Alibaba closed the loan deal on April 30, the person said. The nine banks providing the loan are Australia & New Zealand Banking Group Ltd., Credit Suisse Group AG, Citigroup Inc., Deutsche Bank AG, DBS Group Holdings Ltd., HSBC Holdings PLC, J.P. Morgan Chase, Morgan Stanley MS and Mizuho Corporate Bank Ltd., the person said.

The financing comprises three tranches: a $2.5 billion three-year term loan, a $4 billion five-year term loan and a $1.5 billion three-year revolving credit facility, the person said.

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And while many retailers, especially smaller privately held companies, were bullish on the number of transactions coming from mobile, other larger companies — especially Amazon — have remained mum on the subject.

But in a report today, Citi Analyst Neil Doshi estimates that Amazon is generating $3 billion to $5 billion in annual sales from mobile devices.

If this is the case, the question that has to be answered is, is this significant?

It’s really not.

Take a look at the facts. Based on Amazon’s 2012 revenue forecast, the company’s net sales will total somewhere around $60 billion in 2012, which means that mobile sales will equate to 5 percent to 8 percent of total dollars spent on Amazon.

When asked about his estimate, Doshi called it “conservative,” noting that in 2012, Amazon’s percentage of mobile transactions could be as high as 10 percent. The estimate also takes into account only purchases made on Amazon.com from mobile, and not digital downloads from Kindle devices, for example.

Granted, moving the needle at a company the size of Amazon is extremely difficult, but that’s still comparatively low when looking at others in the space.

Take a look at eBay. It’s anticipating mobile sales to hit $10 billion in 2012, which is at least twice as much as Doshi’s conservative estimate for Amazon. That could equate to nearly 16 percent of eBay’s 2012 revenue — which is double what it was in 2011, and double Amazon’s estimated percentage in 2012.

Doshi provided other comparison points for some of the leading online players: About 15 percent to 25 percent of Google’s search queries are coming from mobile, as are 15 percent to 20 percent of page views on LinkedIn and 40 percent of Walgreens’ online prescription refills.

Amazon is trailing here, but given the Seattle company’s huge investment in mobile, that’s hard to believe.

If Doshi’s estimate took into account digital downloads, the numbers would be a lot higher. Take e-books, for example. It would be logical if a majority of the e-books being purchased are occurring on Amazon’s own Kindle e-readers and tablets.

Additionally, it has invested heavily in building its own app store on Android devices, which sells digital content, such as games. Amazon also has a dozen or more mobile applications available across several platforms, including iOS, Android and its own Kindle devices, which helps consumers shop its homepage in a streamlined fashion.

During the 2011 Christmas season, Amazon launched a mobile promotion that encouraged consumers to compare prices in a retailer’s store by using its bar-code scanning technology on its phone app. Anyone who used the app to scan a bar code received up to $5 off on any purchases made. The purpose was to increase usage of its mobile apps, but it seriously backfired when local retailers accused Amazon of encouraging “showrooming,” in which consumers test products out in the store, but end up buying them online.

Since the PR blunder, Amazon has been especially quiet about its mobile successes, so it’s really hard to tell if the 5 percent to 8 percent range is even close to accurate.

But beyond just knowing the percentage of revenue coming from mobile, it’s equally difficult to define success. As Doshi points out, it’s hard to know whether mobile results in incremental revenue, or if it is cannibalizing purchases that would have otherwise occurred online.

He writes:

[T]here has been a relatively healthy debate around the extent of Mobile Internet usage that’s really incremental, and accordingly the extent of monetization opportunities that are completely incremental (and do not cannibalize traditional desktop / PC Internet usage).

Doshi adds that people tend to use phones while they are out during the day and tablet usage spikes from 7 to 10 pm when they are on the couch — in other words, mobile usage is occurring when they aren’t in front of a PC and therefore could be incremental.

In all, Doshi believes Amazon and eBay are “likely to benefit from increased sales activity from mobile devices.”

That’s obvious. After all, purchases made on the PC and mobile monetize the same. However, that’s not the case for content companies, which find it much harder to generate revenue from advertising on the smaller screens.

Earlier today in trading, shares of Apple briefly dropped below $500 for the first time since February, largely due to more rating cuts by Wall Street analysts.

The stock did manage to rally later, ending up on a slight rise of 1.8 percent to close at $518.83 for the day.

But the worries are increasing about the usually high-flying stock, which is down almost 26 percent over the last three months. (That said, Apple shares are up just above 28 percent for the year to date.)

Still, analysts are fretting, such as Citigroup, which had only recently initiated coverage with a buy rating for Apple at the end of November. Last night, it moved to a neutral rating and slashed the price target for shares from $675 to $575.

The biggest new worry is the sales of Apple’s latest device, with Citi’s Glen Yeung noting that “near-term supply chain order cuts, while inconclusive in nature, bring into question the strength of iPhone 5.”

Citi is one of several downgrades of late for Apple; today’s included dings from Canaccord Genuity and Pacific Crest Securities.

Now, without another product in the immediate pipeline and fears that the company’s competitiveness in the smartphone market is waning, the Cupertino, Calif., company is in the unique position of needing a new “wow” product in the months ahead to spur a rally.

There are some bright spots, though. Apple said it had sold two million iPhone 5’s over the weekend in China and a new Morgan Stanley report is indicating that iPhone and also iPad demand remain high.

But, while there has been swirl around a new take by Apple related to the television, many investors and also fans (see this great essay by Brightcove CEO Jeremy Allaire) are clearly hoping for even more.

