Why Google Can Pay Whatever It Wants
By: Nicole Urken | 01/14/14 - 07:02 PM EST
NEW YORK (TheStreet
) -- When not talking about potential privacy issues, many analysts and commentators have been balking at the price Google (GOOG)
paid for Nest
. A whopping $3.2 billion in cash ain't cheap, after all.
But one thing not enough people are saying? Why not! Google ended last quarter with about $56.5 billion in cash. Even though the company is investing in research & development and its own growth, its $12 billion annual free cash flow generation still leaves a lot on the table.
What were the alternatives for Google? More buybacks? We see what that's done for IBM (IBM)
. Dividend? That's not why investors are in the stock. They want growth, and Google is making an informed bet on a growth area. And they have the liquidity to do so. Case in point? Amazon (AMZN)
, the quintessential loved 'stock of the future' continues to invest for future growth-- and investors continue to applaud these investments.
At the very least, and the acquisition means a lot more than just this, Google is bringing in Nest CEO Tony Fadell, who is known as one of the "fathers" of the iPod -- which of course started Apple's product rollout that led to years of outsized success. Interesting, as an aside, that Apple invested in the development in the iPod, first released in 2001, when worries abounded for the whole sector. Getting ahead means taking bets... and that is what Google is doing.
And no, Nest isn't some thermostat company. It could be the keys to the "connected home"-- something we know Apple has been after with the Apple TV but has failed to impress.
Google is thinking ahead. It is a way to play innovation and growth within a company that has a solid foundation and strong growth.
The truth is that Google is still the unrivaled king of paid search with ad recovery to boot... not to mention important growth stream from YouTube. And, of course, while no longer in the realm of 'value tech' after its recent run, it's not nearly as pricey as the social media names like Facebook (FB)
, Yelp (YELP)
, LinkedIn (LNKD)
and Twitter (TWTR)
to name a few.
Yet it does have the innovative element that so many old tech names are missing out on. With co-founder Larry Page back at the helm as CEO for a number of years, an innovative pulse has run through the company.
And, of course, Google also has extremely strong mobile exposure, with its Android platform.
Mobile, social and cloud is what we want. And Google is spending its money.
Certainly we know Yahoo! (YHOO)
is doing this, as the "let's wait and see" aspect is combed over by the skyrocketing Alibaba
valuation. In the last year, a host of acquisitions rounded out the $1.1 billion purchase of Tumblr
After all, what companies do with their cash at market highs, or how they are investing at lows, is very telling for their future success. In no sector can companies sit on their laurels-- but in tech, that's more important than ever. At least Google is taking a bet.