Q1 is all but done. If the results are disappointing (below expectations), Google's stock will tank, a point that presumably hasn't been missed inside the Googleplex. Companies that issue stock just before they report disappointing results get bombarded with lawsuits (as do their underwriters), another point that presumably hasn't been missed inside the Googleplex (or Goldman Sachs). Given that this stock offering is obviously optional, Google probably wouldn't have done the deal if it expected its Q1 results to be disappointing. And it especially wouldn't have positioned the deal as a gift to mom-and-pop-owned index funds.
So this deal joins Google's official reaction to Three-Alarm George's demolishment of the stock last month in New York (George hallucinated) as positive signs for Q1.
Thanks, Henry, for your common sense appraisal.
We need more of that in this world.
btw: did you notice that Merrill Lynch has a new
analyst on Google and Yahoo.....Justin Post.
Posted by: Robert | March 30, 2006 at 08:33 AM
great point.
Posted by: Jared Lansky | March 30, 2006 at 10:06 AM
As the wise man once said, "It can only go up or down."
Posted by: Neal Lachman | March 30, 2006 at 12:24 PM
If GOOG doesn't issue earnings guidance, how can GOOG be sued for disappointing? Does GOOG culture really require strategic decisions to be made on probability of spurious law suits?
The multi-billion dollar question is whether the Market will value GOOG on proforma earnings or GAAP earnings that will get nicked by about 12.5% from new options expensing requirements!
Posted by: Walter | March 30, 2006 at 01:11 PM
Walter, you got a point there. But don't forget that there is room for argument when one sets out for a law/class action suit.
Google has to be careful in its moves, especially when their shares will be in decline. Everybody is GOOG's friend when it goes well, but when times are tough, the founders and management will get kicked, and even harder if they are on the floor.
The danger of not giving/prviding investors and analysts any kind of guidance lies in the fact that it can arguably be the single-most important stick for angry investors to beat the crap out of Google when its shares go down in value.
Now it is cool that GOOG stands tall and says... "hey guys, we are not gonna be lead by YOUR guidance demands, we won't give any." But when/if times get hard the same proponents of such wisdom will be the first to cry that "GOOG went public, reaped all the benefits of it, but never gave us any insight."
Posted by: Neal Lachman | March 30, 2006 at 01:35 PM
Unfortunately, they would be slammed with or without guidance, on theory that they knew their results would come in below Wall Street's expectations and therefore were just trying to raise money while they could. Would the lawsuits survive motions to dismiss? Who knows. If they did, though, Google would probably be looking at a multi-hundred-million-dollar settlement just to avoid further hassle. Who needs that headache, especially when you don't need more cash?
Posted by: Henry Blodget | March 30, 2006 at 02:44 PM
To me, this is neutral at best. If I were sitting on a bunch of shares and I KNEW the quarter was going to be great, I would wait until after earnings to unload. If I saw a short term pop-ortunity and knew things ahead were neutral to down, I would unload now.
Posted by: John Franklin | March 30, 2006 at 04:34 PM
I think we, somewhere, have slipped from analyzing to speculation.
In investor terms they'd say "when you are being shaven, sit tight". In analyst terms they'd say (Henry correct me if I am wrong) HOLD!
Posted by: Neal Lachman | March 30, 2006 at 05:02 PM
Google needs another 2B because then it can buy Baidu, or take a large stake in Yahoo Japan, helping it to get a foothold in two crucial markets. Yahoo and Ebay would struggle to complete such a deal given their relatively paltry cash positions.
I would be very bullish on an acquisition of Baidu, which would put Google in an unassailable position in China, probably the most important internet market after the US, in the next 5 years. Google already owns a small stake in Baidu, and action in the stock makes me think that the market is anticipating an acquisition
Posted by: Victor | March 30, 2006 at 05:32 PM
A war chest is just money on the bank. It is often used for sudden, surprise, impulsive moves to fend of or scare off rivals. I cannot see what major acquisition is in the pipeline, but I doubt there is any in the very short term. This is just a move to pile up money and create all the positive buzz around their heap of money.
From today's WSJ:
>>It said in its filing with regulators that it currently didn't have commitments to make any material acquisitions.
>>Analysts said that Google appeared simply to be seizing an opportunity to add to its more than $8 billion cash pile, but that the move would likely deflate any further upswing in its shares related to its addition to the S&P 500. RBC Capital Markets estimated that index funds would need to hold roughly 22 million Google shares as a result of its inclusion.
>>The share sale follows Google's September offering of 14.8 million shares for about $4.3 billion. Google Chief Financial Officer George Reyes described the September offering as a move to build "a defensive war chest" against "at least one very large competitor." Google has previously identified Microsoft Corp. and Yahoo Inc. as its chief rivals.
Posted by: Neal Lachman | March 30, 2006 at 05:48 PM
That is a silly assumption. When earnings suck, which they will, they will be hero's for having prevented the S&P funds from having to buy the stock even higher than they were forced to buy tonight. Google offering the secondary will be in their defense after this tanks. They helped meet the S&P index demand and as a result prevented more of an already unwarranted run up just because the stock was added to the S&P 500.
Posted by: Johnny Brosco | March 31, 2006 at 06:01 PM
"J.P. Morgan's Imran Khan said the share sale should be neutral to 2006 and 2007 earnings, as interest income generated by the additional cash on its balance sheet will be offset by the dilutive impact of the increase in outstanding shares." WSJ
That doesn't seem right! With the 14.8 million shares from last September's stock sale with now an additional 5.3 million shares = 7% share dilution not taking into account any stock option effects. EPS growth of 50% would decline by about 7% unless GOOG is earnings 50% on its cash from stock sales - not!
Intentionally lowering growth of earnings is never a good thing for an extremely high PE stock!
Posted by: Walter | April 01, 2006 at 02:47 PM
The WSJ pointed out that the S&P weighting is based on float as well as market cap. My understanding is that this offering increases the number of shares that the index funds must buy over what they would have without the offering.
Posted by: bronxite | April 01, 2006 at 06:36 PM
What are some historical examples of lawsuits tied to secondary offerings?
Posted by: bronxite | April 01, 2006 at 07:19 PM
Google will miss analyst estimates and there will be no law suits. There will be no law suits because Google doesn't provide guidence. There will be no law suit because Google stepped in and ended the S&P run up madness by offering shares to meet the demand and help the S&P indexers out. Google knows that their stock is overvalued. They didn't ask to be put in the S&P so it was the perfect chance for them to do the secondary with no repercussions. What can anyone say they legally did wrong? The S&P indexers had to buy the stock. They said hey, we will provide you with 5.3 million shares for a 1/4 point less then the close on the night of the addition. They just helped all the indexers that got in beat the index on this addition. Please explain to be why they would get sued after they post lame earnings in a few weeks?
Posted by: John Brosco | April 02, 2006 at 07:55 AM
UPDATE:
I found one, non-attributed market share stat that had the number of toolbar originating searches at 12 percent of all searches.
That source didn't look very credible though. Let us know if you (Walt) or anybody else has any other info here. In particular, it would be interesting to look at the growth of the usage of the toolbars, and the usage percentage versus the page of the toolbars by people who have them installed.
SI
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