Google has money to burn and insider tells me and they are hiring and investing like it's 1999~ they are experiencing the growth that much of the entire tech world was before the 2000 collapse. There are risks but we love a winner...

Date:   8/20/2005 12:32:11 PM ( 19 y ago)

Google Wants Another $4B

Google plans to sell another 14.16 million shares, triggering speculation it may acquire Baidu.
August 18, 2005

On the first anniversary of its IPO, Google said on Thursday that it plans to raise another $4 billion by selling more stock, touching off speculation it may use the cash to make acquisitions of complementary companies such as Baidu.



The upstart media company said it will issue 14.16 million Class A shares. The extra money will be used for working capital, capital expenditures, and possible acquisitions of complementary businesses, technologies, or other assets, Google said in a filing with the U.S. Securities and Exchange Commission.



Google already has about $3 billion on its balance sheets and will generate about $1.5 billion in free cash flow this year, according to Jim Friedland, an analyst with SG Cowen.



“They certainly don’t need it for existing operations,” he said in an interview with CNBC. “Clearly, they’re thinking the stock price is up and there may be some big acquisitions they want to do.”


‘They certainly don’t need it for existing operations.’

-Jim Friedland,

SG Cowen

He speculated that Google may want to acquire Baidu, the Chinese web auction company that recently went public.



Google already has a 2.6 percent stake in Baidu, which is often referred to as "China's answer to Google."



Such a move would make sense given that Yahoo, Google's No. 1 competitor, last week announced it would take a 40 percent stake in Alibaba.com, the Chinese e-commerce giant, in a deal the companies valued at $4 billion. As part of the transaction, Yahoo will pay Alibaba $1 billion in cash and turn over Yahoo's existing properties in China (see: Yahoo’s $4B Alibaba Move).



That Yahoo-Alibaba alliance will make it much more difficult for Western companies like eBay and Google to get a foothold in China’s emerging Internet marketplace without a strong partner on the Chinese mainland.



“Yahoo has got more presence there so it’s conceivable,” said Jonathan Spira, chief analyst with Basex, an IT research firm focusing on knowledge sharing and collaboration. "The Chinese market is certainly one of the growing ones.”



“[Google’s] main competitive threat is Yahoo and also companies like AOL and some of the bigger media companies making big pushes onto the Internet, News Corp. being the latest example of that,” Needham analyst Mark May said in a separate interview on CNBC.



Investor Reaction

Investors, however, dismissed the idea that Google might try to acquire the newly public Chinese company. Rather than rising on the speculative talk, Baidu shares fell $2.32 to $83.39 in recent trading. That's just over half their high of $153.98 attained on August 8, just a few days after being priced at $27 in the company's IPO. The stock opened at $66 in its market debut.



Google shares fell $5.93 to $279.17 in recent trading, reflecting concern the new shares would dilute the company's earnings per share. The additional shares will bring the total number of Google shares to 292 million. Based on the recent price, the new shares would generate about $4 billion.



The company said it has no current agreements or commitments for material acquisitions, however. Google has also recently been ramping up its hiring of high-salaried engineers and executives.



The prospectus included among its risk factors the fact that Google’s top executives make their decisions together, which can sometimes delay the process.



Effective Management?

The company cited several unusual risk factors in its SEC filing. “Our CEO and our two founders run the affairs of the company collectively, which may harm their ability to manage effectively,” said the prospectus. (9th~ a flatter structure and actually the wave of the future if R Steiner is correct)



Morgan Stanley, Credit Suisse First Boston, and Allen & Co. are underwriting the offering. They will have the right to purchase up to an additional 600,000 shares to cover any over-allotments, according to the Mountain View, California, search engine provider.



The company used an innovative Dutch auction for its IPO in 2004, but the current share offering is taking a more traditional approach.



VC firm Kleiner Perkins and the Google founders Larry Page and Sergey Brin have earned considerable cash from selling shares in Google over the past year. Yahoo has also sold its entire investment in Google for more than $1 billion dollars in the past two quarters.



New Services

Google may well have ideas for the money beyond acquisitions. Google has been expanding its range in the past year beyond its Internet search engine, introducing services for email, shopping, maps, video, music, and desktop search. While the bulk of its revenue comes from advertising, the company hopes to earn money in other ways.



“They have a good revenue stream,” said Mr. Spira of Basex. “They could be building a war chest, or they could be devoting more money to R&D. Google has always emphasized research and development, so that would not be surprising.”



He pointed out that Google could be looking to extend more specialized programs such as mapping and support for out-of-print books for its Google Print digital library project. Or the company might use the money for legal expenses to defend itself against lawsuits for copyright infringement.



“Google is not always forthcoming with these things, so it’s hard to be omniscient,” said Mr. Spira, who said the offering might appeal to some investors. “It gives people who missed the Google IPO a chance to own Google.”


 

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