Cash And Not Stock?

Posted: April 15, 2007 in Uncategorized
GOOG just bought DoubleClick for $3.1 billion in cash.
About this time two quarters ago, GOOG bought YouTube for $1.65 in stock.
Back then, I speculated that GOOG was queued up to have a great quarter because it was all stock. 
Meaning, could you imagine how angry YouTube employees and VC investors would have been if their acquisition price was significantly devalued a week or so after the acquisition?
And, if the deal had any built-in downward stock price protection, then GOOG shareholders would have felt absolutely ripped off with any precipitous stock price declines.
So the only positive outcome doing an acquisition for stock and announcing it the week before earnings was the insiders knew:  The quarter was in the bag.
I’m trying to think through what an all cash offer announced the week before earnings now means. 
Certainly, they may not have had a choice timing-wise, MSFT and YHOO were hot after DoubleClick, too.
The best thing that I’ve read about this was in a piece by Vishesh Kumar today where Kumar said Google considers its own stock undervalued and therefore would rather have used cash.
This is plausible.  I’ve been in this position before… and I’ve heard other CEO’s discuss the exact same thing.
So is GOOG undervalued?  From Yahoo Finance:
GOOG  P/E: 47; Fwd P/E: 25; QTR Rev Grwth (yoy): 67%; QTR Earn Grwth (yoy): 177%
VCLK  P/E: 48; Fwd P/E: 30; QTR Rev Grwth (yoy): 38%; QTR Earn Grwth (yoy):  52%
MSFT  P/E: 24; Fwd P/E: 17; QTR Rev Grwth (yoy):  6%; QTR Earn Grwth (yoy): -28%
YHOO  P/E: 61; Fwd P/E: 43; QTR Rev Grwth (yoy): 13%; QTR Earn Grwth (yoy): -61%
IACI  P/E: 63; Fwd P/E: 19; QTR Rev Grwth (yoy):  3%; QTR Earn Grwth (yoy): -85%
The fact that GOOG is 20x larger than VCLK and is still running circles around them and everyone else in the sector continues to be mind-boggling.
So, how does an all cash offer bode for the quarter?
I’ve always been surprised at how candid GOOG is.  They pretty much say what they mean.  So it’s quite possible they really do think their stock is cheap. 
I guess what’s nagging me is it just doesn’t feel as bullish as an all stock offer, does it?  Maybe I’m too much of an entrepreneur but in these situations, I always like it when risks are aligned.
With, of course, the big exception that GOOG is buying this from super private equity firm Hellman & Friedman so no entrepreneurs are really involved.
Ultimately, unlike last quarter, I don’t think there’s much of a tell one way or the other here. 
The bigger tell continues to be the operating story:  GOOG continues to pick up search volume while the competition continues to drop.
  1. PETER says:


  2. Royal Farros says:

    Sure, why not?  These guys have been around forever so they know how to survive.  All their multiples look low as well.  Good rev growth.  Low forward P/E.  Some cash in the bank.  Their stock prices has been treading water just like everyone else in the sector for about 12 months. 
    As you know, I\’m a big believer in the growth of the online space for years to come… which means there is plenty of business for everyone… because I\’m also a big believer that this business wants choices… the very job of the gatekeepers in this industry is to test, test, test, which by definition gives all kinds of networks some kind of shot.
    However, note that they just got a downgrade today from RBC Capital Market… execution issues may keep this stock down for a while… ?