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This Acquisition Will Add to Google's Long-Term Growth

May 28, 2014 | About:

It's all going to be about what OS is eventually going to not only be powering your computer and phone, but running in your vehicle and controlling the appliances in your home. Companies like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG)(GOOGL), and even BlackBerry (BBRY) are duking it out to own your personal ecosystem.

We all recall when Google purchased Nest — the company that makes thermostats and fire alarms — earlier this year for $3.2 billion. Nest was a smaller company, founded by a former Apple engineer in 2010. The purchase price that Google put on Nest was a shocker, as it was "nearly 10 times more than Nest's annual revenue."

Here we are just months later, and Nest has just issued a massive safety warning that's suggesting to users that they should turn off the "Nest Wave" feature of the products, which the company states could inadvertently turn off the product.

Nest's CEO issued the following letter.

To the Nest community:

Since introducing the Nest Protect: Smoke + Carbon Monoxide alarm, we've heard touching stories from many of you about how we've helped keep you and your families safe. I consider your safety a huge part of my job and it's something I think about and take pride in every day.

At Nest, we conduct regular, rigorous tests to ensure that our products are the highest quality. During recent laboratory testing of the Nest Protect smoke alarm, we observed a unique combination of circumstances that caused us to question whether the Nest Wave (a feature that enables you to turn off your alarm with a wave of the hand) could be unintentionally activated. This could delay an alarm going off if there was a real fire. We identified this problem ourselves and are not aware of any customers who have experienced this, but the fact that it could even potentially happen is extremely important to me and I want to address it immediately.

We feel that the best and safest thing to do is to immediately disable the Nest Wave feature to resolve the issue and remove any safety concerns. While we fix Nest Wave, we have also halted sales of all new Nest Protect alarms to ensure no one buys an alarm that needs an immediate update.

Once we have a solution that ensures Nest Wave works as intended, we will update our software to turn this feature back on. This will only happen after extensive testing and once we have received approval from safety agencies in the US, Canada and UK. We expect this to take at least two or three months and we'll continue to update you as we have more information.

We're enormously sorry for the inconvenience caused by this issue. The team and I are dedicated to ensuring that we can stand behind each Nest product that comes into your home, and your 100% satisfaction and safety are what motivates us. Please know that the entire Nest team and I are focused on fixing this problem and continuing to improve our current products in every way possible. If you don't want to keep your Nest Protect smoke alarm, we will give you a complete refund.

Our customer support team is available to help answer any and all questions you have, and we've posted detailed answers to some of the questions we anticipate here.

Thank you for your continued loyalty and support."

Immediately, people are likely to already be thinking, "Another GM (GM)?" But no, this is not quite a GM. This is an important update, but is nowhere near the magnitude of the recall that GM is finding itself going through.

Nest is proactively addressing this issue, which is something that GM most certainly did not do. Further, Nest has claimed that this issue has yet to be a complaint from customers themselves; it was simply something they found internally while performing laboratory testing.

Additionally, the fix is going to be relatively simple and akin to the Tesla charger recall: Nest will stop selling current units and will blast those with Wi-Fi access with an update that will fix the issue. Like Tesla (TSLA)'s ridiculous headlines about the "Model S recall" that wasn't really a recall, this is likely to be filed under "non-events" over the next couple of days as well, I'm predicting.

This news comes on the heels of Google's "split" of its non-voting class of stock. Yesterday, Google's non-voting C shares were issued for each existing A share in a 2:1 split that the company says it will use for liquidity purposes. Both classes of shares got a bump in trading yesterday morning.

Long erm, with Eric, Sergey and Larry all still at the helm of the ship, Google is likely set to continue its exponential growth and aggressive competition in the ecosystem game. Google stock, I contend, remains a strong value for long-term growth.

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