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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 has announced plans to buy NASA from the United States government. In a press release sent out this morning by Nathan Tyler, Google indicated the need for better, more direct access to the data it manages.
In a brief interview this afternoon, Tyler had this to say:
"I mean, after Maps [maps.google.com] and Earth [Google Earth], it was pretty blatant where we were going. Everyone on campus was asking, 'When are we buying NASA?'. The NASA acquisition will offer us access to a variety of communications avenues that would have cost a fortune to contract. Also, it's imperative for our upcoming Google Earth Live... but I've said too much."
That what was all this school was for... to teach us how to solve our own problems. -- janeowit
They want their pre-bubble investing environment back.
Trolling the trolls who troll the trolls since '92
And fire all the reporters.
Google is profitable. Can they remain so?
Whether or not these dilute the current holdings, the company has a very nice financial profile. It will be interesting to see if they can keep profits up while they start to expand.
Jesus saved me from my past. He can save you as well.
Hey martha... hows that anklet working out for you??
Don't anthropomorphize computers: they hate that.
Or are they cashing their extremely inflated stock?
whatever happened to "request a feature" button... Now were gonna need a "plant a rumor" button...
We are going to conquer a country. That 200 billion dollar in cash for arms and infantry doesn't just pay for itself you know. We expect to need 40.000 troops to take Syria, and 200 troops to completely overwhelm the Dutch army.
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.
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. Better to involve the smaller investors too so that one less-than-incredibly-spectacular SEC quarterly filing won't tank your stock. Companies need to diversify their investments just as much as us individuals do.
Why? What did you think they were going to do? Free wireless access, with a VPN client that also delivers advertising (textads only, no flash animation) based on the web page you are currently looking at, or based on your browsing history if you aren't looking at web pages? With direct support for Internet Explorer, and support for alternate browsers if you use the Google Web Accelerator?
Whoever corrects a mocker invites insult;
whoever rebukes a wicked man incurs abuse.
--Proverbs 9:7
Being generous and assuming the cost of a person's labor for 1 year to the company is $100k, this means $4 billion would purchase 40,000 man-years of labor. Considering the world per-capita income is actually closer to around $20,000 (which is still high, mind you, but it makes for simpler math), that would be 200,000 man-years of labor.
What the heck are these guys doing that's going to require somewhere between 40,000 and 200,000 man-years of effort? (Remember, the cost of everything turns back into man-years of effort.)
"There are a dozen opinions on a matter until you know the truth. Then there is only one." - CS Lewis (paraprhase)
...the Google business model, evidently. How is it that Google makes money, exactly? Is it all based on sites paying them to be listed when you search? Surely AdSense doesnt make this kind of loot.
Sorry for the dumb question. It just came to me when I was reading the story.
VOTE!
And I say this as someone who's been investing since the 1970's and didn't panic during the IPO craze of the late 90's - which was very very good to me and my family ...
Just because a stock is valued at $XX today doesn't mean it can't just as easily go down as up.
And when something is new to the market, valuation is still uncertain and the risk of it going down - contrary to most investors expectations - is higher than the risk of it going up.
However, as a caveat, I should say that some of the secondary offerings and post-IPO investments in certain companies have been very very profitable for me - Red Hat, Coach - which I bought at IPO, held for a bit, sold all or part of, and bought back in when most insiders unloaded their shares.
So, it's more a question of: Is Google worth MORE than this valuation in the future and is this BETTER than other investments?
I'm putting money in Japan and Euro value plays mostly - with money in dividend yielding energy stocks that AREN'T oil-based (wind, solar, geothermal, nuclear fission, clean coal).
But if you want to spend your money, do what I do - never invest more than you can lose, and if it's risky - unless you're really really certain [e.g. RedHat or Coach in my case] - spend LESS than on a typical investment.
For example, I usually invest around $10,000 in a normal investment, $5000 in a slightly risky investment [a hunch], and $1000 in a highly risky investment [most IPOs and risky stocks].
Your mileage may vary.
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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
1.IPO 2.Buy moon 3.Secondary IPO 4.Buy super-laser 5.??????? 6.Biiiiiiiiiiiiiiilliiooooooooooons in 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.
After all, the people who buy into Google really don't give a shit what it does or how it does it as long as it makes money and pays good dividends. I don't know exactly what portion of Google will be in "public hands" after this, but if they've sold off enough of the company they could just wind up like almost every other company in the business.
