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Google Files to Sell 14.2 Million More Shares
dabug911 writes "Google Inc. on Thursday said it has filed with the Securities and Exchange Commission to sell 14.2 million shares of class A common stock, an offering worth more than $4 billion at Wednesday's closing stock price.
Could they be getting the money together to finance all these rumors we keep reading about?"
Google, operator of the leading Internet search engine, said it intends to use the net proceeds from the offering for general corporate purposes, including working capital, capital expenditures and possible acquisitions of other businesses or technologies.
The company, however, said it has no current agreements or commitments to any material acquisitions. Pending acquisitions, Google plans to invest the proceeds in highly liquid, investment-grade securities, according to the SEC document.
I think that very nicely clarifies what is going on. Very clear and quite obvious. Yep.
Advice for my fellow geeks: before seeking out that threesome you dream of, you might see what a TWOsome is like first.
advertising revenue is pretty much the source of all of Google's profits.
I never spellcheck and I freely admit it. Save your karma for more worthwhile "lol erorrs" replies
Okay, so GOOG is trading near $300 a share and they want to raise some more capital - great. Just help me understand where their money comes from.
As best I can tell, Google makes money on:
(1) AdWords (is this like 90% of their revenue?)
(2) Intranet searching licenses for those sites who allow you to search it with a Google search, but maybe this is a free service Google offers
(3) They sell those yellow Google blade servers that look cool but I think accomplish the same as (2) above.
So how else does Google make money? Every damn thing is free. Gmail, maps.google.com, Google Earth. As a consumer I am not complaining, but as an investor, I won't touch GOOG with ten feet of CAT6.
I only came here to do two things; kick some ass, and drink some beer...looks like we're almost out of beer.
They're just selling additional shares to bring that $300/share price down a bit. You don't want to have your stock all held by the big boys of investing who will turn on you and your company on the proverbial dime.
Taking any action to purposely bring down the value of your company would be illegal. If they wanted to make a more attractive price point to fool investors without $300 into buying their stock because it appears cheap, that's what a stock split is for.
I'm a big tall mofo.
Your estimates are off by a bit. The cost of living in Silicon Valley is higher than you think, resulting in higher salaries.
Top quality software engineers in the valley make something like $60-80k fresh out of undergrad. Top quality fresh PhD's make $85-$110k. Add benefits and bonuses and even your "fresh out of undergrad" top quality engineering hires will cost a company more than $100k/year. Everyone not fresh out of undergrad will cost even more.
It's generally not a good idea to buy stock when they are releasing more stock to the public, (rules of supply and demand) or when they are making an acquisition. It's usually better to own the stock being acquired.
These are general rules to follow, but that doesn't mean you can't make money breaking them. Google's explosion of massive growth is pretty much over. With the horrible financial talk they made at their conference call among other things, Google isn't the place to *buy* right now.
Remember the Golden Rules.
1) Don't buy a stock because someone told you too. Buy it because you researched it. Everyone in the market wants to sucker you so they can get your money. Nobody that knows anything will give up their cash cow secrets. (Even Jim Cramer of Mad Money)
2) If the media is talking about it. Your to late. (Mr. Cramer again)
3) To speculate is to go broke. Make buying decisions on facts. Hard and cold facts. All else is speculation.
In THEORY, a secondary offering has no impact on current shareholder...
Let us assume that Google is worth $75b (its really 77, but 75 makes easier math).
So, it's pre-money value is $76b. Pretend Google is selling $5b work of shares. Now, Google has an additional $5b in cash, making its value $80b. However, everyone has been diluted. So, your previous 1% of Google is now 15/16 of a percent, but the company is worth 16/15 what is was before.
Now, assuming that Google has a profitable use for that cash, then Google takes that $5 and turns it into $25b of value (but loses the $5b in cash). Now, the new Google is worth $100b. So while you own a smaller share, at the moment of sale you were made whole (by the cash coming in), and you benefit from the increase in value.
However, reality is NOT so kind. In reality, Google selling $4b worth of shares will probably be at a slight discount, to encourage the big funds to pony up the cash (you don't normally unload $4b of shares on the open market and hope for the best), plus the bankers get paid. So the company ends up diluting by more than the net cash position improves.
Assuming Google has a profitable use of that cash, you should still come out ahead, because Google will in theory sell $4b in stock, collect $3.8b, and as long as they turn it into at LEAST $4b of value, you're even, and at $8b-$10b, you come out ahead...
Now let's add a little more reality. Generally, companies deploy their capital in less and less valuable area, which makes sense. If you have 20 profitable investment opportunities, each of which take $1m. If you have $10m to invest, you do the top 10 of them. If you get an extra $10m, you choose the less valuable ones, and if you are stuck with investing another $10m, you either sit on cash or chase the 10 best unprofitable activities to look busy. That's part of why dividend companies with reasonable payout ratios look so good on a dividend-reinvestment basis, they only chase REALLY profitable activities.
In addition, Google is very profitable, so it should be able to chase most of its profitable investment opportunities. With a P/E of 80, the implied cost of capital is MUCH higher than a junk-bond offering, which would only expect an 8%-10% return (interest) compared to investors expecting an 80% return (no I'm not doing the math, but its a ridiculous annual return to justify paying 80 times trailing earnings, somewhere in the 40%-80% annualized range).
Therefore, the non-financial view of the situation is: profitable companies that think their stock is undervalued do stock buy-backs, which boosts EPS, and make sense if the company believes that their stock is a better investment than any other projects that they could invest in (meaning they can only get a 20% return on new projects, but a 40% return buying their shares), and tend to do secondary offerings when they think their stock price is high (meaning, they can get a better return on the money than the market, they expect the company's stock to be a -10% return and they can get a 3% (money market) or higher return on the cash).
I would consider this offering bearish, even though the fundamental financial analysis looks closer to neutral.
Alex
I think you just meant secondary public offering.
Build a man a fire, he's warm for one night. Set him on fire, and he's warm for the rest of his life.
I would agree, except Google currently has no* debt at the moment. So this taking the money and putting into liquid assets (aka easily converted to cash assets) means they have some immediate purchases in mind.
This could either big one big thing or many, many small things.
BTW, in comparison, Microsoft has 30+ billion in cash on hand, but with many more shares in circulation.
*no debt is actually very, very little debt. About $290K (0.3 million dollars) in debt.
If a company's officers are looking to cash out, they don't delute their holdings by putting 14.2 million more shares on the market. Unless, of course, the individuals in question are looking to embezzle the money out of the company and head to South America.
Your courageous and selfless spelling corrections have made me a better person.
1. Google is better than any investment in the world right now. Their brainpower puts Mensa to shame.
...
I've heard that one before - reminds me of Enron, actually
2. Stop giving investment advice on the internet. No one asked and no one who is in their right mind would log onto their ETrade accounts after reading the ramblings of some Slashdot poster
Except I'm the guy - ok, my other WillAffleck account, but the same person - who gave people practical advice when the Red Hat IPO happened, including what the NASD and SEC were and how to contact them.
We've been thru this hype before. I didn't say it wasn't a good investment - heck, I still have a few hundred shares of Red Hat today - I just said that a secondary IPO for Google has - implicitly - a higher downside risk than the initial IPO and that you should think before you leap and consider not putting all your eggs in one basket.
That's not risky advice, it's sound advice - and you know it. So, how many shares or options of Google do you currently hold or have influence over? My guess is it's more than you've said so far.
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