Google's (GOOG) Nest Deal Could Be A Big Fat Money Maker
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Rating Summary:
41 Buy, 6 Hold, 1 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 11 | Down: 12 | New: 9
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SunTrust Robinson Humphrey analyst Robert Peck crunched the numbers on Google's (NASDAQ: GOOG) latest $3.2 billion acquisition of Nest and the figures quickly show why the Internet giant made the move.
According to Peck, the deal could add $3 billion of revenue, or $1.3 billion of gross profit by 2017. His analysis assumed a modest 5% penetration of homes (115M TAM households) for thermostats and smoke alarms, or roughly 5.8 million homes, and conservatively estimates each home requires 1 thermostat and 2 smoke alarms per home at and current price points of about $250 and $140, respectively.
Using a more optimistic 10% penetration, Nest could drive nearly $6 billion in revenue for Google by 2017.
Driving conversions to Nest will be the average payback for consumers through energy savings for a thermostat in less than 18 months, making the relatively small capital investment for each consumer a compelling case.
The Nest deal is just the latest in Google's quest for omnipresence, the analyst highlights. "We find the deal very interesting both financially and in terms of Google’s growing computing platform of car, glasses, fiber, tablets, phones and laptops," Peck said. "Google wants to be wherever there is computing, raising utility for it users."
The firm maintained a Buy rating and price target of $1,125.
For an analyst ratings summary and ratings history on Google click here. For more ratings news on Google click here.
Shares of Google closed at $1122.98 yesterday.
According to Peck, the deal could add $3 billion of revenue, or $1.3 billion of gross profit by 2017. His analysis assumed a modest 5% penetration of homes (115M TAM households) for thermostats and smoke alarms, or roughly 5.8 million homes, and conservatively estimates each home requires 1 thermostat and 2 smoke alarms per home at and current price points of about $250 and $140, respectively.
Using a more optimistic 10% penetration, Nest could drive nearly $6 billion in revenue for Google by 2017.
Driving conversions to Nest will be the average payback for consumers through energy savings for a thermostat in less than 18 months, making the relatively small capital investment for each consumer a compelling case.
The Nest deal is just the latest in Google's quest for omnipresence, the analyst highlights. "We find the deal very interesting both financially and in terms of Google’s growing computing platform of car, glasses, fiber, tablets, phones and laptops," Peck said. "Google wants to be wherever there is computing, raising utility for it users."
The firm maintained a Buy rating and price target of $1,125.
For an analyst ratings summary and ratings history on Google click here. For more ratings news on Google click here.
Shares of Google closed at $1122.98 yesterday.
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