Maybe I'm sounding a little paranoid, but I really think that going public and giving partial ownership of your company to people who don't share your creative vision is just a bad idea. I don't invest in the market myself, so I can't speak for everyone, but isn't the point to make money? Eventually a unique company like Google that's been pushing new and innovative technology and forcing competitors to work just as hard to keep up, will eventually stagnate and become more of a conservative business that would rather rest on its laurels and make money rather than strike out an pioneer new grounds in the industry.
Would a company all about the money offer 2GB email inbox sizes, a wonderful and easy to use online mapping service, and a great search service? Personally I think they'd turn out a little more like Microsoft, spending more time talking about all the innovative things they're doing rather than actually doing them and settling into a state of mediocrity.
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.
Absolutely! Don't get stuck in the bubble when it pops.
Although you should probably use Google to determine which hills and Google maps to see how the hills look before you head out there.
Coding Blog
The article says that one of the things they need the cash for is possible acquisitions. It seems they are acquiring a lot.
;))
One of the recent ones that I have not read about on slashdot is android
What's interesting about that one is that it's being speculated that they have been creating an Operating System for cell-phones.
(That should be enough to have another 50 stories on slashdot about people pondering what technology is going get involved with next.
I think that Google is a great company, but I cannot see how their insane stock price is justified. It is all just speculation.
/ url%5D I mean, check out their P/E ratio!
[url]http://finance.yahoo.com/q/bc?s=GOOG&t=1y%5B
Google is very cool, and their mission is basically to become the next library of Alexandria, which I think is awesome. However, how on earth do they plan to make any MONEY?
(For those of you who are considering buying some of this new issue, I strongly suggest you read 2 books: "The Intelligent Investor" By Ben Graham and "The Future for Investors: Why the Tried and True Triumph Over the Bold and New." by Jeremy J. Siegel.)
Google is very cool - but it is really just grep on steroids. I can't see how shares in this company at this point will benifit the shareholder.
Try to hack my 31337 firewall!
So what? TV networks make billions and everything they sell is free. This is like that, only with 2 big differences:
1. Google has perhaps loaded up on more talent in their field than any company since Edison.
2. They aren't actually breaking new ground yet. They're just executing an existing industry/strategy - online search funded by online ads - better than anyone else.
And difference #2 is good news for investors. They aren't a bolt of lightning like Netscape, they more or less earned their good fortune. Netscape = Apple, Google = M$.
I'm pretty confident they have a good idea of what to invest in, as M$'s attempt to catch up online continues into another decade...
->This advice is provided for entertainment purposes only-
Time to buy a TON of Google! This time is REALLY different! I'm pouring everthing into Google! Just as soon as I finish selling all of these tulip bulbs ...
[Insert pithy quote here]
14.159,265 million shares to be exact. 3.14159265... Cute...
Besides the Google Instant Messenger client rumor, there are quite a few other opportunities that Google might be trying to fund.
Well there's that Broadband over Power Line rumor. And the massive country-wide Wi-Fi rumor. Also the streamable Google Operating System. Oh and the Google Browser rumor
And lets not forget Google needs some money to finance their trip to Mars
Sigs are for Terrorists.
Value of PI == 3.14159265....
Google sells == 14,159,265 shares...
You have to love a company so cool that even something as boring as a secondary stock issue can be made into an inside joke for geeks.
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.
P.S. Can I come over and have a sip of one of your 1000 dollar beers I bet they taste a lot better than the $14 a case stuff my budget can afford.
You're thinking of Apple.
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
You forgot:
3. ???
4. PROFIT!
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.
Google has huge potential for services based on their server farm/architecture. For example:
Google could sell company denial-of-service protection. Traffic could be routed through google's farm. Google could filter the wheat from the chaff. Also google know lots about valid clients via GoogleCaching, cookies, GMail accounts, GoogleDesktop, etc...
Google could automatically vet valid clients versus zombie attackers. With googles huge server farm it could withstand a zombie attack of a hundred thousand boxes.
Wrong. But, it sounds so true, and so fair, and so, so... liberal
Proof: You spend 1 man-year acquiring a shovel and digging a ditch. I spend 364-man days designing, acquiring parts and building a back-hoe, and 1 day digging 100 times as much ditch.
You are claiming that these man-years are identical. They are clearly not, hence your premise is false, by reductio-ad-absurdium.
