Soros had been trading shares of Google since prior to 2007 but had completely sold out in the second quarter of 2011. He then bought 1,126 shares in the third quarter of 2011 at about $550 per share. In the fourth quarter, he bought his largest stake to date — 258,900 shares at about $592, for a total investment of $154 million. Google is now his fifth largest holding, with 7.3% of his portfolio.
Google, once known for being a search engine giant, has grown to become the largest maker of smartphone software. But its Android platform lost market share in the fourth quarter. In the fourth quarter, 50 percent of phones sold ran on the Android operating system, compared to 30.5 percent in the fourth quarter of 2010, but down from 52.5% in the third quarter. Smartphone sales overall increased 47.3 percent in the fourth quarter of 2011 compared to the fourth quarter of 2010.
The company may have an opportunity to edge up its lead in the upcoming quarter as Gartner analysts expect iPhone sales to decline quarter-on-quarter and smaller competitors, whose devices can run on Android, become more aggressive.
Google generates 96% of its revenues from advertising, down one percent from 2009, and has benefited from the accelerated transition from offline to online advertising over the years. But the rate of its growth has slowed over time. Advertising revenue grew from $15.7 billion in 2009 to $19.4 billion in 2010, to $26.1 billion in 2011. The increase from 2010 to 2011 was primarily due to an increase in traffic, monetization improvements including new ad formats, global expansion, and added Google Network members, as well as an increase in the average cost-per-click paid by advertisers.
At year-end 2011, Google had approximately $44 billion in cash and $8.5 billion in long-term liabilities, with no debt. It also traded at particularly low valuations in 2011:
Comverse Technology Inc. (CMVT)
Israeli-based Comverse Technology is a leading provider of BSS, mobile internet and value-added services, that has more than two billion subscribers in more than 125 countries. Soros reported that he owned 14,716,666 shares, equating to 7% of the company, at about $7 per share in the fourth quarter. It has been trading around $6 to $8 for the last year.
The Comverse investment could be another way to benefit from the growth in mobile phone sales. Over the year the company implemented two sets of measures — one to realign the business to reduce costs, and another to maximize its performance in order to “leverage the growth in mobile data usage.”
Further goals of the second phase of measures are to sustain double-digit performance margins, improve operating performance and turn cash flows positive. The company has had revenue growth at an annual rate of 10.8 percent over the last five years, though cash flow has been negative for the last three.
In January, the company distributed the shares of its subsidiary, Comverse Inc., as a dividend in kind to shareholders, as it could not sell the company for lack of buyers.
The company is currently weighed down with debt of $2.2 billion on its balance sheet, mainly from a 2007 acquisition of Witness Systems for $950 million.
Comverse was re-added to the NADSAQ in September 2011, after being delisted in February 2007 amidst a backdating scandal. Soros invested $80 million in the company in July 2010 when it reached an agreement with the SEC and was struggling to recover from the scandal. The company finally became current with its reporting in 2011. Its fiscal year 2011 results showed revenues increased to $1.63 billion from $1.53 billion in 2010, and its net loss was $118 million, almost one half less than its $264 million net loss in 2010.
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