I loathe that stuff.
Google traded up $26.42 to $1149.40 after setting a new all-time high of $1151.00 earlier in the day.
From Barron's Tech Trader Daily:
Shares of Google (GOOG) are up $27.38, or 2.4%, at $1,150.35, after the company yesterday said it would buy automation startup Nest Labs for $3.2 billion.
The Street today pondered a number of different rationales for the deal, which they believe came at a substantial premium, but a premium not unwarranted by the strategic value of Nest’s technology.
Piper Jaffray’s Gene Munster, reiterating an Overweight rating on the shares, and a $1,263 price target, writing that “purchasing Nest may seem strange for Google, but we believe that diving deeper into the acquisition sheds more light into the move.”
It’s about automation, writes Munster:
In our opinion, there are three core benefits from acquiring Nest. First, Nest fits into Google’s theme of automation with the continued development of robots and self-driving cars. Second, the acquisition could ultimately give Google a better window into home power consumption and ultimately the smart grid of the future. Third, Nest gives Google a world class design team that could influence future hardware products. In total, while we believe the purchase price may seem expensive, we believe that Nest will prove to be worth the cost and fit well within Google’s vision connecting the world’s information, now including home power consumption […] While there are no public revenue numbers for Nest, we believe the company could reasonably be on or near a 1 million unit run-rate between the company’s thermostat and the recently launched smoke detector. At a $230 ASP between the $249 thermostat and $129 smoke detector (note that a single home could use multiples of each device), would imply a revenue run-rate of $230 million and a 14x multiple on that rough run-rate estimate. In the past Google has had success in paying high premiums to prevent other bidders (YouTube for $1.65 billion with essentially no revenues). While we believe Apple is also interested in home automation, we note Apple has never bought a consumer electronics hardware company and likely was not a bidder on Nest despite a connection with the CEO.Topeka Capital Markets’s Victor Anthony reiterated a Buy rating, and a $1,313 price target, writing that “Google is placing a bet that it can connect the more than 115mm homes in the U.S. and eventually millions more globally.”
It’s about owning connectivity, writes Anthony...MUCH MORE
