Google Needs Another $2 Billion Because...

It must want to buy something.  No other explanation jumps to mind for why a cash-gushing monster with an $8 billion war chest would toss away another 5 million shares in tonight's shelf filing.

Scheduled 2006 big ticket items are $1 billion to AOL for the search deal, $1 billion (rumored) to Dell for the Google Pack deal, and $1-$2 billion for capex, all offset by an estimated $2-$3 billion of positive cash flow.  Add that together and you get a net 2006 cash outflow of maybe $1 billion, leaving $7 billion on the balance sheet--more than enough to compete with anyone except...

Yes, but if the point is to get into a "mine's bigger" war with Microsoft, then why not raise $20 billion?  No, $7 billion is plenty, unless you want to buy something.

Bets?

Facebook?  MySpace (for cash and stock, giving News Corp. a big Google stake)?  The rest of AOL?  Tellme?  Keep 'em coming...    After reading Battelle, my money's on Facebook.

UPDATE:

A Google press release confirms the deal and notes that Goldman was the sole underwriter (lucky them).  The press release also implies that one reason for doing the deal was to make sure there is enough stock available for all the index funds that have to load up on it between now and Friday. 

Translation: We didn't want the stock to soar and then crater, subjecting us to another round of mercilous pounding at the hands of the press, investors, and blogosphere.  How's that for not being evil?  (And how's that for not being altogether straightforward?).

UPDATE 2:

This "index-fund offering" justification seems to have gained instant credibility, with Safa and others deeming it the height of mundanity and common sense.  If so, it's the first I've heard of the practice.

UPDATE 3:

Another common theory on the acquisition side is Asia expansion--perhaps China specifically, where Google is getting its clock cleaned.  Cash vs. stock would be very helpful here.

Comments

[bronxite]

My bet is that they have no intention of buying anything. They just saw the opportunity to take money from index funds (and by proxy, personal retirement accounts), and went for it. Can you blame them?

[MattyDread]

Another bundling deal with HP.

[Victor]

This is unbelievable. They seem to want to shoot themselves in the foot at every conceivable opportunity. As much as I love the company, and have generally been bullish on the stock, i can't fathom the stupidity of some of their actions and words. Especially their retarded CFO.

[Still Inside]

GOOG is selling their own stock for the same reason any other GOOG stock owner would sell GOOG stock: they don't think it's going up.

As for buying something, last I checked stock works just fine. You don't need cash.

Watch the balance sheet, boys. Look for them to use the cash to smooth out any problems.

Oh yeah, look for the interest income on the balance sheet. Maybe the management team really wants to be the manager of a mutual fund instead of this tech company thing they've been doing.

SI

[Neal Lachman]

This shelf registration can be taken serious or as a battle cry. The fact that they will truly proceed with this remains to be seen.

They did this because...

1) it is a great stick to scare off competition/competitors.
2) it is a good way to enhance their financial status. That is needed because GOOG knows it is yo-yoing all around the marketplace.
3) it is a good way to make talent believe the company has plans to remain solvable, financially secure, has a warchest option
4) it is a good way to retain those talents or attract talent for the reasons stated in sub 3.

I think this was a brilliant marketing move! Great idea, good thinking. I give the guys at Google an A for this scheme.

[Neal Lachman]

Victor,

You are misreading this. It is just a registration of an intended sale. It is not definitive/certain they will proceed with this.

I think George reyes has done something brilliant. This is just a brilliant move by Google.

Did I already mention that this is a brilliant move?

[mr fuckedgoogle]

Neal, yes, you mentioned it was brilliant three times.

That is 7 times less, however, than you called YOURSELF brilliant in your biography on your webpage which can be seen by clicking on your name.

You referred to yourself as a genius 3 times, and a visionary about 5 times.

I think the word you're looking for is "sycophant"

[Neal Lachman]

Thanks for the assesment MrFGoogle. But hey, you must be fuming by this BRILLIANT move by George Reyes/GOOG.

I want to remain honest to reality, and I do not necessarily need to bug down GOOG for giving my ego (or alter ego) a boast.

[Walker]

I'm with Henry-

Facebook would be an optimal buy, for more than one reason:

1) as mentioned in the link, facebook has the coveted '18-24' market under its thumb.
2) facebook would be a welcome acquisition--it's one of the most popular sites on the internet, and any tie it has to another corporation will be positive. This leads me to what I think is the most important point--

3) The information that can be found about people on facebook is utterly ridiculous, from a marketing standpoint. People WILLINGLY put their favorite movies, activities, TV shows, books, video games, and general interests on a webpage for all to see. It doesn't take any more than a simple modification to the google spider to be able to get possibly one of the most detailed cross-sections of college students today, and the payoffs would be simply beautiful -- targeted advertising as we've never seen it before.

