Google on Thursday announced a secondary share issue that would raise an estimated $4bn, which analysts said could be used to fund a sizeable acquisition or significant capital investments.
The announcement came on the eve of the first anniversary of the initial public offering of Wall Street's favourite internet stock.
In a Securities and Exchange Commission filing, Google said it expected to use the net proceeds from the sale of more than 14.2m shares for general corporate purposes, including working capital and capital expenditures. “In addition, we may use proceeds of this offering for acquisitions of complementary businesses, technologies or other assets,” it said.
In a characteristically geeky reference, the exact number of shares to be issued - 14,159,265 - is the same as the first eight digits after the decimal point in Pi.
John Janedis, a Banc of America analyst who is neutral on the stock, asked in a note why Google needs $4bn when it has a strong balance sheet and significant cash generation. “Absent Google entering into an entirely new line of business, we think the company is looking to bolster its position in Asia, where Yahoo holds an advantage,” he said.
Yahoo, Google's internet rival, last week bought 40 per cent of Chinese web property Alibaba for $1bn. Google owns a stake in Baidu.com, the leading Chinese search engine.
The company this week announced an increase in this year's capital expenditure to $700m, up from the $500m predicted in March. It has been boosting its infrastructure, leading other analysts to speculate that it may be about to become a broadband provider by offering a wi-fi wireless internet service.
The share offering would raise $4.21bn based on Google's Nasdaq closing price of $285.10 on Wednesday. The company's stock debuted at just $85 a year ago and peaked at $317.80 last month. It was down 1.8 per cent at $279.99 at the close in New York on Thursday.
Morgan Stanley and Credit Suisse First Boston, who handled the unusual dutch auction for the IPO, will again be bookrunners, with Allen and Company acting as co-manager. They have an option to buy up to 600,000 additional shares to cover overallotments.
The increase in Google's share price over the past 12 months has mirrored its expansion from pure search to a wider range of internet products through a series of acquisitions. Its workforce expanded by arond 20 per cent in the previous quarter.
It has bought Keyhole, a mapping company, that led to a Google Earth product and Google Maps service. It launched Google Print to make books searchable online and has a similar service for Video. Its Gmail email service offers more than 2 gigabytes of storage.
Financial results have also reflected stellar growth: revenues in the second quarter almost doubled from the same period in 2004, from $700m to $1.385bn. Google already has around $3bn in cash and marketable securities, while advertising revenues drove $712m in net profits in the six months to June 30. Its $78bn market capitalisation now far exceeds Yahoo's $49bn.