AllThingsD has learned that Peluso, who is currently the Global Consumer Chief Marketing and Internet Officer at Citigroup — and a Gilt director since 2009 — will be taking over in February. Ryan will become chairman and Susan Lyne will become vice chairman.

Over the past year, Ryan has focused on the company’s financial performance, trying to ready the fast-growing flash sales site for an initial public offering. In doing so, the company has gone through a number of restructurings, including a round of layoffs and the closure of some divisions, such as the men’s apparel business Park & Bond. Most recently, the company has decided to sell-off Jetsetter, its luxury travel division.

The appointment of Peluso will provide some stability to the organization since, as a board member, she is familiar with the business. At the same time, she will provide a fresh perspective to the executive team. Ryan, who became CEO two years ago, has been aggressive about moving into new areas, including the full-priced men’s apparel business, Park & Bond, and a grocery business, called Gilt Taste, which has also faced cutbacks.

“I’m biased because I’ve been working with her for three years, I think she’s great,” Ryan said. “She’s fantastic. I approached her a year and a half ago to persuade her to be here permanently. When I told the board five months ago that I wanted to start the search, I went to her first.”

Peluso has been with Citigroup since 2009, and prior to that, she was the CEO of Travelocity for six years. She joined Travelocity following the company’s 2002 acquisition of Site59, a travel site she created. Site59 was focused on last-minute travel deals, similarly to Gilt, which sells heavily discounted merchandise. “I’ll be getting back to my roots of running an e-commerce company,” she said in an interview. “I’ve gotten to know the team really well over the past three years on the board, and when the board approached and asked if I would consider doing it, I felt like it would be a great fit.”

The five-year-old site has grown quickly, selling high-end apparel at a discount online from brands that are looking to sell off overstock. Gilt was valued at $1 billion last May when it raised $138 million. Ryan, who made his name as CEO of DoubleClick, which was acquired by Google, said he will now be turning his attention to other start-ups that he has co-founded with his business partner, Dwight Merriman, including news site Business Insider and 10gen, a database software company.

“Both of them were quite small two years ago, and today they are getting pretty big and interesting. 10gen now has 200 people, and by summer 300. I’m not planning on being the day-to-day CEO anywhere, but I do plan to spend more time at the companies. I’m a very active board member.”

He said starting this quarter, Gilt has reached profitability, excluding some expenses, and that the business is starting to generate cash — a huge turnaround since losing $50 million last year. For now, the emphasis on going public seems to be on the back burner. Ryan said its a goal that “will happen at some point in one to two years.” Previously, the timeline had been the fourth quarter this year or early 2013. “It’s not something I want to rush into. You look at Zynga and Groupon, and it doesn’t excite me.”

Of course, that’s now also a decision that Peluso will be weighing in on, but so far it doesn’t seem to be her first priority. “My most important job is to build a foundation, and make sure we have an extraordinary business,” she said.

Will she be making big changes at the company, which has already gone through a lot? “It’s too soon to say,” said Peluso, which is the safe answer for now. “I have an inside perspective. I’ve been able to spend lots of time with the team, but I’m not going to presume to know everything. I’ll be starting in [February], and when I do, I’ll be eager to dive in and learn a lot.”

The full press release:

GILT APPOINTS MICHELLE PELUSO AS CHIEF EXECUTIVE OFFICER

NEW YORK, December 6, 2012 – Gilt, www.gilt.com, today announced it has appointed Michelle Peluso as Chief Executive Officer effective February 2013. Ms. Peluso is currently the Global Consumer Chief Marketing and Internet Officer at Citigroup and has served on the Board of Directors of Gilt since October 2009. Kevin Ryan, Gilt’s Founder and current CEO will become Chairman and Susan Lyne will become Vice-Chairman.

“I’m tremendously excited to be leading a company with a brand I love and a team I’ve come to greatly admire,” said Peluso. “Gilt has done a terrific job establishing itself as one of the most innovative online shopping destinations and I am looking forward to continuing to build on Gilt’s growth and success.”

Every day at noon EST, Gilt launches new, limited-time sales of the most sought-after products and most desirable brands in fashion, home décor and leisure. Launched in December 2007, the company is the leader in the flash-sale space and has attracted millions of loyalists by offering them special access to coveted merchandise and experiences at insider prices.

Ms. Peluso has been with Citigroup since 2009. Prior to that she was the Chief Executive Officer of Travelocity from 2003 to 2009 after serving as the company’s Chief Operating Officer and Senior Vice President of Product Strategy and Distribution. Under her leadership, Travelocity experienced a significant upturn in both revenue growth and profitability. Ms. Peluso joined Travelocity following the company’s acquisition of Site59, a travel site she created and launched in 2000. Site59 was the leader in the US “last minute deals” arena and won numerous honors for innovation before it was acquired by Travelocity in March 2002. Prior to leading Site59, Ms. Peluso served as a White House Fellow and Senior Advisor to Labor Secretary Alexis Herman and worked as a case leader for The Boston Consulting Group in New York and London.

“Michelle’s deep Internet experience, coupled with her operating and marketing background, made her my ideal choice to be Gilt’s CEO going forward,” said Kevin Ryan, Founder and CEO, Gilt. “We have worked together for three years as fellow Board members and I am thrilled she will be leading Gilt to its next level of growth and market leadership.”

