Goldman Sachs sounds out on what Google’s new CFO should do
Google’s new CFO Ruth Porat has probably not even officially started her job yet and she’s already getting advice from Goldman Sachs on what to do. Investor’s Business Daily (IBD) reports that, according to a research report written by Goldman Sachs analyst Heather Bellini, the investment firm thinks Porat should start by “increasing transparency on YouTube and other parts of the business and making better use of the search leader's $65 billion cash balance, perhaps with a stock buyback.”
Bellini adds that sustaining revenue growth for Google will be tough because their core search business is maturing and it faces stiff competition from Apple, Microsoft and Facebook. For example, Apple ended 2014 with $178 billion in cash—compare that to Google’s holdings—and has increased its shareholder returns. Google, as Facebook, doesn’t pay a dividend or repurchase shares.
Writing in her report, Bellini adds, “We see top-line challenges ahead and, depending on how Google decides to invest, there could be considerable impacts to cash flow and profitability."
Mystery seems to be what characterizes Porat’s start at Google, with the market anxious to know its near-term future maneuvers. "Google is holding around $65 billion in cash with about $40 billion of this held offshore, yet we have little idea of how Google plans to make use of this…We would like to better understand Google's cash needs, the view on buying back stock, the potential for Google to pay a dividend, and the appetite to raise debt," added Bellini.
Previously, Porat was CFO at Morgan Stanley where she worked through the financial crisis, helping the investment firm get back on solid footing. She is expected to debut in her role as Google CFO at the company’s Q2 earnings conference call in mid-July.
Bellini’s report illustrates the complexity of Google’s business operations and what questions this raises for advertisers searching for ROI.
"As Google matures, the metrics it provides need to mature as well…We categorize Google into four distinct businesses (desktop search, mobile search, display and YouTube) which are each at very different points of their maturity, are experiencing different pricing and click dynamics, and represent different return-on-investment to advertisers,” wrote Bellini.
Bellini’s report also demonstrates some frustration with the inability to accurately measure Youtube’s—owned by Google—true earning potential. "To date, Google has yet to give firm revenue breakouts for YouTube and there have been mixed data points surfacing from news sources. In February, the Wall Street Journal reported that YouTube generated $4 billion in revenue but still was not a profitable business. With the potential for TV ad budgets to begin shifting to online and YouTube's reach, we believe the asset has strong prospects, yet we still struggle to understand the current state,” wrote Bellini.
It’s likely that as more and more questions are answered and Porat settles into her new role, the many questions by financiers, concerning Google, will be answered.
Click here to read more about Ruth Porat in the latest edition Business Review USA
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.