Google Reports Earnings, Beats EPS, Meets Ex-TAC Revenues, Announces 2:1 Stock Split And New Non-Voting Class

Tyler Durden's picture

The headlines flow in:

  • GOOGLE 1Q REVENUE EX TAC $8.14B, EST. $8.14B
  • GOOGLE 1Q ADJ. EPS $10.08, EST. $9.64

And something odd:


In other words, Google is the next Apple forced to start paying dividends, a decision which took the board 15 months according to the Drummong postscript. But at least AAPL did not become the NYT in the process... Thank you Fed for forcing every company's capital allocation decisions.

Stock swings wildly after hours, but mostly unchanged at this moment.

From the Stock Split PR:


Throughout our evolution, from privately held start-up to large, publicly listed company, we have managed Google for the long term—enjoying tremendous success as a result, especially since our IPO in 2004. Sergey and I hoped, though we did not expect, that Google would have such significant impact, and this progress has made us even more impatient to do important things that matter in the world. Our enduring love for Google comes from a strong desire to create technology products that enrich millions of people’s lives in deep and meaningful ways. To fulfill these dreams, we need to ensure that Google remains a successful, growing business that can generate significant returns for everyone involved.

Corporate Structure

When we went public, we created a dual-class voting structure. Our goal was to maintain the freedom to focus on the long term by ensuring that the management team, in particular Eric, Sergey and I, retained control over Google’s destiny. As we explained in our first founders’ letter:

“We are creating a corporate structure that is designed for stability over long time horizons. By investing in Google, you are placing an unusual long term bet on the team, especially Sergey and me, and on our innovative approach…

We want Google to become an important and significant institution. That takes time, stability and independence…

In the transition to public ownership, we have set up a corporate structure that will make it harder for outside parties to take over or influence Google. This structure will also make it easier for our management team to follow the long term, innovative approach emphasized earlier…

The main effect of this structure is likely to leave our team, especially Sergey and me, with increasingly significant control over the company’s decisions and fate, as Google shares change hands…

New investors will fully share in Google’s long term economic future but will have little ability to influence its strategic decisions through their voting rights…

Our colleagues will be able to trust that they themselves and their labors of hard work, love and creativity will be well cared for by a company focused on stability and the long term…

As an investor, you are placing a potentially risky long term bet on the team, especially Sergey and me. …. Sergey and I are committed to Google for the long term.”

I wanted to quote all that because these were the clear, well-publicized expectations we established for investors in 2004. While this decision was controversial at the time, we believe with hindsight it was absolutely the right thing to do. Eight years later, these statements are still remarkably accurate, and everyone involved has realized tremendous benefits as a result. Given Google’s success, it’s unsurprising that this type of dual-class governance structure is now somewhat standard among newer technology companies.

In our experience, success is more likely if you concentrate on the long term. Technology products often require significant investment over many years to fulfill their potential. For example, it took over three years just to ship our first Android handset, and then another three years on top of that before the operating system truly reached critical mass. These kinds of investments are not for the faint-hearted.

We have protected Google from outside pressures and the temptation to sacrifice future opportunities to meet short-term demands. Long-term product investments, like Chrome and YouTube, which now enjoy phenomenal usage, were made with a significant degree of independence.

We have a structure that prevents outside parties from taking over or unduly influencing our management decisions. However, day-to-day dilution from routine equity-based employee compensation and other possible dilution, such as stock-based acquisitions, will likely undermine this dual-class structure and our aspirations for Google over the very long term. We have put our hearts into Google and hope to do so for many more years to come. So we want to ensure that our corporate structure can sustain these efforts and our desire to improve the world.

Effectively a Stock Split: And a New Class of Stock

Today we announced plans to create a new class of non-voting capital stock, which will be listed on NASDAQ. These shares will be distributed via a stock dividend to all existing stockholders: the owner of each existing share will receive one new share of the non-voting stock, giving investors twice the number of shares they had before. It’s effectively a two-for-one stock split—something many of our investors have long asked us for. These non-voting shares will be available for corporate uses, like equity-based employee compensation, that might otherwise dilute our governance structure.

We recognize that some people, particularly those who opposed this structure at the start, won’t support this change—and we understand that other companies have been very successful with more traditional governance models. But after careful consideration with our board of directors, we have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users. Having the flexibility to use stock without diluting our structure will help ensure we are set up for success for decades to come.