Marx argued that everyone deserved to own the means of production, equally. Lefties argue mostly the same thing -- that everyone is equal.
Capitalism is not the inverse of this (as most Lefties mis-interpret it). It declares that the capital (and means of production) should (and eventually will) flow to those most capable of using it efficiently; to produce a maximal, non-trivial result.
It may take generations, but this is generally true. My hope is that, finally, some individual or company will use their vast wealth-accumulation capacity to do someting so non-linear, so status-quo-shatteringly huge, that it will re-set the baseline, forever.
Entities such as Bill Gates, Google, Citigroup (and several others) have the capacity to raise a significant fraction of a Trillion dollars of liquid capital. Lets say that one of them actually decided to leverage that, again, to incent another space-race, but this time between free men and women, instead of governments (think Scaled Composites, tSpace, etc.)
Imagine if, in 10 years, they actually had a functional fleet on orbit, and processing facilities on the Lagrange points to begin processing megatons of Nickel/Iron/etc./etc. from the asteroid belt, and to collect and transmit Peta-Watt-Hours of electrical energy, per day, to ground collection stations.
Suddenly, they have transformed that several Billion dollars into orders of magnitude greater results than the same number of man-hours could have produced.
Because they were visionaries.
I propose that this is a fact: Every truly interesting result comes from a Visionary, not just plain old Worker.
The question is: are the founders (and now, the Directors) of Google visionary enough to do something truly remarkable with the wealth-accumulating power that they have very temporarily been blessed?
-- -pjk Perry Kundert perry@kundert.ca http://kundert.2y.net
Rule number one (or perhaps ten) in corporate finance: If your stock is overvalued - issue more shares!
Benefits the original shareholders handsomely, and if your stock is hyped enough, you will not suffer any "pecking order" side effects.
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.
For example, I usually invest around $10,000 in a normal investment, $5000 in a slightly risky investment [a hunch], and $1000 in a highly risky investment [most IPOs and risky stocks].
There's nothing worse than being right about an investment for the right reasons, but failing to put a decent amount of money into it.
There's a reason why you want to invest a reasonable amount in every stock. It's so that you seriously think and research it before pulling the trigger.
If you invest too little in a stock, not only do not make much money, but you tend to get lazy. Instead of doing all that tiresome reading and analysis of the financial reports, circulars, credit rating reports, and so forth, you just say "what the heck, it's only beer money", and buy.
This is most important at high risk levels because that's where research really pays off. For 5-year investment-grade bonds, for example, research isn't as critical.
My advice is intended for most people on slashdot, who don't tend to have a lot of experience investing, probably don't really read thru the footnotes on the annual reports, or check to see how much cost is burned up by options or follow thru on the value of unexercised options.
For those people, a reasonable level of risk is never more than 10 percent of stock investments, especially if they have credit card debts. Which they probably do.
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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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But if they have credit card debt, they probably should not be investing in the stock market at all.
Paying off credit card debt should be assessed as if it were any other type of investment. How many investments do you know that...
I drool over such an investment. I wish I had credit card debt, just so I could pay it off!
It doesn't... I'm not terribly interested in evaluating Google's business, just pointing out that a secondary offering in theory is a neutral event, in reality SHOULD be a positive event, but OFTEN is a negative event.
:)
If you want real analysis, I suggest hiring a financial analyst and have them spend about 4 hours with spreadsheets... not ask for it on Slashdot...
But, in a nutshell, if Google has a business plan for deploying $4m that will let them extract monopoly rents for the next 5 years, then that would drastically increase their profits once the monopoly is secured and allowing them to extract monopoly rents (monopoly rents = economics term for the excess profit generated by a monopoly or partial monopoly... i.e. Internet Companies in general are in a monopolistically competitive field, where each company is differentiated... unlike say, farmers with corn... so there is a small monopoly rent, but it isn't like Microsoft that carries a monopoly on a complete market... the fewer competitors, the more "rents" extracted, and an oligopoly, like the search engine market, has each player potentially extracting large "rents")...
I mean, Google did something short of $1b last 12 months (or run rate, or something, I forget, I'm not an analyst and don't really follow Google's financials)... If you assume that with a monopoly on the market (to the point where everyone else takes what Google leaves on the table, Google's earnings go from $1b to $4b, then Google should increase 400%... except that the P/E probably drops in half as growth slows, so Google marketcap should increase 200%...
In any scenario where Google puts the money to profitable use, this SHOULD be a good deal for the shareholders.
