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.
James, as a matter of fact, yes. GS is back in favor, but why shouldn't it? It is a first class bank.
http://news.ft.com/cms/s/4759d3b4-c01c-11da-939f-0000779e2340.html
Goldman back in favour with Google
By Richard Waters in San Francisco
Published: March 30 2006 20:31 | Last updated: March 30 2006 23:49
Google Goldman SachsGoldman Sachs has found its way back into favour with Google, picking up what could prove to be a lucrative banking relationship as the internet company embarks on its next phase of expansion.
Posted by: Neal Lachman | March 30, 2006 at 10:47 PM
As for why and how GS is sole underwriter? They have a buy on GOOG. Just ask Henry about the connection between sell side research and underwriting commisions.
Story at BBG on GS's Buy on GOOG
More utter bullshit from Goldman Sachs from the boys at fuckedgoogle
Cheers,
Market Participant
Posted by: Market Participant | March 31, 2006 at 12:23 AM
MP, the beauty of a free world (including markets) is that even analysts can utter whatever they deem appropriate. The idea of forecasting is different from prediction. Therefore, all investors who thread the markets should be deemed sophisticated enough (also if they are mom and pop investors, or in that case I'd even say even more so!) to make some informed decision on whether or not to buy shares in a certain public company.
The ridiculous idea that analysts can steer a market or manipulate massively is often to be blamed on the uninformed ideas of the blamants themselves.
The mechanism of analyzis is simple. The guy/gal takes a benchmark, takes the industry, takes a few comparables, looks at the current situation, looks at potential opportunities/threats, tries to put a number on growth/decline of market share and market trends, and does what he is getting paid for: give advise based on an informed opinion.
Look at Piper's Safa, I believe it's him who went for the whole berserks $600 for Google. But if asked, he'd tell you that he did it with the best of intentions, based on market conditions and some other factors.
It is not scientific research, and it highly risky business. Investors have the freedom to choose not to follow advise. It is, however, always easier to blame somebody (or find a scapegoat) for your own bloody mistakes. It is even more attractive then to find a conspiracy theory and trumpeteer it (or write endless blogs on it).
With the telecom and dot com busts we got a correction in valuation terms. I am glad we did. I lost money too, but I am glad we went through it, else we would be in a total recssion today if it would have happened now. People at that time (2000/2001) didn't believe their baloon was going to explode. But it were they who were filling it with hot air. I mean... greed.
I believe there is a Gordon Gekko in each of us.
Posted by: Neal Lachman | March 31, 2006 at 03:35 AM
they are going to buy superpages. local. massive print coverage. salesforce.
Posted by: freeman | March 31, 2006 at 08:36 AM
Neal,
That would be all well and good if sell side research came with the disclaimer "For entertainment purposes only".
As is, people actually use sell side research to make investment decisions. So there is need for research to be accurate and useful, because it is implied that it is accurate and useful.
Piper Safa and rest of the GOOG 600 crowd are fools at best and crooks at worst.
I dare Piper Safa to have all his compensation for 2006/2007 paid in GOOG shares, at a fixed conversion price of $385/share.
Posted by: Market Participant | March 31, 2006 at 10:37 AM
MP,
You may know that I have and still remain somewhat sceptical about Googles forays into non-core-business markets.
But, what if GOOG actually, truly, really reaches $600? Or $750? I bet people like you and me came home to roost when they called the ones who would dare to predict or forecasted MSFT or BH or even Exxon Mobil the same "humbug, impossible, ridiculous".
I want to keep it at this in regards to this discussion. Au Revoir.
Posted by: Neal Lachman | March 31, 2006 at 10:43 AM
Neal, GOOG is not going to reach $600. You do realise that between the current offering of 5 million shares and about an equal number of shares floating around in the form of stock options and GSU's, there is a massive overhang of dilution.
And how many shares have SEC-listed GOOG insiders sold in the past 6 months? Over 9 million shares! If they thought GOOG would goto 600, why sell at $450? And of course it's not clear how many more shares non-reporting insiders are selling? Do all these Google insiders know something that Piper Safa does not?
If google is going to rise to $600, why are insider's selling at 388? Not one analyst with a "buy" on Google can answer that question. Not one!
Unlike the previous gang of dot.com millionaires, Sergey, Larry, and Eric are not going to ride this one to the bottom. That's for Piper Safa's clients.
Market Participant
Posted by: Market Participant | March 31, 2006 at 02:28 PM
This discussion is off-topic. Firstly, Josh, you're wrong. Facebook is a free service, and while it does require a school e-mail to gain membership, this does not preclude its integration with google. One of the features that facebook sorely lacks is competent searching - just the thing that Google can provide. Though now we can probably be sure that Google isn't going to acquire facebook (for other reasons), I still think that facebook would be a good buy for google (No, MrFG I'm not an advertiser, I'm simply saying that google needs to know where it gets its money, and identify how to make more of it). Building a comprehensive profile of a college student (his/her interests, etc.) while also offering him/her a constantly improving facebook that is closely integrated with google is a win-win situation for google.