“We have had the opportunity to get to know Michelle as a Board member and her insight and strategic advice have been invaluable,” said Susan Lyne, Chairman, Gilt. “She has a clear vision for Gilt and the Board and I are confident in her leadership and excited about the many opportunities ahead.”

Ms. Peluso has received the Stevie Award for Lifetime Achievement in Business; she has been recognized by the National Italian American Foundation with the Special Achievement Award in Business, and Fast Company Magazine named her a “customer-centered leader.” Most recently she was named as one of the world’s most influential CMO’s according to a Forbes study conducted by Appinions. She received her master’s degree in economics, philosophy and politics from Pembroke College at Oxford University where she was a Thoroun Scholar, and her bachelor’s degree from the University of Pennsylvania’s Wharton School of Business.

Citi terminated Mahaney today for allegedly trying to cover up a disclosure violation tied to Citigroup’s coverage of Google. The move came after Massachusetts’ securities regulator fined Citigroup $2 million for failing to supervise Mahaney and a junior analyst he oversaw.

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Mr. Mahaney, a top-ranked Internet analyst, was terminated Friday morning, according to a person familiar with the matter. The junior analyst was fired on Sept. 27, the state said.

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Photo credit: USGS

Five years later, people who still have shares of Google they bought way back on Nov. 7, 2007, can finally sell them for a profit. Google hit $748.90 on Monday in midday trading (when we first posted this story) and was up to $750.04 before closing at $749.38.

Google is trading on solid earnings and new devices, as well as a positive comparison between its continued strength and newer public consumer Internet businesses like Facebook, Zynga and Groupon.

On Sunday, Citigroup analyst Mark Mahaney raised his Google price target to $850 from $740, citing factors like reduced overhang from Motorola, signs of mobile cost-per-click growth and projected growth in search spending.

Shares of Google are up more than 30 percent in the past three months alone. The company’s current market cap is $244 billion.

Google’s previous all-time high was $747.24, though it had never closed higher than $741.79. Both of those marks are from November 2007.

Its next quarterly earnings report is due on Oct. 10.

Goldman Sachs Group Inc., which invested in AppSense last year, is working with the company to help it prepare an IPO filing, along with Citigroup Inc. and J.P. Morgan Chase & Co., these people said. The deal is still in its early stages, and is planned for next year, said the people, who said no pricing or valuation has yet been targeted.

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The company sells a firewall that provides security while at the same time allowing the constantly growing number of new applications to run on corporate networks. For the year ended 2011, it reported a net loss of $12.5 million on sales of $118.6 million. But it’s been profitable this year so far: For the first nine months of 2012, Palo Alto reported a $5.3 million profit on $180 million in sales. That would work out to a per-share profit of 10 cents, or nine cents on a fully diluted basis.

Morgan Stanley, Goldman Sachs and Citigroup are the lead underwriters on the offering. Major shareholders include Greylock Partners and Sequoia Capital, both of which own equal stakes of 13.8 million shares, worth $510 million, assuming a $37 share price. Their shares in the company amount to a combined 41.4 percent of the equity in the company. Globespan Capital Partners has a stake of 4.9 million shares, worth $182 million. Founder and CTO Nir Zuk has 3.8 million shares, worth almost $142 million.

Palo Alto will trade under the ticker symbol PANW on the New York Stock Exchange.

Wyatt, who left Motorola as the Google acquisition closed, will lead the technology teams at Citi that handle the bank’s Web, mobile and ATM efforts.

In an e-mail, Wyatt told AllThingsD she is looking forward to the new gig.

“Digital commerce is undergoing massive transformation and growth, as individuals and businesses around the world increasingly look for solutions that will empower their financial needs across all of the screens in their lives,” Wyatt said.

Former Samsung executive Omar Khan had been at Citi looking after the company’s mobile efforts, but left the bank to become co-CEO of Chinese security software maker NQ Mobile.

Wyatt will takeover Khan’s former duties as well as those of another executive who is retiring this summer.

This one comes from Advertising Age and Citigroup, and the results are so varied that the survey’s sponsors don’t agree on what they mean.

Here’s Ad Age’s Mike Learmonth: “The results were a mixed bag for Facebook that illuminated some of the challenges it will have in scaling ad revenue, but it also indicated that some of Facebook’s perceived challenges with marketers — such as not providing enough transparency and data — are overblown. The results also revealed confusion on how to calculate return on investment on Facebook and how to compare that to spending in other social and traditional media channels.”

Citi’s Mark Mahaney, meanwhile, says the research indicates that Facebook ads have “somewhat limited appeal to advertisers today,” and cites the data as one of his “key investment negatives.”

Then again, Mahaney also thinks the results show that Facebook ads are “a relatively solid value proposition for advertisers,” and cites that conclusion as a “key investment positive.” Mahaney, by the way, is officially “neutral” on FB shares.

Dizzy yet? Time to look at some charts, published by both Citi and Ad Age, using the same data sets:

First look at Netflix numbers: A loss of $0.08 a share on revenue of $870 million. Wall Street was expecting revenues of $855 million and a loss of $0.27 a share. The crucial number: 23.41 million domestic streaming subscribers. Netflix had told investors to expect 22.8 million to 23.6 million.

Netflix had previously said it might lose money throughout 2012, but now says things could get better sooner, and predicts that it may turn a profit in Q2. “The improvement in the outlook is a result of continued member growth (both domestically and internationally), as well as increased efficiency of our content and marketing spending,” CEO Reed Hastings writes in his shareholder letter.