[mr fuckedgoogle]

if your idea of beautiful is "targeted advertising as we've never seen it before" then i think there's something seriously wrong with you.

either that, or you work at an advertising agency.

[Neal Lachman]

Walker, I agree with your last statement. Pinpoint marketing is the wet dream of all advertisers. If Google would spend money on this kind of acquisitions it would remain thrue to its mission statement to "organize the world's information" and hark in lots of revenues in the process. That would, again, be brilliant.

MrFGoogle, what's your take?

[mr fg]

I think you need to use the word brilliant a few more times.

And your bio on your website doesn't fully capture your greatness. Perhaps if you spoke about yourself in third person and heaped even MORE praise upon yourself, it would be better.

That's my take.

[Neal Lachman]

Silly boy, I meant on GOOG.

[Josh]

Google is not acquiring Facebook; integrating Facebook does not work:

1. Facebook only accepts school email logins (Google has had enough problems integrating old gmail accounts into their new portal scheme)
- The allure of purchasing a social network site is that it develops a moat for Google and makes it more difficult to just switch to another search engine (If you actually use Myspace, Friendster or Facebook you understand how long it takes to put together your profile and content with all your friends)
2. Facebook's revenue stream is based on school membership (Not advertising)
3. Facebook's current customers would flock away if Google opened up the service to the general public.

An Amazon acquisition of Facebook would make sense because they would be able to gain a greater foothold in the online school book store market.

Myspace would be ideal for Google but News Corp is not selling their prized possession.

A few years ago Google had the opportunity to purchase Friendster on the cheap...that opportunity is still there. Friendster although less popular then Myspace has its pluses and would be a good start for Google (Friendster also has brand, picture, based advertising)

I think that the social network site business is something that both Yahoo and Google should get into; but I think Yahoo is currently better postioned. Google should go out and purchase the underlying technology for social networking and just start up their own site. Social networking is relatively new and they still have a chance to quickly penetrate the market and gain share.

On another note…Has anyone tried putting their portfolios on GFinance…there isn’t a convenient uploader.

[Neal Lachman]

Josh, I never even heard of FaceBook (excuse me for that) but I want to comment on your points made.

>>> 2. Facebook's revenue stream is based on school membership (Not advertising)

The new owner/partner could easily integrate advertising, especially if that is the new guy's bread and butter they will. In the case of GOOG (and IF they would purchase this company) they could do whatever they like, if they take care of the core wish of their target audience.

>>> 3. Facebook's current customers would flock away if Google opened up the service to the general public.

As Walker described, it would not be opened up to the public (at least that's what I think). The current audience is a great target itself. No need to reinvent the wheel.

[Joe Jackson]

>>> 2. Facebook's revenue stream is based on school membership (Not advertising)

I'm fairly certain this is not true.

[Josh]

I should clarify...most of the revenue is from membership but there is banner advertising.

[Chris Fischer]

Josh,

You have no clue what you're talking about. Facebook is free, there is no membership cost for either students or the Universities. They get their revenue from advertisements.

[mr f]

ruh roh!

10k was just released- google set the price on their offering today at 342 bucks a share:

http://xml.10kwizard.com/filing_raw.php?repo=tenk&ipage=4060862

quite a bit below where it's trading now, don't you think? LOL.

[Mrbubbs]

I remember CCL doing a secondary when they were added to the S&P 500 a few years back, so it's not a new idea.

[Neal Lachman]

Dear MrFGoogle,

NOTE: Estimated solely for the purpose of computing the amount of the registration fee. The estimate is made pursuant to Rule 457(c) of the Securities Act of 1933, as amended, based on $342.98, which represents the average of the high and low sales prices of the Registrant’s Class A common stock as reported by The Nasdaq Stock Market on March 23, 2006.

[Neal Lachman]

So, MrFGoogle, did GOOG try to trick investors? No, it acted as per SEC regulations:

Rule 457(c) of the Securities Act of 1933

Where securities are to be offered at prices computed upon the basis of fluctuating market prices, the registration fee is to be calculated upon the basis of the price of securities of the same class, as follows: either the average of the high and low prices reported in the consolidated reporting system (for exchange traded securities and last sale reported over-the-counter securities) or the average of the bid and asked price (for other over-the-counter securities) as of a specified date within 5 business days prior to the date of filing the registration statement.

[Neal Lachman]

I migth add it to be a smart move (I don't dare to sue the word brilliant) because the poor Googlies would else have to pay at least a few ten thousand dollar higher registration fee. Now they can buy a toyota camry with the saved money.

[Richard C]

Maybe they're going to buy/merge with Yahoo!, how outrageous would that be! I heard on TWiT podcast a while ago someone said they'd be doing this, seems crazy, but $8billion cash is crazy!

[James]

Does this mean that Goldman is back in the good books of Google? Werent they in the doghouse for sometime?