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Google (NASDAQ:GOOG) announced today that it will acquire On2 Technologies (ONT) for $106.5 million in an all stock deal. This is probably a great acquisition but the transaction type tells me something investors don't want to hear: I believe that Google stock may be over priced. Let me explain.

Google has a great balance sheet. The company has no debt with enough cash to fund cash-for-clunkers! Holding $19.34 billion in cash, it puzzled me to see Google use stocks to purchase On2. The acquiring price ($106.5 million) is only 0.55% of its total cash ($1,935 million).

If I own an asset which I believe is worth more than what the market tells me, I would be looking to trade that "paper" asset into "real" asset.

There are two ways of looking at it.

  1. Google is really smart and their stock should go up.
  1. Google stock may be over valued and it should go down.

You, as an investor, should pick which thesis fits you best.

Source: Google Is Overpriced: Why Acquire On2 in an All Stock Deal?