Google Needs to Shed Some Cash

Lots of people are making much of Google's (GOOG) filing earlier this month to try to avoid -- given its nearly $10-billion cash holdings -- being regulated like a mutual fund.

While I see the entertainment value in the news, and I too am in awe of the company's cash-spinning capacity, I read this more as a reminder of how technology companies continue to collect cash, rather than dividend it back, even when they have no idea what to do with all the money.

I mean, does anyone really think Google is building cash for some billion-dollar-plus acquisition, or that its cap-ex plans are set to accelerate so much that it needs a multi-billion buffer on its balance sheet? I know I don't buy it. Technology companies remain the Scrooge McDucks of business: Building cash piles just because they can, shareholders be damned.

GOOG 1-yr chart with cash flow:

Comments

[appledeadmoney:]

Thanks for pointing out Google's cash horde. I for one speculate that the company will be using this cash in the near future to make accretive acquisitions.

This is one of the reasons why I believe it will be a potential buyer of another company I have been accumulating --- Napster. NAPS is roughly worth $150 million in market cap and would be an excellent addition to the suite of Internet search/media/entertain... services already being offered by Google. Music search and play is definitely a platform that Google could take and transform into yet another viable revenue stream.

GOOG could snap up this company at a premium of $300 million plus with very little difficulty based on the cash numbers you showed.

Just my thoughts.

2006 Aug 27 12:13 PM

[Travis Johnson:]

I posted something quite similar a couple days ago -- Since they can't spend money on people and servers as fast as it's coming in, what else can they do? Dividends or buybacks seem irresponsible (or at least an admission of failure) in light of their secondary offering last year, unless of course they really did have no strategic plan for using that money :)

I don't like to see my companies doing acquisitions just because they have too much cash, but they need to invest it in something soon, whether it's an internal initiative or an acquisition, or they lose the opportunity to strengthen their position at a time when their major competitors remain stuck in the mud.

Cheers,
Travis

2006 Aug 27 05:57 PM