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Why Google (GOOG) Should Make a Play for T-Mobile (TMUS)

NEW YORK (TheStreet) -- Google (GOOG - Get Report) is flush with cash and Jim Cramer has a suggestion on what to spend it on: T-Mobile (TMUS - Get Report)

"Doesn't Google want to be all things?" Cramer asked on CNBC Friday morning. "They are the ultimate cloud play, social play, mobile play, and advertising play with their ad exchanges. They're a very forward-looking company."

But do they want to be a telecom play? They've actively been involved in Federal Government spectrum auctions since 2007, the process by which licenses are granted to transmit signals over scarce electromagnetic wavelengths.

Google already has Motorola Mobility, a handset manufacturer, in its portfolio. If Google bought an operator, not only could it expand its nascent Google Fiber business, it could have a hand in each step of a user's connected life, from phone to PC and everything in between.

Must Read: Why Micron Technology (MU) Is a Buy

A buy-out wouldn't be impossible. T-Mobile's market value is 5% of Google's $345.6 billion valuation. By the third-quarter of 2013, Google had $56.52 billion in cash and cash equivalents. Absorbing the U.S.'s fourth-largest mobile provider would take up a significant amount of the company's cash, but not all of it.

Shares of T-Mobile were in flux throughout Friday trading after the company priced its secondary offering at $25 a share, 2% below Thursday's closing price and 10% lower than where it was trading at the beginning of the week.

T-Mobile sold 66.15 million shares during the offering, representing around 9% of total shares outstanding. T-Mobile will raise $1.65 billion in capital, and is expected to be funneled into a bid for more spectrum. Increased spectrum would allow T-Mobile to boost network coverage and capacity to offer a faster and more reliable service.

Trading volume for the Bellevue, WA.-based T-Mobile was off the charts on Friday, making it the third volume leader after Bank of America (BAC) and Cisco (CSCO). By mid-afternoon, 55.7 million shares had changed hands, 19 times its 90-day average daily trading volume.

Shares of T-Mobile were higher in Friday trading, gaining 2.7% to $26.19, while Google shares were flat at $1,034.50.

TheStreet Ratings team rates Google Inc as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate Google Inc (GOOG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, growth in earnings per share and compelling growth in net income. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • GOOG's revenue growth has slightly outpaced the industry average of 9.4%. Since the same quarter one year prior, revenues rose by 11.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • GOOG's debt-to-equity ratio is very low at 0.06 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 4.50, which clearly demonstrates the ability to cover short-term cash needs.
  • Powered by its strong earnings growth of 34.41% and other important driving factors, this stock has surged by 51.08% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, GOOG should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Google Inc has improved earnings per share by 34.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Google Inc increased its bottom line by earning $32.47 a share vs. $29.74 a share in the prior year. This year, the market expects an improvement in earnings ($44.07 vs. $32.47).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Internet Software & Services industry average. The net income increased by 36.5% when compared to the same quarter one year prior, rising from $2,176 million to $2,970 million.

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