I tried to normalize the MMI (Motorola) acquisition, and how it would potentially effect Google's numbers.
Here are the numbers:
Combining the 3 and 9mths rev to expenses from the above:
If MMI were purely incorporated into Google's results for the last 3 to 9 months, this is what I would be expecting from the combined merger. To me, the actual numbers are not as relevant. The relevant info from the above is that a margin decrease of approx. 10% should be anticipated.
What make the above more interesting is that the last quarter from Google was really good due to a lot of expense cutting, and over the past three months Motorola warned. An assumption could be made that if Google did not cut expenses more quickly this quarter or increase revenue, the combined company will see a bigger hit to pure margins. (The above does not include 'extra' or 'other' expenses.)
The ultimate question: Is the market fully anticipating a potential 10% hit on margins?
With a trailing multiple of 21, I do not believe so. If the market is not expecting it, and Google does not come up with a viable plan to expand hardware margins, then the stock will take a big hit when analysts begin to realize the above. (Unless the market wants to ignore the above facts, but I am not willing to bet on that.)
Make no mistake, I really like the MMI acquisition, longer-term for Google. I think they needed to do it due to future answer engine threats and to truly compete with Apple. But Google needs to develop a road map to expand hardware margins. (Maybe that means, MMI will focus on high-end devices and be a toe-to-toe competitor to the iPhone, with only some low-end market exposure.)
note: The reason I did not completely remove the Admn Expenses is because Google said they will keep MMI as a completely separate operating unit, which would require more Adm Expenses. And did not attempt to realize any synergies as synergies should be minimal.
Post a Comment