However, in the likely scenario where Google wants to use its "overvalued" Marketcap to raise money, this is BAD for shareholders... NOTE: this isn't inherently bad... I'm not suggesting that they are being bad fiduciaries... I'm suggesting that they may want to use this small 5% dilution to increase earnings by 20% or more, making this a GOOD fiduciary action, but it is likely that the company is doing it now because they expect the price to fall, making this a bad omen, even if the right financial mood.
A high P/E stock has a HIGH discount factor of future cash flows, with an expected return on investment FAR ABOVE the worst of the junk markets... If Google didn't expect a price drop, they should fund via debt, not equity, to maximize shareholder value... That said, tech companies tend to not like debt, and not pay dividends, trying to increase their internal value.
Alex
But if they have credit card debt, they probably should not be investing in the stock market at all.
Exactly my point.
Paying off credit card debt should be assessed as if it were any other type of investment. How many investments do you know that...
* Pay 10 to 20% annual return guaranteed.
* Are tax free.
* Are risk free.
* Lower your cost of borrowing.
* Lower your anxiety level.
Now, if you have a match on retirement savings - I have a full match on 7.5 percent of my salary for example - that has a higher return than paying off credit card debt.
Let's say you put aside 1 percent and they match 1 percent - that's 2 dollars for every dollar put in - better than a credit card. Let's say it's a 2:1 match - you put in 2 dollars they match half - that's 33 percent, still better than even rate-gouging credit cards.
But, in general, you're right.
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``Marx argued that everyone deserved to own the means of production, equally.''
Marx argued no such thing. What Marx argued is that everyone deserves to own the products of his or her own labor. The position you present as Marx's was that of Bauer and other left-Hegelians that Marx had little truck with.
``Lefties argue mostly the same thing -- that everyone is equal''
As do most righties, or at least what passes for a right wing in today's post-modern world. For the most part, left and right are both firmly in the tradition of classical liberalism which presupposes that everyone is fundamentally autonomous and, in this sense, is equal. This view stands firmly in opposition to the classical conservative position that some people, by virtue of their nobility, were more equal and deserved to be kings, queens, dukes, or duchesses.
Now, a small portion of the modern day left-wing espouses various forms of egalitarianism. That said, most lefties recognize that there are natural differences between various persons. What the the left tends to argue is that, as Rousseau observed, that certain artifacts of social life have magnified these natural differences to the point where they are absurd and detrimental to human progress as a whole.
``Capitalism is not the inverse of this (as most Lefties mis-interpret it). It declares that the capital (and means of production) should (and eventually will) flow to those most capable of using it efficiently; to produce a maximal, non-trivial result.''
But the problem is that Capitalism depends on assumptions about the free market that are demonstrably untrue. The elements of ``perfect competition'', as but one example, are absurd. There is no perfect freedom into and out of every industry, rather, every industry has a rather large barrier to both entry and exit. Consumers and producers do not have perfect knowledge of past, present and future. Consumers do not always buy at the market equilibrium price. Producers do not always sell at the market equilibrium price. Not all goods are identical commodities as demonstrated by the effects of branding upon the market.
You were complaining about the maxim that ``Remember, the cost of everything turns back into man-years of effort.'
This notion is the foundation of neo-Ricardian economics. Modern neo-Ricardian economics can account for well over 90% of the fluctuations in prices in the free market. Neo-Classical supply/demand price theory, which you seem to be equivocating with capitalism, cannot come close to this empirical track record. Pick up Sraffa's ``The Production of Commodities by Means of Commodities'' for a good starting point.
``Proof: You spend 1 man-year acquiring a shovel and digging a ditch. I spend 364-man days designing, acquiring parts and building a back-hoe, and 1 day digging 100 times as much ditch.
``You are claiming that these man-years are identical. They are clearly not, hence your premise is false, by reductio-ad-absurdium.''
Actually, you just misunderstand the labor theory of value which argues that the value of a product is always determined by labor. One does not have to assume, as you do in your 'proof', that all labor is identical in value, only that there is a direct causal relation between the labor that creates a product and the value of that product. In this view, most firms set their own price rather than the price being determined by a market equilibrium. Consequently, you're argument is entirely built of straw.
I can't think of a single explanation for this strange move that would be even remotely positive for Google's stock price.
