google-purchases-nest

Nest Acquisition Said To Cause Google Earnings To Come Up Short In First Quarter

April 16, 2014 - Written By Justin Diaz

Google has apparently been slowed down in the earnings for their first quarter of this year due to purchasing Nest, which cost them just over $3.2 billion to acquire, and honestly that seems like a valid reason to come up just a little shy on how much money you would think the company would make in profit these first few months. It shouldn’t come as a surprise that this happened, but investors seemed to be less than thrilled at first when they learned that the earnings amounted to $12.19 billion instead of the projected $12.3 billion. Despite this though Wall Street seemed to accept the nature of the outcome on earnings and understand that purchasing a large company like Nest can obviously have a large effect.

Google’s CFO Patrick Pachette mentioned that Nest took a tole on Google expenses, and changes in currency had something to do with it, stating that One-time M&A deal costs impacted all of their operating lines, but most prominently their R&D line, and that the one-time deal costs are largely stemming from the Nest deal, which was a pretty large transaction for them in the quarter. He also states that the purchase of the company caused a lot of stuff to “flow through accounting”, and referred to the Nest deal as a truly extraordinary item.

Other things like an increase in costs for R&D, and the adding of new payroll costs for Nest research employees had a part in the lower earning as well. Total R&D cost for this quarter cost Google $2.1 billion which is actually $500 million more than they spent on R&D in the first quarter of 2013. Although lower earnings is something that no company looks forward to, we don’t think that Google will be hurting even after having come out earning less than projected. Chances are they will make up for it down the line, and they have already started to bounce back as their stock improved from a drop of six percent to less than three percent. Although nest may have caused their first quarter earnings to drop, it could very well net them an increase in earnings in later quarters compared to what it might have been without the company buyout.