Google’s Case Questions Harvard Case Solution & Analysis

Part 1: Earnings Announcements

            On January 29th 2015, Google Inc had announced the financial results for the year and the quarter ended December 31, 2014.

  • Google’s earnings surprise on this date was that the company had closed the sale of the Motorola Mobile business which had resulted in a gain of about $ 740 million. Also, the net income (consolidated) had increased to 4.76 billion in the fourth quarter of 2014 as compared to 3.38 billion in the fourth quarter of 2013.
  • The revenue surprise was that the revenue for Google had increased by 19% as compared to the revenue for the year 2013. This was despite strong currency headwinds.
  • The two day cumulative return and trading volumes are shown in excel spreadsheet.
  • The direction of the returns is highly consistent with the direction of the revenue and earnings surprises, because the market had responded positively to the strong growth of the company.

            On April 23rd 2015, Google had announced the internal availability of the proxy materials in the annual general meeting of the year 2015.

  • There seems to be no earnings surprise during this period.
  • There seems to be no earnings surprise during this period.
  • The two day cumulative return and trading volumes are shown in excel spreadsheet.
  • The earnings and revenue surprise was not significant to be announced, however, the cumulative returns have outperformed the market during these period as a result of the announcement of the internet availability of the proxy materials.
  • There seem to be no other specific events that might have contributed to this value creation.

            On July 16th 2015, Google had announced the financial results for the quarter ending June 30, 2015.

  • The quarter 2 results had resulted in strong growth across all the products specifically, YouTube and Mobile segments. The earnings surprise was that the earnings had increased for this quarter to $ 3931 million from the last year’s second quarter net income of $ 3531 million.
  • The revenue surprise was that the revenue growth had been 11% year on year and the constant currency revenue growth for Google was 18% year over year.
  • The two day cumulative return and trading volumes are shown in excel spreadsheet.
  • The direction of the returns is highly consistent with the direction of the revenue and earnings surprises, because the market had responded positively to the strong growth of the company.
  • Other value relevant information that might also have impacted on this cumulative growth in returns might be the growth in the Google website revenue of 13% and other revenue growth by 17%.

            The earnings response coefficient has been calculated for the first two quarter for the year 2015. The earnings response coefficient is seen to fluctuate negatively from quarter to quarter. The sensitivity of the response of the market participants has increased significantly as a result of the efficient market hypothesis and the earnings announcements which have also triggered the market participant’s responses.

Part 2: Other Noteworthy Events

February 25th-26th

  • The cumulative return and the market adjusted return could be seen in the excel spreadsheet.
  • On this date, Google had announced a new android for work initiative. This was a dramatic announcement and this event was highly value relevant because the launch of this android would focus mainly on the identity management and increasing the security, which have been so far the major roadblocks for the deployment of the enterprise android.
  • The source of this announcement was Google and then financial press. As Google had made this announcement, it had impacted positively over the stock price of the company.
  • This event would not impact upon the earnings persistence of the company as this had created a positive outlook in the market for regarding the Google equity investors.

Google’s Case Questions Case Solution

April 14th

  • The cumulative return and the market adjusted return could be seen in the excel spreadsheet.
  • On April 14th 2015, Google had made an announcement that explained the public regarding the mobile friendly ranking signal which will be expanded to cover the larger portion of the search queries. This label had been started in November of 2014 and it’s a value relevant event as it conveyed to the general public on how it would lead towards a positive user experience......................

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