founder and CEO Tony Fadell who was integral in the design of the iPod when he was at Apple. I am sure his expertise afford a bit of a premium.

There are also so many potential synergies with Google products. Last year they released a product called Comcast which allows you to control all your electronics in the house wirelessly. This includes streaming anything from the internet through your TV or playing music through your speakers from your phone without any connection needed. Basically through Nest technology you could control every single device in your house through your phone. Change the temperature of your fridge, turn on the sprinklers, who knows maybe even tell your robot to wash your dishes one day.


There are concerns that Google are seriously sacrificing margins by shifting their business into more capital intensive strategies. But I truly believe this is the way of the future and as a technology company, if you don't constantly stay ahead of the curve you will find yourself in huge trouble. I think it is best to embrace it as both a consumer and an investor. At the end of the day, if the product makes your life easier it will have customers because in our fast paced lives, time has become one of the most important commodities.