Google's Billions: Is 8 Enough?

March 30, 2006 — -- What is Google up to?

The search engine giant has nearly $8 billion in cash reserves, but on Wednesday it announced plans to sell more than 5 million shares of stock to raise $2 billion more.

This is the second time in a year it has gone to the stock market to raise cash. So what is Google planning to do with all that money?

Will it buy another company? Will it hold on to the cash to earn interest? Will it challenge Microsoft or rival Yahoo? The chat boards are humming and it's become a hot topic at those infamous bankers' lunches on Wall Street. If a business, a bank or a savvy investor could predict Google's next move, a fortune could be made.

Some analysts, like Steve Weinstein of Pacific Crest Securities, believe Google's explanation. The company statement indicates it simply wants more stock in circulation.

"Actually, there is a relatively low number of stock available," said Weinstein.

Next week Google becomes part of the Standard & Poor's 500 index. Many investors buy funds indexed to the S&P, and once a stock is added to the index, money managers typically must buy shares as they readjust their portfolios. That means that come Monday, there will be an inevitable increase in demand for Google stock, making it even more volatile.

According to Weinstein, it makes sense for Google to make more stock available on the open market before it becomes part of the 500. The money, he said, is secondary. "Two billion dollars isn't that much money for Google," he said.

But other analysts suspect it isn't that simple.

"I suspect there is more to this than meets the eye," said Bill Whyman, president of the Precursor Group, a research firm for institutional investors.

"Follow the money," said a banker who asked not to be identified for fear of alienating Google. "Why would they need $10 billion in cash?"

That's a big question, and it puzzles and intrigues many top high-tech analysts. Many would not comment on the record but provided pieces of the puzzle.

Google has been buying broadband capacity. It has acquired "dark" or unused optical fiber and companies that can provide ways to transmit data on power lines. It has recently hired experts in satellite communications and has experimented with WI-FI networks.