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Why Google Needs Four Billion Dollars in Cash

Posted August. 20, 2005 03:04,   


Google, the world’s biggest Internet search firm, surprised Wall Street on August 18 by revealing a plan to sell its shares worth $4 billion (approximately four trillion won).

As the news spread, the price of Google shares came under downward pressure due to the huge stock offer and went down $5.11 (1.8 percent). The closing price was $279.99. Google’s announcement also gave jitters to the New York Stock Exchange.

Google announced that it would issue 14,159,265 shares, 4.8 percent of its total shares.

In fact, there is humor hidden in the eight-digit number 14,159,265. Pi is the infinite number representing the constant ratio between a circle’s diameter and circumference, and its first nine digits are 3.14159265. The eight decimal places are a perfect match with the number of shares Google offered. In typical Google fashion, the company has fueled investors’ curiosity.

Because Google, a firm that already has around $3 billion in cash, announced another stock offer to raise additional $4 billion in cash, Wall Street is churning out a variety of interpretations of the message. Google is a listed company, but does not publish much information on its management unlike other listed businesses, which encourages wild guessing.

First of all, many speculate that the search engine giant could be planning another acquisition. The most interesting speculation is that Google wants to raise more money in the face of fierce competition with Yahoo and Microsoft’s MSN.

Last week, Yahoo bought a 40-percent stake in Alibaba.com, a Chinese e-commerce company, and showed its intention to be active in the Asian market. Google, too, has a stake in Baidu.com, a Chinese search engine firm. Others suspect that Google is pursuing an Internet phone service.

In response, Google made only a short comment, saying, “The additional stock offer is for general management purposes.”

As of June, Google accounts for 56 percent of the search engine market, far surpassing the 22-percent market share of Yahoo.

In terms of stock price, Google saw its shares soar as high as $317.80 last month after its 85-dollar start on the NASDAQ a year ago. Generally, Google’s shares have been on a fast rise. However, its sales were $3.2 billion last year, a relatively small amount compared to other media giants.

Jong sik Kong kong@donga.com