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TAC is at a 2-year low, indicating high hopes for upcoming profitability increases

Google Inc. (GOOG) finally figured out an answer of what to do with its struggling Motorola Mobility unit -- get rid of it.  On Tuesday it announced it would be selling the unit for $2.91B USD to Hong Kong, China-based Lenovo Group, Ltd.'s (HKG: 0992).

I. TAC is Looking Good, Profitability is Strong

That deal overshadowed the earnings for Google, which were delivered after hours on Thursday.  Overall, Google saw a substantial rise in revenue, surging from $14.42B USD in Q4 2012 to $16.86B USD in Q4 2013.  That beat the expectation of analysts surveyed by Thomson Reuters I/B/E/S, who were expecting $16.75B USD.

The core internet business -- which includes the growing mobile advertising division -- earned $15.7B USD, or roughly 93 percent of the total revenue.  Traffic acquisition costs (TAC) -- the fees that Google pays partners for advertising clicks -- were a strong point of the earnings reports.  As a percent of revenue, these fees dropped to only 23.5 percent, their lowest level in two years indicating strengthening profitability.

Google Q4 2013

Excluding the income passed on to partners, Google earned $13.6B USD, which bested the $13.4B USD that analysts surveyed by Bloomberg expected.

Despite being hampered by Motorola Mobility in profitability, the lower TAC drove net income (profit) up to $3.38B USD (for non-GAAP) ($9.90 USD/share) -- up roughly 17 percent on a year-on-year (YoY) quarterly basis.

Google Q4 2013

Factoring in certain items, net income (GAAP) was at $4.10B USD ($12.01 USD/share), up roughly 15 percent YoY.  That's 1.5 percent less than the $4.16B USD ($12.20 USD/share) that the Thomson Reuters I/B/E/S survey predicted, and 2.0 percent less than the $4.18B USD ($12.25 USD/share) that the Bloomberg-surveyed analysts predicted.

Along with the Dec. 2012 sale of Motorola's set-top box division to Arris (ARRS)
for $2.3B USD, that move left Google baring $7.3B USD of the $12.5B USD it paid back in 2011 to acquire the American phonemaker.  Motorola has $2.9B USD in cash, but Google lost $2.3B USD so far on unit.  That leaves the net cost at $6.7B USD.

Overall financials are definitely headed in the right direction and should look even better in future quarters with the Motorola money-vacuum out of the picture.

II. From Motorola Mobility to Robots

Google estimated the value of Motorola's patents (of which Google will retain roughly 80 percent, with Lenovo getting the rest) at $5.5B USD.  So by Google's own valuation it's retaining about $4.4B USD in value, putting it about $2.3B USD in the hole on the deal.

Furthermore, it's hard to believe that Google's initial valuation on the patents would hold true today.  Google's attempt at defensive-mind litigation against Apple, Inc. (AAPL) with the patents was thrown out of court and resulted in thorny abuse complaints in the U.S. and EU.  Likewise Google lost its case to Microsoft Corp. (MSFT), which led to it not only having to give Microsoft free licensing, but having to actually pay damages.

Moto G

But the good news for Google is that it's getting rid of the troubled unit, which saw losses growth 2.5-fold on a year-on-year (YoY) quarterly basis.  Google's former headache is now Lenovo's problem to deal with.

Going on without Motorola, Google will look to continue to improve its mobile monetization and now-profitable YouTube video service.  As makers of the world's most popular smartphone platform, which runs on roughly four out of every five smartphones sold globally today, Google has tremendous potential for mobile revenue.

Google is also eyeing other near product segments. It's continuing to push wearables, such as its Google Glass Explorer -- commonly referred to as "Google Glasses" -- and smartwatches.  Rumors have been floating that Google may end its Nexus branded Android smartphones and tablets, but other rumors have suggested it may up the ante with a Nexus TV instead.

Google Glasses
[Image Source: Google/AP]

The Mountain View, Calif.-based software giant is also buying up a number of small robotics firms.  I spoke with an executive from a firm not affiliated with Google, but familiar with the purchased firms.  They told me that the overall word amongst roboticists is that Google is acting proactively and isn't quiet sure (or at least isn't indicating) where the project is headed yet.