In November 2009, Sergey and I published plans to sell a modest percentage of our overall stock, ending in 2015. We are currently halfway through those plans and we don’t expect any changes to that, certainly not as the result of this new potential class. We both remain very much committed to Google for the long term.

It’s important to bear in mind that this proposal will only have an effect on governance over the very long term. In fact, there’s no particular urgency to make these changes now—we don’t have an unusually big acquisition planned, in case you were wondering. It’s just that since we know what we want to do, there’s no reason to delay the decision. Also note that there will be no immediate change in votes, because everyone will still have the same number. In addition, Eric, Sergey and I have all agreed to “stapling” arrangements so that, above set thresholds, if our economic interest in Google were to decline, our votes would as well. We also have provisions to ensure all shareholders are treated fairly from an economic perspective.

For more details on all of this, please see the postscript below from our Chief Legal Officer, David Drummond, and the preliminary proxy statement we will file with the SEC next week.


We have always managed Google for the long term, investing heavily in the big bets we hope will make a significant difference in the world. Some of these bets have been tremendous, funding our activities and generating significant gains for our shareholders. Others have been less successful. But the ability to take these kinds of risks has been crucial to Google’s overall success and we aim to maintain this pioneering culture going forward.

The proposal we announced today is consistent with the governance philosophy we articulated when we took the company public, as well as the trend for newer technology companies to adopt strong dual-class structures. We believe that it will provide great competitive strength—insulating Google from short-term pressures, whatever the source, for a long time to come, while also giving us more flexibility around equity grants.

Investors and others have always taken a big bet on us, the founders, and that bet will likely last longer as a result of these changes. We are honored that so many of you have put your trust in us and we recognize the tremendous responsibility that rests on our shoulders. We think this is a good thing because users rely on Google to produce and operate amazing technology products and to safely and responsibly store their data. This is our passion.

Sergey and I share a profound belief in the potential for technology to improve people’s lives and we are enormously excited about what lies ahead. I couldn’t write a better conclusion to this founder’s letter than what we wrote in 2004… so here goes: “We have a strong commitment to our users worldwide, their communities, the web sites in our network, our advertisers, our investors, and of course our employees. Sergey and I, and the team will do our best to make Google a long term success and the world a better place.”

Larry Page                         Sergey Brin          
CEO and Co-founder           Co-founder          


Postscript from David Drummond, Chief Legal Officer, Google Inc.

This is not the usual yada yada… so please read on.

Although we’ll be filing a comprehensive proxy statement soon, I wanted to share some details about today’s proposal to create a new class of stock and the process our board of directors followed to approve it.

As Larry and Sergey note above, the stock dividend we are announcing today will have the basic effect of a two-for-one stock split. Each holder of a share of Class A or Class B common stock will receive one share of the new non-voting Class C capital stock. So after the dividend, a stockholder who currently owns one Class A share with a single vote will continue to own that share plus one Class C share without a vote.

The Class A shares will continue to trade under the “GOOG” ticker symbol, while the Class C shares will trade under a different ticker symbol, so stockholders will be able to trade these shares, just as they can with Class A shares today. Except for voting rights, the Class C shares will have the same rights as the existing Class A and Class B shares. As is typically the case with stock splits, the Class C stock dividend will be tax-free.

One thing to keep in mind is that immediately after the Class C dividend, all stockholders, including Larry, Sergey and Eric, will retain the same voting interest they hold prior to the dividend. In addition, Larry, Sergey and Eric have agreed to subject their shares to a Transfer Restriction Agreement. This agreement will maintain the same link between their voting and economic interests that exists today, even if they sell some of their non-voting Class C shares. If the founders or Eric wish to sell or transfer their non-voting Class C shares, a “stapling” provision in the agreement requires them to either sell an equal number of Class B shares, or convert an equal number of Class B shares into Class A shares. No other stockholders will be subject to these restrictions upon the transfer or sale of their shares. The stapling requirement will terminate as to the founders when their collective ownership falls below a certain threshold, and as to Eric when his ownership falls below a certain threshold. Further details of the Transfer Restriction Agreement will be included in our proxy, but it’s important to note that the stapling provision is designed so that, subject to the thresholds, the votes held by the founders and Eric will be reduced proportionally as their economic interest in the company declines.

Our board of directors carefully considered this proposal to create a new class of stock before reaching a decision. In January 2011, the board established a special committee, comprised of independent, non-management board members to consider a new class of stock, or other alternatives. This committee retained its own financial and legal advisers to assist with its deliberations, and met on numerous occasions over the 15 months that the special committee considered the proposal separately from the board. The committee recommended, and the board unanimously approved, today’s proposal.