But the market isn’t happy with something — shares are down 16 percent — so we’ll try to figure out why. Perhaps this: “Q2 net adds will be below those of 2010, despite Q2 gross adds following the traditional seasonal pattern, and despite us expecting to match 2010 in annual net additions,” Hastings writes. He adds: “We see nothing new or particularly concerning this quarter to date in our member viewing, acquisition and retention. All are healthy.”

Someone disagrees.

(Update: OK, here’s Citi’s Mark Mahaney’s take on the market’s reaction. As I suspected, it is about the paragraph above — Hastings is saying subscriber growth will slow next quarter, but net out just fine for the year, and Wall Street doesn’t believe him.

“We believe this is due to concerns over the company’s Domestic Streaming Net Adds outlook — 500K Net Adds in Q2 vs. the Street at 1.2MM. NFLX is, however, laying out an outlook for 7MM Domestic Streaming Adds in 2011. This is higher than our 5MM estimate, and we believe is in-line with or higher than most Street estimates. The issue is market skepticism that NFLX can reach this level given the June Quarter guide.”)

Per usual, Hastings notes competition from Amazon and Hulu, and now Comcast’s Streampix offering. Also per usual, he says he can’t see any near-term effect from those services on his business, but promises to “watch them carefully.” And again, he argues that his long-term competition comes from the cable guys, and the promise of their “TV Everywhere” strategy.

Hastings also said the company’s expansion into U.K. and Ireland is promising. But he acknowledges what many Wall Street analysts have already concluded: Latin America will be a challenge. “The odds of us building a large, profitable business in Latin America are very good, but it will take longer than we initially thought.”

Again, here’s the “cheat sheet” from Citi’s Mark Mahaney so you can try to interpret the numbers yourself.

The cost-per-click number, which freaked out Wall Street last quarter, was down another 12 percent. That’s a bigger drop than many analysts had predicted.

Meanwhile, Google is creating a new class of non-voting stock, which it says will end up creating a 2-1 stock split. Here’s a brief explanation via CEO Larry Page’s Google+ page:

Effectively a Stock Split: And a New Class of Stock

Today we announced plans to create a new class of non-voting capital stock, which will be listed on NASDAQ. These shares will be distributed via a stock dividend to all existing stockholders: the owner of each existing share will receive one new share of the non-voting stock, giving investors twice the number of shares they had before. It’s effectively a two-for-one stock split — something many of our investors have long asked us for. These non-voting shares will be available for corporate uses, like equity-based employee compensation, that might otherwise dilute our governance structure.

So is Google planning on another big, Motorola-sized deal that’s planning on using stock? No, Page says: “We don’t have an unusually big acquisition planned, in case you were wondering.”

This is technically a “proposal,” but since Page, Sergey Brin and Eric Schmidt effectively control Google already, it’s a foregone conclusion — which is exactly the concentration of power the move is supposed to sustain. It should go into effect later this summer.

My colleague Liz Gannes is live-blogging the earnings call here; you can also listen in for yourself via YouTube.

Here’s Citigroup analyst Mark Mahaney’s “cheat sheet” to help you interpret the numbers:

And here’s the entire text of Page’s Founders’ Letter, followed by a statement from chief legal officer David Drummond:

FOUNDERS’ LETTER 2012

Introduction

Throughout our evolution, from privately held start-up to large, publicly listed company, we have managed Google for the long term — enjoying tremendous success as a result, especially since our IPO in 2004. Sergey and I hoped, though we did not expect, that Google would have such significant impact, and this progress has made us even more impatient to do important things that matter in the world. Our enduring love for Google comes from a strong desire to create technology products that enrich millions of people’s lives in deep and meaningful ways. To fulfill these dreams, we need to ensure that Google remains a successful, growing business that can generate significant returns for everyone involved.

Corporate Structure

When we went public, we created a dual-class voting structure. Our goal was to maintain the freedom to focus on the long term by ensuring that the management team, in particular Eric, Sergey and I, retained control over Google’s destiny. As we explained in our first founders’ letter:

“We are creating a corporate structure that is designed for stability over long time horizons. By investing in Google, you are placing an unusual long term bet on the team, especially Sergey and me, and on our innovative approach…

We want Google to become an important and significant institution. That takes time, stability and independence…

In the transition to public ownership, we have set up a corporate structure that will make it harder for outside parties to take over or influence Google. This structure will also make it easier for our management team to follow the long term, innovative approach emphasized earlier…

The main effect of this structure is likely to leave our team, especially Sergey and me, with increasingly significant control over the company’s decisions and fate, as Google shares change hands…

New investors will fully share in Google’s long term economic future but will have little ability to influence its strategic decisions through their voting rights…

Our colleagues will be able to trust that they themselves and their labors of hard work, love and creativity will be well cared for by a company focused on stability and the long term…

As an investor, you are placing a potentially risky long term bet on the team, especially Sergey and me. …. Sergey and I are committed to Google for the long term.”

I wanted to quote all that because these were the clear, well-publicized expectations we established for investors in 2004. While this decision was controversial at the time, we believe with hindsight it was absolutely the right thing to do. Eight years later, these statements are still remarkably accurate, and everyone involved has realized tremendous benefits as a result. Given Google’s success, it’s unsurprising that this type of dual-class governance structure is now somewhat standard among newer technology companies.

In our experience, success is more likely if you concentrate on the long term. Technology products often require significant investment over many years to fulfill their potential. For example, it took over three years just to ship our first Android handset, and then another three years on top of that before the operating system truly reached critical mass. These kinds of investments are not for the faint-hearted.

