GOOGLE ACQUISITIONS: Back in the day, Google used to be the king
of acquisitions.
Many of their most popular and influential products were the result of acquisitions.
This includes the likes of YouTube, Android, and Google Maps.
They even pulled a 200 IQ move by buying out Motorola for their 12,000 patents.
But since then, Google has largely pulled back on acquisitions.
They still do a good amount of deals behind the scenes.
For example, they purchased companies like BrightBytes, Sound Life Sciences, and Photomath.
Also, here and there, we’ll see a more notable one like the Nest or HTC.
But in terms of pivotal acquisitions like YouTube or Android, we haven’t really seen
any in 20 years despite Google having massive cash reserves of over $100 billion.
Now compare that to Microsoft who has gone all out on acquisitions.
In fact, Microsoft has spent well over $100 billion on acquisitions over the past decade
including names like LinkedIn, GitHub, Nuance, ChatGPT, and most recently Activision Blizzard.
So clearly, Microsoft and Google have been polar opposites when it comes to acquisitions.
But this story may be changing as Google seems to be gearing up for their biggest acquisition
ever.
They’ve recently started talking with investment advisors to figure out what they need to bid
to buy out the enterprise giant, Hubspot, who is currently worth over $30 billion.
And by the time you're watching this video, there could be an official bid on the table.
This acquisition wouldn’t just be an expansionary play for Google.
Rather, it would likely go down as the moment that Google officially went from being a consumer-first
business to being an enterprise-first business just like Microsoft.
And judging by Microsoft’s stock growth over the past decade, it’s safe to say that
this was a pretty successful move.
So, here’s why Google is considering buying out Hubspot and why this could change the
entire fabric of Google.
THE STATE OF GOOGLE: If you're interested in deeper dives, interviews
with insiders, and exclusive tech analysis, consider subscribing to our free weekly newsletter.
But anyway, Likely the main reason that Google is considering acquiring Hubspot is due to
the state of their consumer business.
The reality is that Google’s consumer business hasn’t been doing so great over the past
couple of years, not in the sense that it’s not pulling in massive amounts of revenue
and profits but in the sense that it’s not growing.
And for ultra-growth companies like Google with PE ratios of nearly 30 despite a market
cap of $2 trillion, no growth is basically a death sentence.
If Google were to settle down to a more mature PE ratio of 10 in line with nongrowth companies
like AT&T, Google’s valuation would crumble from nearly $1.9 trillion to $670 billion.
So, keeping up with infinite growth is of utmost importance to Google’s executive
team, but this has been much easier said than done.
Here’s the thing, most of Google’s products have simply hit market saturation whether
that’s YouTube, Google Maps, Chrome, Gmail, Drive, or even Google itself.
That’s why Google has become so aggressive with cutting out Adblock and putting in more
ads.
If you can’t grow the total number of users, you have to grow the revenue per user, but
obviously, this can only be taken so far.
Also, we’re starting to see much bigger cracks in the Google empire.
In fact, some of Google’s most notable products have even started to bleed market share.
For example, Android has been slowly bleeding market share to iOS for years.
We have also seen a noticeable shift from Chrome and Google to Edge and Bing ever since
the Microsoft ChatGPT partnership.
Things are only looking worse when it comes to the new product side of Google.
As many of you love to point out, Google hasn’t really had a big product release since the
2000s.
And every attempt to change this has simply resulted in an epic failure.
Take Google+ for example, Google’s attempt at taking on Facebook.
Google+ was able to reach 540 million users just due to the raw size of Google, but 90%
of user sessions didn’t even last 5 seconds.
A similar story can be told about Google’s smartphone ambitions.
Despite owning Android and being one of the first people on the smartphone scene, they
have yet to crack into the smartphone market with the Nexus or the Pixel.
Google even tried their hand at the cloud gaming market with Stadia, but that too has
since shut down.
And that’s even mentioning products like Google Glass, Google Cardboard, and Google
Self-Driving Car which have all been at the very least underwhelming.
The nail in the coffin for Google, however, was definitely their blunders with AI.
The Google Bard mess-up cost the company $100 billion in market cap and the Google Gemini
mess-up cost the company $96 billion in market cap.
Things got so bad that investors even started calling for Sundar Pichai to be fired.
Honestly, all of this has less to do with any one thing that Google did wrong and much
more to do with the overall sentiment surrounding Google.
Back in the day, when Google had all these successful products like Gmail, Chrome, Google,
and Maps in highly saturated industries, people were rooting for Google.
Google was the underdog taking on giants like Yahoo and Microsoft and that very much worked
in their favor.
But, now that Google is the giant, the public is much more inclined to judge Google than
support Google.
This has made it extremely difficult for Google to make any progress on the consumer side
of things, but there is one side of Google that has been doing surprisingly well: Google’s
enterprise business or more specifically Google’s cloud business.
Over the past 7 years, Google’s cloud revenue has grown 8 fold from $4 billion to $33 billion,
largely because enterprise customers don’t care about things like data collection or
privacy intrusion or monopolistic practices.
In fact, a lot of them probably engage in similar practices themselves.
All they really care about is: how good is the solution, how much does it cost, and how
strategic is a partnership with this company.