The proposal is subject to the approval of a majority of the voting power of Google’s common stock, voting together as a single class, at our annual meeting on June 21, 2012. Given that Larry, Sergey, and Eric control the majority of voting power and support this proposal, we expect it to pass. The Board of Directors has not set a record date for the issuance of the Class C dividend and currently expects to set the date following the annual meeting.

Next week, we’ll file a preliminary proxy statement with the SEC, which will contain further details regarding today’s proposal.

David Drummond

Chief Legal Officer, Google Inc.

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YesWeKahn's picture

Let's print more shares so that Bernanke can buy.

vast-dom's picture

Amazing! Google really makes all that in Just amazing!

AldousHuxley's picture

Google is the next Xerox R&D for US.


Don't let tech shysters like Steve Jobs or Bill Gates steal your technology for free.


Good thing that MBA type Eric was kicked out and founder was put back in with same passion and vision.



Hard1's picture

Non voting shares =  We want your money, not your opinion


bank guy in Brussels's picture

Not to forget that Google Inc. is the CIA's main internet tool - Here is Google's censoring of an important political refugee from the US in Belgium (whose avatar I use as a way of honouring him) - a Sachs unconnected with Goldman Sachs, though he is a classmate at Harvard of Ben Bernanke:

Live Photo: Google Inc. Caught Censoring EU Search Results (for USA - CIA)
Google Internet Censorship - Censure d'Internet par Google - Internet censuur door Google

'Ex-Agent: CIA Seed Money Helped Launch Google', retired intelligence agent Robert David Steele interviewed by Paul Joseph Watson, and speaking of the CIA's Dr Rick Steinheiser and his connections with Google:

The CIA's Google involved in criminal acts against Europeans with the CIA's Wikipedia:

Current case: Wikipedia and Google in the attack on Europe, trying to murder European citizens criticising the USA:
Report to the EU Parliament and the Commission of the European Union
Anti-Competition Crimes of EU Internet Monopoly Google Inc. (with CIA) and Wikipedia (with CIA), to Erase EU Journalism, to Slander and Murder EU - Polish Citizen, Writer, Journalist,  Non-Zionist Jew

SheepDog-One's picture

QUICK muppets! Pile into GOOGLE!

Sudden Debt's picture

You can easely look up the quote on finance YAHOO !!!!

Stoploss's picture


battle axe's picture

Seriously, this is getting crazy, first Apple now these guys, why does it seem like the  Canary died in the coal mine and we should be getting the hell out of the mine. Wait, is that Methane Gas I smell? Let me light a match and see.....

God Bless The Virtuous's picture

Agree Battle axe..

All the Apple users should know why their batteries are not able to be removed!

It is the only way to make the phone inoperable for listening in from a nosy eavesdropper like say, the federal government!

Even when the phone is turned OFF, it can be used to listen in on anyone who is close enough to it!

The only way to securely disable this intrusive feature is to remove the battery, which as all users know, is not possible!

May the good lord watch over this fragile / once free country we used to call America!

God bless the virtuous

SheepDog-One's picture

Up 15 by close, up another 5 now...I dont know everythings just damn goofy. 

q99x2's picture

But who's checking.

Divided States of America's picture

Would short this tomorrow...this report doesnt look too impressive to me.

junkyardjack's picture

Market seems to be confused as to how to interpret it, when in doubt go bullish...

Lady Heather...UNCLE's picture

do 'Wall St analysts' ever not underestimate company results?

pods's picture

My fault, every time I see those Sugar Daddy ads I click them.

You know, for Tyler and Co.


carbonmutant's picture

2 for 1 split...

$30 price swings in AH... crazy volume

SheepDog-One's picture

I havent seen $30 price swings, its up like $5 from close right now. Looks like the muppets arent sure what to do.

carbonmutant's picture

You need to get real time charts for AH.

GOOG dropped to 627.66 and ran back up to 671.05.

My calculator says that's over $30...

SheepDog-One's picture

Really well my real time quotes say Google is 653.

jcaz's picture

LOL-  you might try learning the difference between "bid" and "ask", then-

Even if you somehow did see those trades, they were off-market, for those stupid enough to put in non-limit orders after hours......

Dr. Engali's picture

Have to split the stock so we can get more week handed mo mos in it.