We have protected Google from outside pressures and the temptation to sacrifice future opportunities to meet short-term demands. Long-term product investments, like Chrome and YouTube, which now enjoy phenomenal usage, were made with a significant degree of independence.

We have a structure that prevents outside parties from taking over or unduly influencing our management decisions. However, day-to-day dilution from routine equity-based employee compensation and other possible dilution, such as stock-based acquisitions, will likely undermine this dual-class structure and our aspirations for Google over the very long term. We have put our hearts into Google and hope to do so for many more years to come. So we want to ensure that our corporate structure can sustain these efforts and our desire to improve the world.

Effectively a Stock Split: And a New Class of Stock

Today we announced plans to create a new class of non-voting capital stock, which will be listed on NASDAQ. These shares will be distributed via a stock dividend to all existing stockholders: the owner of each existing share will receive one new share of the non-voting stock, giving investors twice the number of shares they had before. It’s effectively a two-for-one stock split — something many of our investors have long asked us for. These non-voting shares will be available for corporate uses, like equity-based employee compensation, that might otherwise dilute our governance structure.

We recognize that some people, particularly those who opposed this structure at the start, won’t support this change — and we understand that other companies have been very successful with more traditional governance models. But after careful consideration with our board of directors, we have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users. Having the flexibility to use stock without diluting our structure will help ensure we are set up for success for decades to come.

In November 2009, Sergey and I published plans to sell a modest percentage of our overall stock, ending in 2015. We are currently halfway through those plans and we don’t expect any changes to that, certainly not as the result of this new potential class. We both remain very much committed to Google for the long term.

It’s important to bear in mind that this proposal will only have an effect on governance over the very long term. In fact, there’s no particular urgency to make these changes now — we don’t have an unusually big acquisition planned, in case you were wondering. It’s just that since we know what we want to do, there’s no reason to delay the decision. Also note that there will be no immediate change in votes, because everyone will still have the same number. In addition, Eric, Sergey and I have all agreed to “stapling” arrangements so that, above set thresholds, if our economic interest in Google were to decline, our votes would as well. We also have provisions to ensure all shareholders are treated fairly from an economic perspective.

For more details on all of this, please see the postscript below from our Chief Legal Officer, David Drummond, and the preliminary proxy statement we will file with the SEC next week.

Conclusion

We have always managed Google for the long term, investing heavily in the big bets we hope will make a significant difference in the world. Some of these bets have been tremendous, funding our activities and generating significant gains for our shareholders. Others have been less successful. But the ability to take these kinds of risks has been crucial to Google’s overall success and we aim to maintain this pioneering culture going forward.

The proposal we announced today is consistent with the governance philosophy we articulated when we took the company public, as well as the trend for newer technology companies to adopt strong dual-class
structures. We believe that it will provide great competitive strength — insulating Google from short-term pressures, whatever the source, for a long time to come, while also giving us more flexibility around equity grants.

Investors and others have always taken a big bet on us, the founders, and that bet will likely last longer as a result of these changes. We are honored that so many of you have put your trust in us and we recognize the tremendous responsibility that rests on our shoulders. We think this is a good thing because users rely on Google to produce and operate amazing technology products and to safely and responsibly store their data. This is our passion.

Sergey and I share a profound belief in the potential for technology to improve people’s lives and we are enormously excited about what lies ahead. I couldn’t write a better conclusion to this founder’s letter than what we wrote in 2004… so here goes: “We have a strong commitment to our users worldwide, their communities, the web sites in our network, our advertisers, our investors, and of course our employees. Sergey and I, and the team will do our best to make Google a long term success and the world a better place.”

Larry Page
CEO and Co-founder

Sergey Brin
Co-founder

April 2012

Postscript from David Drummond, Chief Legal Officer, Google Inc.

This is not the usual yada yada… so please read on.

Although we’ll be filing a comprehensive proxy statement soon, I wanted to share some details about today’s proposal to create a new class of stock and the process our board of directors followed to approve it.

As Larry and Sergey note above, the stock dividend we are announcing today will have the basic effect of a two-for-one stock split. Each holder of a share of Class A or Class B common stock will receive one share of the new non-voting Class C capital stock. So after the dividend, a stockholder who currently owns one Class A share with a single vote will continue to own that share plus one Class C share without a vote.

The Class A shares will continue to trade under the “GOOG” ticker symbol, while the Class C shares will trade under a different ticker symbol, so stockholders will be able to trade these shares, just as they can with Class A shares today. Except for voting rights, the Class C shares will have the same rights as the existing Class A and Class B shares. As is typically the case with stock splits, the Class C stock dividend will be tax-free.

One thing to keep in mind is that immediately after the Class C dividend, all stockholders, including Larry, Sergey and Eric, will retain the same voting interest they hold prior to the dividend. In addition, Larry, Sergey and Eric have agreed to subject their shares to a Transfer Restriction Agreement. This agreement will maintain the same link between their voting and economic interests that exists today, even if they sell some of their non-voting Class C shares. If the founders or Eric wish to sell or transfer their non-voting Class C shares, a “stapling” provision in the agreement requires them to either sell an equal number of Class B shares, or convert an equal number of Class B shares into Class A shares. No other stockholders
will be subject to these restrictions upon the transfer or sale of their shares. The stapling requirement will terminate as to the founders when their collective ownership falls below a certain threshold, and as to Eric when his ownership falls below a certain threshold. Further details of the Transfer Restriction Agreement will be included in our proxy, but it’s important to note that the stapling provision is designed so that, subject to the thresholds, the votes held by the founders and Eric will be reduced proportionally as their economic interest in the company declines.

