(by Mani) Despite its first quarter earnings topping the Street's estimates, the search engine giant Google's (Nasdaq: GOOG) shares are trading down for the second day in a row. Investors seemed to be disappointed with the company's stock split announcement as it will come without voting rights.
If the company disappointed investors with unimpressive earnings in the fourth quarter, the stock split announced along with the first quarter results have not only disappointed, but also raised questions about the company's regard towards investors.
In both the cases, investors have hammered the stock on the following day. Google's shares tanked 8.4 percent after its fourth quarter earnings fell shy of analysts' estimates on January 19.
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This time, after a positive earnings surprise, the company's share lost 4.1 percent on Friday. The scenario is no different today as the stock has been as much as 3.6% percent.
One of the reasons for the stock's fall is its average cost per click witnessed a 12 percent downside over the year-ago quarter, while it slipped 6 percent from the fourth quarter. However, some analysts term this due to more usage from mobile apps, which should be a good one given the growth prospects.
Second is the stock split. As Google's stock split plan unfolded, investors became unhappy with the stock split, which was designed more to suit its founders and their plan to hold a firm grip on the company. The move was not seen as to be aimed at satisfying the interests of investors. This is because half of their new shares will not have voting rights, reducing the split's charm.
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Since its 2004 IPO, the company's founders have made it clear that they want to have control over the company no matter how big Google grows. The latest step is seen as a step in that direction without diluting their control over Google. Along with its chairman, its co-founders have a stake of about two-thirds of voting power primarily due to dual-class stock composition, which was created before the IPO.
The new class of shares to be issued will be devoid of voting rights. This will deprive investors' involvement in any decision making. However, analysts believe that the voting rights of shareholders in Google is very limited. Therefore, the latest is a continuing process.
Although Google tried to find an innovative way to satisfy investors, the company needs to convince its shareholders, though it will not have any problem in pushing its proposals.
If management didn't create another class of shares and dilute their voting rights, investors might have been happier. However, the company does not want to take to any chances and wants to ward off any future takeover threat to its investments.
Shares of the company have lost 3.3 percent in 2012, whereas the Nasdaq advanced 15.6 percent. After the fourth quarter results announcement, Google shares dipped 2.34 percent, while the Nasdaq advanced 8 percent based on Friday's closing price.
Last Friday, Google shares shed 4.1 percent on volume of 8.16 million shares, compared to the 3-month average volume of 2.7 million shares. The Nasdaq dipped 1.45 percent.
It is quite clear that the stock is underperforming the broader market indexes. The latest announcement failed to cheer the investors. Therefore, the stock may continue to under-perform compared to the broader market, unless a fresh catalyst emerges.