Analysts Reaction to Google's Acquisition of Nest Labs

On Tuesday morning

announced that it plans to buy Nest Labs for $3.2 billion. Nest Labs offers apps for iPhone and Android that allows users to adjust their thermostat and check their smoke detectors. Nest Labs was co-founded in 2010 by a small group of former

engineers including the “godfather of the iPod” Tony Fadell. Nest Labs raised $80 million of equity investment led by Google Ventures in January 2013 at an estimated $800 million valuation. Other investors include Venrock, Kleiner Perkins, Shasta, Lightspeed and Generation. Fadell remarked in December 2013 that Nest Lab thermostats had been installed in approximately one percent of U.S. homes. Nest has 300 employees and earns revenue by selling physical smart products in addition to managing energy efficiency for utility companies. “Google will help us fully realize our vision of the conscious home and allow us to change the world faster than we ever could if we continued to go it alone,” Fadell said in a statement. “We've had great momentum, but this is a rocket ship.” The acquisition should provide Google with a boost in its home automation efforts, in which Android will play a large role.

Peter Stabler, senior analyst at

upgraded shares of Google to Outperform from Market Perform based on its “triple threat” strengths in mobile ad, display and search. Stabler briefly commented on Google's purchase of Nest Labs foreshadows the company's future plans. “We believe Google's purchase of Nest Labs clearly points to an intention to play a leadership role in teh connected home, offering a complement to Google's connected car ambition,” Stabler wrote in a research report. “We see the move as a logical one, and expect Google to expand its efforts to become the intelligent backbone of consumer homes.” Stabler reiterated a Market Weight rating on shares of Google.

Robert Peck, analyst at SunTrust Robinson Humphrey noted that Google is “turning up the heat” with its acquisition that could yield $3 billion of revenue, or $1.3 billion in gross profit by 2017. “We find the deal very interseting both financially and in terms of Google's growing computing platform of car, glasses, fiber, tablets, phones and laptops,” Peck wrote in a research report. “Google wants to be wherever there is computing, raising utility for its users.” Peck noted a study conducted by

in which it concluded that the “Interneet of Everything” is a $14.4 trillion opportunity while the “Internet of “smart grid and smart building markets to be worth approximately $750 billion and $350 billion, respecitively. Peck reiterated a Buy rating on shares of Google with a price target of $1,1125.00.

Victor Anthony, analyst at Topeka Capital Markets noted that Google is making a “big bet” that it can succeed in its new product line which includes 115 million homes in the U.S and millions more globally. “Google is also making a bet on the Internet of Things space with a strong brand with good intellectual capital, and a management team that is good at industrial design and has roots at Apple,” Anthony wrote in a research report. “We see a longer-term opportunity for Nest Labs combined with Android and Google's Voice technologies and the embedded systems market.” Anthony reiterated a Buy rating on shares of Google with a price target of $1,313.00.

develops and produces hardware and software for home automation systems surged higher on Tuesday morning by more than 30 percent, hitting new 52 week highs of $26.49. Travis McCourt, analyst at Raymond James said that Control4's valuation is “reasonably attractive” if home automation becomes a “must have” asset for large technology companies. Control4's more than ten years of experience in home automation software and hardware makes it more interoperable than Nest's products, according to McCourt. McCourt has an Outperform rating on Control4.