Posted by: Walker | March 31, 2006 at 06:58 PM
here is the first piece, now wait for the second...
Yahoo Makes Unsolicited $21.2 Billion Offer for AT&T Yellow Pages
http://ypcommando.blogspot.com/2006/04/yahoo-makes-unsolicited-212-billion.html
Posted by: freeman | April 02, 2006 at 05:52 PM
Google already has a social networking site. It's called Orkut.
Orkut.com
http://www.orkut.com/
Orkut - Wikipedia
http://en.wikipedia.org/wiki/Orkut
Inside Orkut
http://insideorkut.blogspot.com/
Posted by: Dimitar Vesselinov | April 02, 2006 at 07:09 PM
freeman, that's a great april fools'joke.
Posted by: Neal Lachman | April 02, 2006 at 08:02 PM
MP,
Although I said I'd leave it at this concerning Google sharevalue I can't resist replying to your last collection of comments.
>>And how many shares have SEC-listed GOOG insiders sold in the past 6 months? Over 9 million shares!
So what? They worked for it.
>> If they thought GOOG would goto 600, why sell at $450? And of course it's not clear how many more shares non-reporting insiders are selling?
This is the epitome of taking things out of context. My dear friend, if you have had a job 9-5 and now all of a sudden sit on a goldmine, would you not want to take care of your family, buy a nice house, car, take care of your childrens' future. heck maybe you would buy a yacht and a few mansions too!
>>> Do all these Google insiders know something that Piper Safa does not?
It has nothing to do with market pricing. It has to do with the desire of people to change or uograde their lifestyles. So what? Do i sense jealousy?
>>>If google is going to rise to $600, why are insider's selling at 388? Not one analyst with a "buy" on Google can answer that question. Not one!
That's your opinion. I think they are selling because they want the money. Why haven't they sold ALL shares at $185, or $320? That's the flip side of your commentaries.
>>>Unlike the previous gang of dot.com millionaires, Sergey, Larry, and Eric are not going to ride this one to the bottom. That's for Piper Safa's clients.
These guys deserved it. So be it. If they do something fraudulent there will be the likes of SEC to deal with it. But for now, all we can do is speculate and eat our hearts out.
Posted by: Neal Lachman | April 02, 2006 at 08:12 PM
Neal? AYRTS? IA?
Listen to what you are saying: you are saying that GOOG insiders would rather cash out NOW at 388 then wait 12 months to cash out at $600. They are willing forfiet 54% upside in exchange for a certain $388. That doesn't exactly scream confindence in GOOG's stock price to me.
Like I said, not one analyst with a buy on GOOG can explain why insiders have sold over 9 million shares in the past six months. And GOOG insiders were selling 185, and they sold again at $320. There hasn't been one signifigant insider purchase on the open market in the history of google as a publicly traded company. Even when goog shares fell 30% not one executive made an open market purchase. Insiders at google do not want more exposure to GOOG, they want less.
Again, Insiders at google know something that Safa Rashtchy also knows but he isn't sharing with his clients. Again my open challenge to Safa Rashtchy is to have all his compensation for 2006/2007 be paid in GOOG shares, at a fixed conversion price of $385/share, continues.
Market Paraticipant
Posted by: Market Paraticipant | April 02, 2006 at 10:57 PM
MP,
You are right. I give up. You are reason incarnated.
Posted by: Neal Lachman | April 03, 2006 at 12:01 AM
Neal, you are optimism undeterred.
Market Paraticipant
Posted by: Neal Lachman | April 03, 2006 at 01:35 AM
"If you work in an Internet profession, you shouldn't own Google stock in the first place. Diversification is the number one rule of investing: you shouldn't put your money into something highly correlated with your own job prospects. The month you're laid off is likely to be the same month that Google drops to a quarter of its current price -- that is, whenever the next big Internet recession hits. Think of somebody working at DoubleClick and investing in Excite in January 2000. Not a happy nest egg."
http://www.useit.com/alertbox/hype.html
Posted by: Dimitar Vesselinov | April 03, 2006 at 09:33 AM
Back to the topic of this post ...
Google needs $2 billion because they're going to buy something. Googlezon (without the inventory and distribution centers) is looking good for both Google and Amazon, and with a $10 billion warchest, Google could pull it off.
An Amazon divestiture or joint venture with Google would fill some big Google holes (like its small user base and no social recommendation engine) and it could relieve Amazon of its perpetual R&D cash drain.
Google made a sweet deal with AOL for equity, content, ads and access to AOL's user base. I can easily see a similar arrangement with Amazon that solves both company's vulnerabilities.
But the minute Google starts offering free shipping, I'm out!
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