Our board of directors carefully considered this proposal to create a new class of stock before reaching a decision. In January 2011, the board established a special committee, comprised of independent, non-management board members to consider a new class of stock, or other alternatives. This committee retained its own financial and legal advisers to assist with its deliberations, and met on numerous occasions over the 15 months that the special committee considered the proposal separately from the board. The committee recommended, and the board unanimously approved, today’s proposal.

The proposal is subject to the approval of a majority of the voting power of Google’s common stock, voting together as a single class, at our annual meeting on June 21, 2012. Given that Larry, Sergey, and Eric control the majority of voting power and support this proposal, we expect it to pass. The Board of Directors has not set a record date for the issuance of the Class C dividend and currently expects to set the date following the annual meeting.

Next week, we’ll file a preliminary proxy statement with the SEC, which will contain further details regarding today’s proposal.

David Drummond
Chief Legal Officer, Google Inc.

Netflix CEO Reed Hastings, who is also a Facebook board member, is backing a bill that would change the law. Right now, it’s tied up in the Senate.

But if it passes, don’t expect Netflix subscribers to thank him. They have absolutely no desire to learn what their Facebook pals are watching.

That’s the no-doubt-about-it conclusion from a new survey commissioned by Citi analyst Mark Mahaney: He finds that seven out of 10 Netflix subs are “not at all interested” in “seeing what [their] FB friends have watched on Netflix.”

Here’s what that looks like in a bar chart:

As Mahaney notes, it’s possible that the folks he surveyed just don’t know how cool it will be to learn that their pals are watching “Mad Men” or “Dora the Explorer” or whatever. And that if it becomes possible, they’ll change their mind.

But it’s worth noting that Hulu has synced up with Facebook (I’ve never really understood why it’s not constrained by the same law, but whatever). And so far I don’t think I’ve ever seen a Facebook pal tell me what they’re watching there.

There are a bunch of ways to explain that nonscientific observation away. But my gut is that people are actually sort of private about a lot of their video viewing, and don’t want to automatically share it with the Web.

It’s not like Spotify, where even though you may not be proud that you were listening to .38 Special, you don’t really care if anyone knows.

Yes, lots of people will tell you — on Facebook or Twitter, or maybe even one of those TV check-in services — about a specific show they’re watching.* But that’s a lot different from a deluge, which is what Facebook seems to want.

And Netflix users, at least, want no part of it.

*I just finished season 4 of “Breaking Bad” this weekend. So great. I literally yelped in delight at the end of the last five or six episodes.

(Image courtesy of Shutterstock/Everett Collection)

The social networking giant has just added five more lead investment banks to its IPO from the original six, according to an updated filing. On top of that, Facebook added another 20 investment banks that will get a piece of the action.

The new members to the lead group are Citigroup, Credit Suisse, Deutsche Bank Securities, RBC Capital Markets, Wells Fargo Securities.

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Dell’s earnings were 51 cents and missed the consensus of analysts by a penny; the company also said that revenue would decline by 7 percent in the current quarter. In a note to clients today, Shaw Wu of Sterne Agee dropped his rating to “underperform,” the equivalent of a “sell,” arguing that Dell’s PC business continues to suffer at the competitive hands of Apple, Acer and rejuvenated Hewlett-Packard. “We are concerned with the company’s longer-term fundamental position and may face more difficulty making further operational improvements,” Wu wrote.

Richard Kugele, of Needham and Co. in New York, downgraded Dell to a “hold” from a “buy.” Rich Gardner of Citigroup also cut his rating to “hold” and dropped his target price to $19 from $20, citing declining prospects for improvements to Dell’s gross margin in the current quarter.

But the chorus of analysts wasn’t all negative. Chris Whitmore of Deutsche Bank, who last week suggested that, all things considered, Dell’s results might turn out “pretty good,” saw it differently. He blamed the ongoing shortage of hard drives brought on by last year’s flooding in Thailand and weak public sector buying, and still finds Dell attractive. The shortage, he says, was the primary reason that Dell’s gross margins — which came in at 21.7 percent — missed estimates. “Gross margins were light due to negative hard drive impact — shortages hampered the ability to sell richer high-end systems — and soft public sector results,” Whitmore wrote in a note to clients today. He maintained his “buy” rating.

Brian Marshall of ISI maintained his “neutral” rating. He wrote in a note today that Dell’s plan of shifting its revenue base away from consumer and business PCs and toward higher-value enterprise IT, software and services is going to take years. “We believe changing the composition of a $60 billion revenue base is non-trivial and takes years not quarters to successfully navigate. [We're] still scratching our heads on how earnings per share grows in 2012. … In the face of flat revenues, declining gross margins and continued operational expense growth, we struggle on how EPS will be up in 2012. We like the plan, just not the set-up.”

(Michael Dell photo by Asa Mathat)

Yahoo will report its fourth quarter earnings tomorrow, after the markets close, which most expect to be lackluster compared to a year ago.

To call this report a surprise would be, well, wrong.

In fact, it will be the 13th quarter in which the Silicon Valley Internet giant has done worse that the previous year. (This has happened as Internet advertising has boomed for sites like Google and Facebook, as a point of reference.)

Welcome aboard, new CEO Scott Thompson! Now, what are you going to do about it?