My guess would be targeting robots at service industry tasks (waiters, cashiers, etc.), remote exploration (space colonization, etc.), and smarter factory robots (with fuzzy safety algorithms).  With Andy Rubin -- the former Android chief -- at the helm, though, I wouldn't worry too much about them finding ways to put forth appealing products to consumers, the industry, and researchers alike.

Sources: Google, Reuters, Bloomberg

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Absolutely amazing.
By retrospooty on 1/31/2014 9:15:55 AM , Rating: 2
Google stock is just flying... They are about to split, which makes sense at over $1100 a share.

They have alot of great stuff in the works too. From glass to automated cars, to robots and a bunch of other crap too.

Its kind of scary though.

RE: Absolutely amazing.
By Tony Swash on 1/31/2014 10:06:12 AM , Rating: 3
What’s noticeable about the Google results is how little information Google releases compared to many other big tech players, there is almost no information about product revenues or sales, geographical breakdowns, costs centres, etc. Google is like a black box, all you can see is the surface details of gross total figures and only the barest hint of it’s internal commercial activities and performance. I would love to know more, a geographical breakdown of revenues would be really interesting, as would a platform breakdown.

RE: Absolutely amazing.
By amanojaku on 1/31/2014 10:52:06 AM , Rating: 1
That shows you either know nothing about Google, or you're just trolling. You won't see a product or cost center breakdown, because over 95% of Google's revenue comes from advertising. Google has dozens of products and services, nearly all of which are FREE. Obviously, everything outside of advertising and mobile is operating at a loss if they aren't selling anything.

A regional breakdown isn't useful, either, since Google itself isn't creating ads. Google is clearly a trusted advertising company, so a lack of sales in a region would indicate a poor economic climate, not a failing on Google's part.

RE: Absolutely amazing.
By Flunk on 1/31/2014 10:58:45 AM , Rating: 2
Trolls just be trolling.

Seriously, there are a few people whos comments are all totally without content. Might as well just skip over them.

RE: Absolutely amazing.
By Cheesew1z69 on 1/31/2014 11:46:09 AM , Rating: 2
That shows you either know nothing about Google, or you're just trolling.
When has he ever? He clearly doesn't USE Google products.

RE: Absolutely amazing.
By troysavary on 1/31/2014 11:50:20 AM , Rating: 2
Most of those free services may be operating at a loss on paper, but they aren't really losing. Everything Google does is directly related to raising their advertising revenue. So these services that are offered for free indirectly make Google money. The ones that are not significantly increasing ad revenue eventually get axed. Google isn't stupid enough to keep doing something that is not helping the bottom line in some way.

Well, except maybe their forays into robotics. Geeks like robots and billionaire geeks get to play with the coolest ones.

RE: Absolutely amazing.
By Tony Swash on 1/31/14, Rating: 0
RE: Absolutely amazing.
By amanojaku on 1/31/2014 2:33:04 PM , Rating: 2
Most of what you're looking for can be found here:

Your first post implied Google is hiding something, which it is not, as most companies provide similar information without disclosing much else. The information you're asking for is confidential, and generally not available even to employees outside of executive, sales, and marketing staff. Not even Apple, your favorite company, gives that level of detail:

There's another reason why the info is hard to find: Google has too much of it. Apple's 2013 10-K filing was 98 pages highlighting five products. Goolge's is forthcoming, but last year's was 310 pages. Google has WAY to much to report on to get to the level of detail you want.

RE: Absolutely amazing.
By Tony Swash on 1/31/14, Rating: 0
RE: Absolutely amazing.
By sorry dog on 1/31/2014 4:22:41 PM , Rating: 1
There's nothing unusual about the amount of detail in their 10K.

Some companies may provide the kind of detail you are asking about but that it not common.

In an era of Sarbane-Oxsley there not much reason to pay the accountants more to give more detail than what is required by the SEC. If investors want more information, it can be had or combined from other sources. But if you don't like it, go buy a share and say something as the next stockholder meeting.

"This is about the Internet.  Everything on the Internet is encrypted. This is not a BlackBerry-only issue. If they can't deal with the Internet, they should shut it off." -- RIM co-CEO Michael Lazaridis

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