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Why Google Bought Nest: Wall Street's Take

NEW YORK (TheStreet) -- Google's (GOOG - Get Report) decision to buy smart thermostat and smoke alarm company Nest for $3.2 billion in cash came as a surprise to many Monday when the deal was announced. Almost 24 hours later, Wall Street is largely positive on the deal as it expands Google's reach into the home automation market, and continues to feed the beast that is Google and its ever growing need for more data.

Here's what Wall Street - including TheStreet's Jim Cramer - had to say about the deal: 

TheStreet's Jim Cramer:

"Still, the fact remains that Google is buying a device that captures still one more aspect of the Internet in a way that makes your handheld device more valuable. The move shows that the company truly understands the psyche of the consumer: That is, anything that makes the consumer more connected to her device and the Internet with a Google interface has to be considered a win. That's especially considering that the most important do-it-yourself home retailer has already said that the customers can't get enough Nest smoke detectors.

What can I say? It's certainly a better use than Google's going to get from keeping the cash in the bank, and if it's part of a better mousetrap that drives you to a Google-powered device, then it is most definitely a win."

Merril Lynch analyst Justin Post (Buy, $1,250 PT)

"Nest Labs existing products include: 1) thermostats that learns your schedule, programs itself and can be controlled from your phone, which could reduce energy cost by 20%; and 2) smoke alarms that gives early warning to provide users a heads-up, lights up yellow and speaks with a human voice (it tells where smoke is or when carbon monoxide levels are rising) before turning on a loud alarm. These connected household devices were a broad theme at CES and could provide Google with even more data about users. Coupled with Google's artificial intelligence technologies and Google voice, we expect a full array of interesting home products to come."

JMP Securities analyst Ronald Josey (Market Outperform $1,250 PT)

"With Nest, we believe Google is expanding its connected device strategy to the entire home. To date, most of Google's technology products have been media focused, such as the
Chromecast, Chromebook, and Android. Google announced its expansion into cars with the Auto Alliance at CES, and with Nest it is expanding to the home. With Internetenabled
devices expected to grow significantly over the next several years-Cisco (CSCO, MP) projects more than 50B connected devices by 2020-we believe Google is acquiring a head start by expanding to other areas of the home, collecting data, and we would expect Android to have a presence on Nest over time."

Pacific Crest Securities analyst Evan Wilson (Outperform, $1,135 PT)

"The acquisition makes strategic sense. First, Google gets high-quality design talent. Google has been taken to task for not having the best consumer-facing design across many of its products, especially hardware. Nest will not design Google hardware right away, but the overlap cannot hurt. Second, Nest is an early leader in the Internet of Things, one of the biggest future tech themes we are tracking. Google wants these smart items (wearables, household items, cars, etc.) to run Android (we are guessing Nest devices will be better optimized for Android from now on), which has obvious "halo" implications versus Apple (AAPL, $535.73, Sector Perform, covered by PCS analyst Andy Hargreaves).
Google already has a play into wearables and autos. This fills the gap."

Wells Fargo analyst Peter Stabler (Outperform, $1,300-$1,350 PT)

"On 1/13/14 Google announced the all-cash purchase of Next Labs for $3.2 billion. Nest Labs is the maker of wi-fi enabled next generation thermostats and smoke detectors and is led by Tony Fadell, an ex-Apple executive who reportedly played a leading role in the development of the iPod. We note that Google Ventures made a prior investment in Nest. We see the move as a logical one, and expect Google to expand its efforts to become the intelligent backbone of consumer homes. We don't believe it's hard to imagine where a single Google interface could control not just heating/cooling and smoke detectors, but offer a holistic view into water consumption, air quality, humidity while providing an integrated dashboard to control all connected devices inside a consumer's home."

--Written by Chris Ciaccia in New York

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