Probably cut costs first, including staff, and try to quickly figure out an all-new, this-time-it’ll-take strategery about what to do to turnaround the much beleaguered Yahoo.

But, first, the depressing quarter to deliver again.

The estimates for that weak performance have a range, but the consensus of analysts is expecting revenue to be $1.19 billion on profits of 23 to 24 cents. If Yahoo has managed to rein in costs more than expected, some analysts are hoping for a slightly better report.

Still, all the indications are for more negative signs in user engagement, search share, display advertising stats and more.

Thus, we await the light at the end of the tunnel.

As Citigroup’s Mark Mahaney noted in his cheat-sheet analysis:

“Valuation remains intriguing, but we’re still waiting for convincing Top-Line Turnaround Story Proof. With new CEO Scott Thompson, we believe YHOO will be another wait-and-see turn-around story.”

Of course, much of the action is taking place elsewhere, with the company ferreting away at the deal to sell off a big stake in Yahoo’s Asian assets and also subtracting and adding new board members.

But tomorrow, it’s once more unto the Wall Street breach, dear friends, or close the wall up with our purple dread.

Until the results are in, here’s a recent video I did for WSJ.com’s online Digits show on the possible layoffs at Yahoo:

Earlier this month, investors pushed Google shares up past $670 — the highest they’ve ever been. They’ve since pulled back a bit, but not for performance reasons: The Street still expects Google to post net revenue of around $8.4 billion — that’s up about 30 percent over the previous year — and earnings of around $10.46 a share — up about 20 percent.

If there are questions out there about Google, the Street seems to think they’re about what could happen — government regulation, a misstep with the $12.5 billion Motorola Mobility deal, etc. — than what just happened over the last three months.

Analysts who have been listening to search marketers say they don’t see any real signs of slowdown over the last quarter, even as other ad businesses have been roughed up. (We’ll ignore, for now, an outlier report from Kantar Media which reports a huge and puzzling decrease in paid search.)

As always, there is lots of interesting stuff going on at Google. And, as usual, you can expect Larry Page and company to say very little about it, other than making vague comments about the strength of their core search business, and some acknowledgement that their video, mobile and display ads are starting to become very significant businesses of their own.

In a fantasy world, we’d like to hear Page, et al, talk about what they really think about Facebook, and whether that move to shove Google+ pages into Google search results is as telling as it seems to be. We’d also like to hear more detail about their plans for Motorola, assuming the deal goes through early this year. Don’t hold your breath.

For more grounded speculation, we can consult this cheat sheet from Citi’s Mark Mahaney, which lets you see how different results might move GOOG shares. We continue to find these summaries as useful as ever (click image to enlarge):

Khan has been named co-CEO of Chinese mobile security company NQ Mobile, known until today as NetQin. Khan will lead the company along with current CEO Henry Lin.

Among Khan’s new duties will be helping lead the company’s international expansion — including increasing its presence in North America as well as in areas including Latin America, Europe, Japan and Korea.

“They are already the largest mobile security company in the world,” Khan said in a telephone interview on Thursday. “I’m excited about helping take their technology globally.”

Khan, who will be based in Dallas and starts the new gig on Monday, said that although NetQin has been known for its consumer products, there is a big opportunity in helping businesses deal with all of the workers who want to access corporate data on their smartphones.

Another part of his role will be helping beef up the company’s small team in the United States.

Khan joined Samsung in 2008 as senior VP of strategy and before that was a vice president at Motorola. Although he was at Citi for only six months, Khan said the company had accomplished a lot in a short time and was well positioned in the mobile arena.

“I think Citi has a tremendous opportunity ahead of them as well,” Khan said. “They were very good to me.”

A main attraction: the bank’s top-ranked Internet analyst, Mark Mahaney.

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It’s not clear if Netflix’s recent series of snafus are Amazon’s gain or not. But in a just-released report by ForeSee, one went up and one went down.

It’s an easy guess which was which.

In the well-known customer satisfaction survey of the Top 40 online retailers during the holiday season — which ForeSee has been conducting twice a year for the last seven years — Amazon rose to its highest spot ever, while Netflix’s score dropped significantly.

Amazon got an 88 out of 100, up two points, while Netflix dropped seven points to 79. The survey noted that “Netflix saw scores drop in every single element of the website that ForeSee measures, including site content, site functionality, merchandise, and prices.”

Ooops.

(Netflix fared better with customers in another poll last week, conducted by Citigroup. As Peter Kafka noted: “They’re less happy than they used to be. But they don’t seem to be going anywhere.”)

But in the ForeSee survey, Netflix moved from being a consumer darling to just another face in the crowd. It garnered the average score, which is also 79, a number that has risen from 74 since 2005.

But Netflix was not the only online retailer hit. Also down: Gap.com (down 6 percent to 73), and Overstock.com (down 5 percent to 72).

But on the up: TigerDirect.com (up 8 percent to 79) and J.C. Penney (up 6 percent to 83).

In general, ForeSee concluded that consumers are starting to get the hang of this e-commerce thing, and have become less price-sensitive, too.

And here’s a pretty chart explaining it all (click on the image to make it larger):

They’re less happy than they used to be. But they don’t seem to be going anywhere.

That’s the cautiously optimistic conclusion of a new survey Citigroup commissioned over the past few months. It finds existing subscribers still fairly pleased with the service Reed Hastings is offering: 57 percent say they’re either “extremely satisfied” or “very satisfied.” But Hastings’ good will has certainly eroded a bit: In May, a similar survey found 50 percent of his customers in the “extremely satisfied” category. That number is now down to 18 percent.

