Tech Roundup: Facebook Gains, Google Settles - Analyst Blog

By Zacks | June 24, 2013 AAA

Last week, Facebook (FB) CEO Mark Zuckerberg was busy in Asia, even as Google (GOOG) founders Larry Page and Sergey Brin settled with dissenting shareholders and Microsoft (MSFT) pacified critics.

Facebook Shows Method to Its Madness

CEO Zuckerberg met with the South Korean President last week, promising to increase investment in the region and promote local businesses and venture firms. Facebook has been extremely popular with local and small businesses in the U.S., with more than 16 million small business owners creating free pages on the network (setting the stage for advertising on Facebook). Its mobile ad revenues went from 0% to 30% over the past year.

For additional leverage, Zuckerberg’s next stop was Samsung. While neither company provided details, TechCrunch reported that discussions centered on increasing mobile device ad sales. When Samsung’s Tizen handsets hit the market later this year, Samsung is going to need a strong ally. Tizen is an Intel (INTC)-supported open-platform OS competing with Google’s Android, so it’s plain to see why the company needs another strong software partner.

Google is practically the best at everything it does, so it is expected that Samsung will not drop Android overnight. But it certainly intends to do in China what it has done in the U.S., i.e., push Apple (AAPL) into a corner. After paying Microsoft, Android is not as cheap as it used to be, so Tizen could help push down device prices further.

It’s not clear yet whether Facebook Home will play a key role since both the parties are so tight-lipped. Of course, the folks at Mountain View are probably not napping (there’s a rumor that Android is getting into $100 smartphones).

Google Settles, But Not for Less

Google settled a class action lawsuit with the Brockton Retirement Board in Massachusetts and another Google shareholder, Philip Skidmore, which will now enable the company to go ahead with the stock split that was approved by shareholders over a year ago.

The stock split will result in a new class of shares with no voting rights (Class C), ensuring that the founders retain control of the company. The dilution to existing shareholders was the main reason for dissention, and Google made some promises to address the issue.

For one, whenever Class C shares are valued at less than 95% of Class A shares, Google will pay shareholders the difference. Second, Brin and Page agreed to sell Class B shares (10 voting rights per share) if they were to buy Class C shares and Google agreed to set up an independent board to deal with any requests for changes to this agreement. Third, Google’s board agreed to do a special review to determine the impact on Class A shareholders if more than 10 million Class C shares are issued to fund an acquisition.

The fact that the founders’ control has done wonders for the company, significantly adding to its bottom line and market cap, went a long way toward convincing the dissenters.

Microsoft Getting Ahead of Itself

Microsoft’s Xbox One had great potential, but the radical changes it introduced scared users and met with criticism from analysts, the media and just about everyone else. So last week, the company backtracked, saying that it would remove the need for constant connectivity and restrictions on disk sales.

Rival Sony (SNE), while scoffing at Microsoft’s support of a digital revolution, is wooing its own user base to digital downloads. Sony decided not to shock anyone, so it didn’t impose used game restrictions, or require constant Internet connection. However, digital versions of titles for PS4 will be released the same day as the discs and users can play as a game downloads (PlayGo), so there will be practically no waiting time.

Microsoft’s vision was to automatically save the games to the console and lock in users’ games to their Xbox Live Accounts so they can be shared with and accessed by their close friends. Not only would this facilitate a better gaming experience, but it would also allow seamless switching between games, movie downloads and Skype calling. Microsoft would have done better if it had explained what it was doing and also allowed users to choose.

While most of the stocks traded in the same direction as the market, Facebook, Google and Cisco stayed ahead, while the others underperformed.

Ticker

Last Week’s Performance

6 month performance

AAPL

-4.08%

-20.51%

MSFT

-4.54%

+22.95%

FB

+2.76%

-8.91%

GOOG

+0.02%

+24.16%

INTC

-3.98%

+17.25%

YHOO

-4.62%

+28.19%

CSCO

+0.04%

+23.45%

The week ahead –

After making a bid for Xobni, which makes address book apps and plugins, sources say that Yahoo is contemplating a $50 million acquisition of Qwiki, which makes an iPhone app that converts photos, movies and videos into movie clips. A formal offer could be made this week.

Apple and the Justice Department will make their closing remarks on Thursday regarding ebook price fixing charges against Apple. The hearing appears to have turned largely in Apple’s favor, especially after key testimony from Theresa Horner, Barnes & Noble’s (BKS) VP of digital content.

Google’s shares were trading down toward the end of the week as the company confirmed that the Federal Trade Commission (FTC) was investigating its acquisition of Israeli mapping company Waze for $1.3 billion. Waze has been playing hard-to-get, turning down Apple’s $500 million and Facebook’s $1.1 billion.

Google has already stated that it would continue to run Waze separately, although Google Maps would incorporate some of its features. It appears that Google was expecting an FTC probe (think ITA). Expect further details this week.

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