IveBeenHad's picture

CPC(pricing) came in real weak (-6% qoq) which I am sure management will attribute to weaker mix as it pushes into mobile.  Paid Clicks (volume) up 7% qoq saved the day on the topline offsetting fully the pricing decline.  I am not sure how this is going to be read.  Op Margins also down about 200 bps qoq.  SG&A are under control but R&D shot up big time.  Oh and maybe some clarity on the oh say $12B acquisition that has yet to close.  What is the strategy!? 

penexpers's picture

Fuck you, Bernanke!

navy62802's picture

Two consecutive misses and an increasing trend on jobless claims? pfshaw ... Google beat! Rally on!

SheepDog-One's picture

Yep, just like I read about Obamas jobs advisor says the employment is 'healing'....yea kind of like a stabbing victim sitting on a bayonet....THAT kind of 'healing' apparently, with the jobs data getting worse.

vast-dom's picture

yeah man 'cause you can look for jobs with Google as well as jobless claims. Google, the universal panacea to everything. 

gjp's picture

That letter is so full of self-satisfied hubris, they should have their pictures come up first when you google the phrase.

Stoploss's picture

This is how you take a company back private, with out much notice, by killing maj rights. Let's see if the muppets figure this out.

Bad mojo for tech in general.

Goes with this bad moon cycle anyway.

jcaz's picture

Yep, the unwashed masses won't get it, but this "split" is the first step to privatization-  not good news at all, but the CNBC trogs will fluff it.....

scatterbrains's picture

How much of their revenue comes from the CIA's black budget?

Westcoastliberal's picture

And don't leave out NSA, NRO, DIA.  Ka-ching!

Seasmoke's picture

i cant afford 1 share of GOOG at $600 but i can afford 2 shares of GOOG at $300

gjp's picture

And why is everyone calling this a dividend?  It's a stock split.  I don't see anywhere that GOOG is handing any cash back to shareholders.

farmerjohn2112's picture

Beware the Mighty Gorg...

carbonmutant's picture

Shareholders wanted dividends instead they got non-voting stock...

SheepDog-One's picture

Muppet Google shareholders are writing that non voting stocks are the same as dividends. Well no wonder the FED thinks it can fool everyone, if you read the internet stock chat rooms, pretty much every seems to be an idiot.

Stax Edwards's picture

Nice! Held Goog in anticipation of nice earnings. Was expecting bigger overall correction than what we got; humbled by Mr. Market today.

OT: Anybody know why steel was on a tear today?  Seems like more than sector rotation.  What gives?  China slowing, Euro recession.  Something does not add up here IMO.  Short squeeze is all I can come up with.


slewie the pi-rat's picture

dollar goes down (-.44)  and syuff you pay dollars for goes up?

Stax Edwards's picture

IDK, everything that has been working didn't and what wasn't working did.  Materials on a tear and apple down?  WTF over?  ??? Gut says this is a trap.

Little T.'s picture

Whisper numbers of China GDP.

SheepDog-One's picture

We can see China energy usage up about .5%, doesnt look to me like GDP boosted up 9%....but who knows its all just lies anyway they might report 10% GDP.

slewie the pi-rat's picture

fungible fun with google fungibility funnies


slewie the pi-rat's picture

whoever junked me may want to check "superMoney"

google is essentially printing a new class of "money-like wealth" to be disributed 1:1 but w/out any voting rights b/c of "governance" dilution concerns

anyway, this should provide them w/ some MONEY

which is...wait for it...   fungible!

Aunty Christ's picture

Goog's up $8.50  AH on a so-so report and announcing a slick 50% haircut to your voting rights, wow GOOG investors are truly Muppets

SheepDog-One's picture

Its like the dumbest money of all time....this kind of shit NEVER happened 10 years ago! 

earleflorida's picture

Poor Google? Currently there are several new prototype business models in play to circumvent Google's adopted eavesdropping. People will be willing to pay-up for privacy, believe me?

Facebook is another unbeknownst sacrificial lamb that has made the Faustian-bargain jump into the abyss less tolerable,... having been endowed with the elusive philosophers-stone --- such revenge, or better said, comeuppance will best be served cold? 

What we have here are two innocently blinded-folded co-conspirators of NEO` 1984's "Ingsoc", via Room 101 on the Net. Indeed, a grandiose government surveillance of our dumb-downed sub-cultured maturing rug-rats - now proliferating exponentially by fucking themselves to death on mud and spit?

Google + Facebook = "The USSA Propagandist Avant`Garde DoubleSpeak, of the 21st Century!


Stax Edwards's picture

No argument here.  TD's crew knows quite a bit about the subject matter