As Citi analyst Mark Mahaney points out, the survey is a bit skewed, since Netflix subscribers who were most disappointed with the service’s changes — a price hike, an ill-fated attempt to spin off its DVD business into a separate unit, and the loss of programming deal that gives the company access to Sony and Disney movies — have already bailed.

But a different survey question suggests one reason customers are sticking around with Netflix: They don’t see many other options.

While Amazon has been building up its catalog of streaming video, only 9 percent of Netflix customers said they’ve watched movies or TV shows there. And while 15 percent said they’ve used Hulu, that number is down from 19 percent in May. Apple’s iTunes comes in at 8 percent. (Perhaps the reason only 27 percent of Netflix subscribers say they use Netflix is because they’re distinguishing between apps and the site. But that seems like a fairly precise distinction for a large number of people to make, so who knows.)

The very big picture is that Mahaney still assumes Netflix will keep growing. He figures its DVD-only subscribers will drop by 800,000, to 9.9 million, over the next year. But he thinks streaming subscribers will increase 9.9 million, to 30.9 million, and that the company will add a few million more as it expands in Latin America and the U.K. He also thinks Netflix will become profitable again by the end of 2012.

But none of that is going to help anyone who bought Netflix stock earlier this year, when shares had climbed as high as $300. Mahaney has lowered his price target for NFLX, and is now hoping it climbs back to $80.

In midday trading, the company’s shares fell 5 percent to $22.09 a share. Even so, that’s up from late last month, when the Chicago company traded as low as $15.24 a share, or roughly half of what some investors paid on day one.

The company is like a student in high school who still needs to push in order to get accepted into an Ivy League school. Even though it’s likely a shoo-in — and it’s already gone public — there’s no leeway for senioritis.

Most of the analysts’ evaluations were concerned about risks, such as the company’s short operating history, the prospects for growth now that it has gotten so large and intense competition coming from peers like LivingSocial, Amazon and Google among many others.

“While much execution lies ahead in order to meet expectations, the opportunity is large and Groupon has competitive advantages,” according to Barclays Capital, which had a neutral rating and a price target of $27.

J.P. Morgan also gave Groupon a neutral rating, but set a lower price target of $24 a share because there was still a lot to do despite its first-mover advantage.

“As subscriber growth slows, we project a major profitability ramp for Groupon over the next two years. However, we believe this ramp is largely anticipated and its magnitude leaves little room for error in execution and operations at current levels,” the analyst wrote.

Citigroup’s Mark Mahaney had the harshest words, saying he was “waiting for a better deal.”

He attributed his neutral stance and $24 price target to the lack of success in the company’s new segments, such as real-time offers, vacation packages and physical goods. “That, we believe, could take significant time to prove out,” Mahaney explained.

Nearly all the analysts were also concerned about the upcoming expiration date for a lock-up period. Expected in May 2012, it would allow some early investors and employees to dump the stock.

In other words, we could see a lot of people cashing in their vouchers right as the offer expires.

But here’s the counterpoint: Search — which means Google — appears to be doing just fine.

Citigroup’s Mark Mahaney has been checking with search marketers, who tell him that Q4 looks a whole lot like the rest of 2011, except maybe a bit better: “Our panel is tracking U.S. Search spend to be up between 15% and 27% Y/Y, rates that are largely in-line with or faster than Q1-Q3 trends.”

Mahaney notes that Efficient Frontier, the search marketer Adobe plans on buying, says its Q4 numbers show a “slight deceleration” from the rest of the year. But compared to the sour faces I’ve seen from some ad guys in recent weeks, that’s fine.

Also of note: Mahaney says that mobile advertising, which has generated lots of hype but not that many dollars, may finally be here, at least when it comes to search. There’s a “a clear consensus that Mobile Search spend is becoming material,” he writes, and will account for 10 percent or more of many search buyers’ spend.

In April, Expedia proposed a plan that would break the business into two public companies.

One would be a travel agency, focused on selling air, hotel and car rentals, and the other would be TripAdvisor, the travel reviews site that operates in 27 countries and 19 languages.

The deal is expected to close on or about Dec. 20, including a one-for-two reverse stock split immediately prior to the spin-off. Expedia will trade under the symbol EXPE and TripAdvisor will trade under TRIP.

Today, the company filed a presentation with the Securities & Exchange Commission detailing Expedia’s standalone growth prospects. The case will be an important one to make given that TripAdvisor is often seen as the more attractive of the two companies.

The Bellevue, Wash.-based company plans to present the slides to various investors and analysts over the next two-and-a-half months.

In the presentation, Expedia lists three major growth opportunities: International expansion, especially in Asia; a greater concentration on hotel bookings, which have higher margins than airplane tickets; and new distribution platforms, such as cellphones and tablets.

Expedia is a traditional travel agency that collects fees when an airfare or hotel room is booked. Meanwhile, TripAdvisor, which aggregates user-generated reviews, produces revenue from advertising, as well as fees when users book through other sites, such as Priceline or Orbitz.

In the quarter ended in September, TripAdvisor’s revenue jumped by 30 percent compared to the same period a year earlier. Meanwhile, Expedia’s revenues rose only 14 percent.

Additionally, the company is breaking up as it faces increasing competition from Google, which has started integrating the technology of ITA, a travel software company it acquired, into its search results.

Expedia’s stock today is trading at $28.65, up 61 cents.