Message to Tight-Fisted Google: Spend or Stagnate

I find it remarkable that it was over a year ago when I questioned Google's decision to do a secondary offering to raise $4 billion dollars and they still haven't spent that money.

This comes to my attention again because Google has now crossed the line and has so much in cash and short term investments that they risk being regulated as a mutual fund.

Now, I assume that they'll get their exemption or otherwise find a reasonable way around this. But it begs the question, what are they going to do with our money?

Google now has about $14 billion in cash. That's more than 10% of their market cap. They have excellent profit margins and still more than 100% earning growth, and they're continuing to pile up the cash.

So what are they going to use it for? I think we're many years away from a Google dividend, and it would be foolish to buy back shares at this point since just last year you issued those shares at a much lower price (around $300) . You'd just be paying investment bankers to waste money for you.

I'd still be happy to see Google make some good acquisitions that fit nicely into their wheelhouse. Akamai's (AKAM) still under $6 billion, for example, a high traffic publisher like CNET (CNET) would only set them back a bit over a billion (and CNET is much more nicely priced today than it was when I sold a year ago) or some of the advertising competitors like Valueclick (VCLK) at a billion and a half, or even a more traditional advertising agency -- Interpublic (IPG), Omnicom (OMC), Publicis (PUB) or WPP Group (WPPGY) are all in a price range where Google could buy them with cash, though Omnicom and WPP would be tight at close to $15 billion.

Do any of those really make sense for Google? I don't know. They have clearly shown no interest in large acquisitions in the past, with the exception of the AOL investment that I believe was designed more to keep their market share than to proactively build the business. They want to grow with their own technology, and make small acquisitions to build services and capabilities -- but they're hiring as fast as they can and expanding with more server farms around the world ... and they still can't spend their money fast enough.

I don't have the solution, but I hope someone at Google does -- the business is great, but use the tremendous opportunity of this extra pile of cash to grow as aggressively as you can. One needs only to look up the coast to Redmond, WA to see how easily an insular company with a cash hoard and a reluctance to spend it can become stagnant.

Comments

[Oneguy]

Math mistake: I typed too quickly and put in Google's total curent assets as their cash hoard. In truth, their cash and short term securities holdings are $10 billion, not $14 billion. Sorry for the exagerration, and thanks to the reader who pointed out my error (and to the many who flamed me for irresponsibly urging Google to blow money acquiring whatever they can find, which I hope is now how my comments read).

Cheers,
Travis

[Oneguy]

Math mistake: I typed too quickly and put in Google's total current assets as their cash hoard. In truth, their cash and short term securities holdings are $10 billion, not $14 billion. Sorry for the exagerration, and thanks to the reader who pointed out my error (and to the many who flamed me for irresponsibly urging Google to blow money acquiring whatever they can find, which I hope is now how my comments read).

Cheers,
Travis