1) If Google really wants to acquire companies, they can do so with stock rather than cash. Wall Street would look more kindly on an all stock transaction, rather than an offering followed by a cash transaction. In that context, the only reason to do this offering is to monetize stock that is seen as overpriced by the management of either Google or its acquisition targets, or both.
2) If instead Google wants to use this money to fund organic growth, the scale of investment it implies is staggering. Google has a few billion in cash and is generating free cash flow at a rate closing in on a billion a year. If that is not enough cash for Google's organic growth needs, one has to wonder whether they are in need of some adult supervision.
3) If Google wants to sit on the cash and earn interest, without any other near term goal, that is an admission that in the view of management, Google's stock appreciation potential is no better than current 4 or 5% interest rates. That would hardly be good news for investors, who are paying a high P/E premium in the expectation of market-beating growth. This inescapable conclusion seems to be lost on Mark Rowen at Prudential, who claims that the dilutative impact of this offering will be offset by interest earned on the proceeds, all the while reaffirming his price target of $400! Only an fool would want a stock with 40% appreciation potential diluted with cash earning 4%. Such a statement can only be disingenuous; either Rowen is desperate to put a positive spin on bad news, or he does not believe his own price target.
I'm genuinely curious if anyone can come up with a financially rational positive spin on this news.
Martin
As I originally stated, as long as fair market value is obtained, it's theoretically useless... As stated elsewhere in the thread, I basically gave a textbook explanation.
You invest $1 in company X.
The company is worth $100, and you own 1%, 1 share of 100 outstanding.
Company X realizes that it needs $100 to expand.
Company X sells 100 shares, and receives $100.
The company is now worth $200. Basically, this was a neutral event, no effect on income statement, and on the balance sheet, Cash (an asset) went up by $100, and Paid in Capital went up by $100.
Any analysis of the stock should figure out the value of the business (not counting cash), plus the cash on hand... P/E doesn't, but a discounting cash flow should. P/E is a simple overview and assumes that cash in a "normal amount."
You still own 1 Share, worth $1. You are EXACTLY where you were before.
However, you have half the "ownership."
Now, if the company uses that $100 to create $200 (of value), in one year, the company is now worth $400. Your one share is worth $2.
Now, without dilution, your share (1%) would be $4, but that isn't real, because without that $100 the company would still be worth $100, so you'd only have $1.
See? That increases your value, IF the cash is put to good use.
If the company screws up, and when they sold 100 shares, they only received $50 because of all the fees, then the company was worth $150 and your share 75 cents, OH NO. If they turn that $50 into $100, the company is worth $200, and you are back to $1. If they turn that $50 into $0, bought pets.com, then the company is only worth $100, and your investment is worth 50 cents.
In other words, if you believe management has a positive use of cash, this is a positive event (although I'd prefer debt given Google's high P/E and therefore high discount factor... or the market expects MASSIVE growth for YEARS without a high discount factor).
If you believe management has a crappy use of cash... well, this is a bad event. However, if they really misuse their cash, you should sell the stock while it is worth $1, before it becomes worth $0.
Alex
98% / year revenue growth cannot be sustained for long in any but the smallest of companies. Indeed, it has already significantly slowed for Google. Exponential extrapolation is always a dangerous business.
What's more, Google has a rival - Yahoo - which will likely result in reduced profit margins. And the smell of profits has attracted the attention of that big fat stinky bear Microsoft.
One has to make too many optimistic assumptions to value Google at $280/share for my tastes. Course my opinion is worth everything you paid for it.
sorry so late but was out of office today.. so this google
offer is unusual in that the vast majority of aquisitions are
stock based, sometimes with a cash kicker but rarely all cash
except for relatively small deals (a few 100 million).
So why does Google go this route of raising cash first when
they already have about 2.5B in liquidity? My suspicion is
they either a)expect a significant decline in the stock
price and are taking advantage of the current high price to
increase liquidity (note they said general corporate purposes
which does not in any sense obligate them to make a takeover),
b) expect a significant decline in their stock price which
could present difficulties for an all stock deal and hence
wish ot increase cash on hand in case it is needed to
sweeten the pot
This also could be, though a review of the original filing
would be needed, a way for the insiders to unload some
stock down the road. Issue new stock today to raise cash,
buy some company down the road for stock, arrange an
internal private equity deal where insider sells all or
some portion of the necessary shares back to the company and
receives cash at the current market price. This would be
advantageous to the company were the stock price below where
they float this new offering as they would have excess cash
left on the books.