Google Inc (GOOG): The Case Of Class-C Shares And Motorola Exit

Google Inc (GOOG): The Case Of Class-C Shares And Motorola Exit
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Google Inc (NASDAQ:GOOG) will report its first quarter results on April 16 after the bell. JPMorgan analysts Doug Anmuth, Bo Nam and Kaizad Gotla expect the company to report $6.56 per share in Q1 earnings. They expect 2014 and 2015 earnings to come at $28.05 and $33.85 respectively. Note that these earnings reflect a new 2-for-1 stock split with class-C shares. Investors will receive one class-C share for each class-A and class-B shares they own.

Both of Google’s class-A and Class-C shares will be included in the S&P 500

Google Inc (NASDAQ:GOOG)’s class-C shares have a record date of March 27, and will officially begin trading on April 3. The stock split is aimed at giving a retaining control over the company to its co-founders Larry Page and Sergey Brin because the new class-C shares will have no voting rights. It will also lower the share price, making it more affordable to individual investors. The S&P Dow Jones Indices has said that both types of shares, class-A and class-C will be included in the S&P 500 index. The class- A shares will trade under the ticker “GOOGL” while Class-C shares will trade under “GOOG” ticker. Class-B shares are exclusively owned by the co-founders, and each class-B share has 10 times more voting rights than a class-A share.

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The stock split will double the number of outstanding shares, and the stock price will be divided into half. Just for comparison, Google Inc (NASDAQ:GOOG) will report its Q1 earnings as if the stock had already been doubled during those periods. JPMorgan’s revised price target of $675 doesn’t reflect any change in multiple, and is based on 20x 2015E EPS of $33.85. The research firm’s price target estimate is slightly higher than half of the pre-split levels to reflect increased profitability as Motorola Mobility has been moved to discontinued operations. Previously, JPMorgan had a price target of $1,325 on the stock. The research firm reiterates its Overweight rating.

Google Inc (NASDAQ:GOOG) sold Motorola Mobility to China’s Lenovo Group Limited (ADR) (OTCMKTS:LNVGY) (HKG:0992) in January this year for $2.91 billion. The search engine giant will retain its control over most of Motorola’s patents. JPMorgan says the sale will strengthen Google’s relationship with the Android ecosystem.

Google Inc (NASDAQ:GOOG) shares inched up 0.29% to $1,123.45 at 11:34 AM EDT.

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