Google’s Strange Offering

Google, the search engine and darling of Wall Street, is about to sell 14.2 million shares in a new offering. This will bring in about $4.2 billion. The company has no debt and is sitting on $2.9 billion in cash. Google is a fantastic story, but this latest plot twist is confusing. There doesn’t seem to be any reason for this move.

Google provides the ads that appear to the right of the text on this and other pages of the Kensington Review, and the revenue is very welcome. Readers may take this article in that light – Google is well-regarded here both as a technology and a company, and the odd dollar makes its way from Google here. And any company with the motto “Don’t be evil” is all right.

In its SEC filing announcing the move, Google stated, “We expect that our revenue growth rate will decline over time and anticipate that there will be downward pressure on our operating margin. We experienced both of these trends in the three months ended June 30, 2005. We believe our revenue growth rate will generally decline as a result of increasing competition and the inevitable decline in growth rates as our revenues increase to higher levels. We believe our operating margin will experience downward pressure as a result of increasing competition and increased expenditures for many aspects of our business as a percentage of our revenues.”

So, as the company approaches its first anniversary as a publicly traded firm (the IPO price was $85 a share, and its trading at $280 now), it is clear to Google management that the days of minting money are over. Analysts suggest that the way forward is a diversification strategy based on acquisitions. And at a stretch, brand new internal products could be developed.

What could Google possible develop or buy that would be in its strategic scope of business competence that would cause it to burn through the $2.9 billion in cash that it already has? Why is $4.2 billion more necessary? Clearly, the management at Google is smarter than this journal because it is difficult to fathom what they are doing.

And even if there is a great project or company that just needs some cash, why tap the market with a new issue? There is also a case for issuing debt. Rates are low, and the company is a good credit risk. After all, no debt and a pile of cash is exactly what lenders want. Confusion is an uncomfortable feeling.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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