Google Pt 2

From the Wall Street Journal Free Online Section:

Google's Stock Sale Mystery Is
Simply Solved: There Are Buyers
August 24, 2005; Page A2

(See Corrections & Amplifications item below.)

Google's decision to issue $4 billion in new stock has been greeted with surprise and stupefaction by the army of analysts who are overpaid to divine happenings within the Googleplex.

It is an impenetrable mystery, they say. The company already has nearly $3 billion in cash; why does it need more? Are the Googlers planning to build a global wireless network? Dive headlong into Internet telephony? Construct an elevator into space? And why, oh why, the strange numerology -- selling exactly 14,159,265 shares, which every educated 13-year-old recognizes as the digits to the right of the decimal point in the mathematical term pi.

Hello?

Let's try a little test. If I offer you $100,000 for your Honda Civic, how would you respond? Here are your choices:

a) "No, thank you, my checking account is already full."

b) "Maybe, but let me look around first to see if there is another car I'd like to buy."

or

c) "Here are the keys."

If you answered a) or b), you have the makings of a Google analyst.

Is Google preparing for the bubble to burst? WSJ's Alan Murray discusses the stock sale mystery.

There is no mystery here, folks. When companies think their stock is undervalued, they buy it back. The Googlers are in the opposite fix. Their stock is overvalued, so what do they do?

Sell more. Quickly. Before sanity returns to the marketplace...

In recent months, the top Googlers have sold off nearly $3 billion of their own holdings. These insider sales all have been on the up and up, conducted under a so-called 10b5-1 plan that allows them to sell a predetermined number of shares over a given period. Diversifying their riches in this way would be a wise strategy for the Google boys under any circumstances. But it is particularly wise if you suspect your stock has a touch of hot air...

None of this is to suggest Google is anything other than a very good company. The Google search has become a central part of modern life -- I did five of them in the course of writing this column. And by linking advertising with search, Google has found a gold mine.

But will revenue from that gold mine continue to increase indefinitely at the 35%-a-year gallop implied by current valuations? I doubt it. More importantly, the Googlers themselves seem to doubt it. And they are smart guys.