These are all areas in which Google still excels leading us into Hubspot.
WHAT IS HUBSPOT: The first question most of you probably have
is: what the heck even is HubSpot?
Well, I don’t blame you because Hubspot is very much the textbook definition of background
business.
Hubspot was founded at MIT back in 2006 by 2 men named Brian Halligan and Dharmesh Shah.
If you spend a lot of time scrolling through entrepreneurial videos on YouTube, you’ve
probably seen Dharmesh.
Nowadays, he gives a lot of talks and speeches about entrepreneurship, growing a business,
and all of that stuff.
But anyway, Hubspot started off as a marketing management tool but it quickly turned into
a one-stop shop for CRM or customer relationship management software.
In other words, Hubspot makes all the software that companies need throughout the lifecycle
of a customer from marketing and onboarding to invoicing and customer support.
Most of the businesses that you deal with on a day-to-day basis likely have little need
for Hubspot because they like to manage all of these aspects themselves.
For example, businesses like Uber, Airbnb, Instagram, and Zillow often have their own
in-house marketing, onboarding, invoicing, and customer support operations.
But, for many background and enterprise-oriented businesses, it makes little sense to build
out these sorts of things themselves.
For example, let’s say you owned a small law firm.
Would it make sense to code out your invoicing systems or your own marketing tools or your
own customer support portals?
Probably not, and that’s where Hubspot comes in.
They offer a total of 6 core products which include a marketing hub, a sales hub, a service
hub, a content hub, an operations hub, and a commerce hub.
A lot of these products actually start off completely free for small businesses and solo
ventures.
But, as your business scales, you’ll end up paying Hubspot quite a bit.
With the marketing hub, for example, the enterprise plan costs $3,600 per month and it only includes
5 seats.
Imagine, how much you’d be paying if you needed 200 or 300 seats every single month.
And that is precisely why Hubspot is able to pull in over $2 billion every single year
despite only having a mere 205,000 customers.
That works out to an average revenue per customer of over $10,000 per year.
We should also note that most of those 200,000 customers are likely on the free tier or starter
tiers.
So, the average revenue from professional tier customers is likely way higher.
Not to mention, Hubspot has plenty of room to grow.
Other CRM and ERP giants like Oracle, SAP, and Salesforce are worth hundreds of billions
each.
But, scaling to that level by themselves may prove to be challenging because Hubspot is
not a profitable business.
In fact, their burn rate has only been increasing in recent years.
Fortunately, they have enough cash to sustain their burn rate for several years to come,
but they could obviously scale a lot faster and take bigger risks with Google’s backing
leading us into the Hubspot acquisition.
HUBSPOT ACQUISITION: The case for Hubspot from Google’s perspective
is quite clear.
For starters, they have a rapidly growing enterprise cloud business that is eating into
Microsoft and Amazon’s market share.
In fact, Google now controls 10% of the cloud market.
For perspective, AWS controls 33%, Azure controls 22%, and everyone else controls 35%.
But, even looking past that more recent development, Google has their massive ads business which
still accounts for the vast majority of their revenue, and really, that’s an enterprise
business.
While billions of people use all of Google’s services, it’s actually enterprise customers
who pay for all of it through advertising.
Historically, Google has placed much more emphasis on the consumer side of advertising
because their number one goal over the past 2 decades has been to get as many eyeballs
as possible through every avenue they can.
But, now that they’re starting to reach market saturation on the consumer side of
things, it makes much more sense to focus on the enterprise side of things and that’s
exactly where Hubspot fits in.
Hubspots various CRM offerings could be a great upsell to advertising and cloud customers.
These guys are already using Google for their advertising and tech infrastructure needs,
so why not also use Google for their invoicing, customer support, and marketing needs as well.
It makes everything more streamlined and they can probably get a discount for using so many
Google services.
Also, one of the main selling points of Hubspot’s marketing suite is analytics and maximizing
the effectiveness of campaigns.
So, Hubspot simply gives Google another avenue to prove to customers how effective Google
Ads can be and drive more advertising dollars.
And from Hubspot’s perspective, they’re already doing well, but getting to Oracle
or SAP’s level could take another 10 to 15 years.
With Google’s help, however, they may be able to achieve that scale within 5 to 10
years.
So, it’s no wonder why Google and Hubspot would be in favor of such a deal, but it won’t
be easy to push through.
With massive recent acquisitions like Activision Blizzard and VMware, the sentiment against
big tech acquisitions is not that great, so you can bet that this will likely be bogged
down by regulatory reviews.
Also, Google will likely have to pay a pretty penny to acquire Hubspot.
Hubspot is actually currently down from their all-time-high valuation of $42 billion and
investors know that Hubspot can easily grow to a $100 billion+ valuation with time.
So, Google will likely have a tough time picking up the company at their current market valuation
of $32 billion.
So, if Google wants to get this deal done, they’ll probably have to bid a good amount
higher than that and deal with 1 to 2 years of regulatory reviews, but maybe that’s
exactly what Google needs to do to finally grow past their consumer offerings and become
a true enterprise giant.
If you're interested in having companies pay you, check out our bond investing platform
Silo in the description below.