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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.
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.
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.
-- Tigger warning: This post may contain tiggers! --
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.
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!
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.
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
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
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