Google's Cash Conundrum
Could Google provide a stimulus package to help boost the ailing U.S. economy?
Google CEO Eric Schmidt revealed Monday to The Wall Street Journal that the company is "thinking" about returning cash to shareholders. It's only a concept at this point, mind you: Mr. Schmidt ruled out a dividend and said no cash return was likely anytime soon.
Even so, it was a telling comment, indicating that despite Google's continued investment in a range of new business initiatives and infrastructure, the company's cash is piling up faster than it can be spent. On Sept. 30, Google had $14.4 billion in cash and marketable securities.
It may also signal that management is concerned about the roughly 50% fall in Google's stock price over the past 12 months.
Companies in growth mode usually guard their cash resources jealously. Dividends or buybacks tend to come as a business matures -- witness Microsoft's belated generosity in recent years.
Google turned into a cash machine quickly. Founded in 1998, it was generating $155.2 million a year from operations in 2002, an amount that jumped to $977 million in 2004, the year the company went public. A year later it generated $2.46 billion; for the first nine months of this year it produced $5.7 billion.
In addition, the company has raised $7.5 billion since 2004 in stock offerings. It has also laid out billions on acquisitions, investments and capital spending, although it is starting to rein in costs. Third-quarter capex, down 18% on a year earlier, was $452 million, mostly on infrastructure such as data centers and servers.
Google's growth and love of experimentation is not over. But, on the financial front, it may be growing up.
