Google is growing up

The tech giant is talking about cutting costs and issuing a dividend for the first time.

by Adam Gale
Last Updated: 11 Aug 2015

There comes a point in every company’s life when it has to face facts. It’s not a start-up any more. It has a reputation and shareholders to look after. It has to start behaving responsibly. But could Google, the start-up to end all start-ups, finally be reaching that point?

No, it’s not stripping out the slides and sleep pods from its HQ in Palo Alto and selling them for a sensible price on eBay (which is doing its own share of selling right now incidentally, having just offloaded its enterprise division for $925m or £529m, in advance of its split with PayPal).

Rather, Google’s new finance chief Ruth Porat said it was about time it cut its soaring costs. ‘A key focus is on the levers within our control to manage the pace of expenses,’ she told investors in a conference call.

It’s not an unreasonable idea. Operating expenses, including R&D and marketing, came to $6.4bn (£4.5bn) in the quarter ending June 30. Those driverless cars don’t design themselves.

Having experienced extraordinary growth over the last decade (revenues in 2014 were over six times higher than they were in 2006), Google seems to be facing up to the idea that it’s finally slowing down. Its revenues of £17.7bn last quarter were 11% higher than in the same period last year, but for a company that had been seeing 40% growth, that’s sobering.

Part of the problem is the rapid transition of the internet to mobile platforms. Ads on mobiles don’t fetch the same price as they do on desktops. Of course, Google is way ahead of that particular curve, being even more dominant in mobile search as it is on desktops (thank you Android), and the price gap is narrowing somewhat, but this will still slow its growth.

Google may not have quite the same problems with profitability that Amazon has (net income for the quarter was $3.9bn), but it’s still relentlessly reinvested earnings back into the business. It’s had a feverish pace of acquisitions, guzzling nearly 200 companies since its first taste of M&A in 2001. Now though, it may have decided that it needs to slow down.

Porat hinted in the conference call that Google might finally issue a dividend, and even conduct a share buyback for the first time. ‘What do we need potentially for capital return?’ she asked, presumably rhetorically.

That all sounds sensible and mature, but where’s the whacky, out-of-the-box Googliness in capital return? Not cool, man. Not cool.

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