Google doesn't operate like a typical tech company, and its stock doesn't conform to Wall Street traditions. Analysts and investment columnists churn out hundreds of articles each week arguing fiercely about whether the company is overvalued or undervalued. Consequently, Google's Thursday filing to issue and sell 14 million shares of its stock set off a flood of speculation. Google's shares ended the day down 2 percent, at US$279.99.
Analysts fretted about the dilutive effect of Google's new offering and speculated on why a company with a US$2.9 billion cash pile is eager to raise several billion more. In its filing, Google fell back on the popular vacuity of "general corporate purposes" to explain how it intends to use the proceeds. Acquisitions are one likely expenditure. The company's string of buys to date include Brazilian search company Akwan Information Technologies, Web analytics developer Urchin Software, social networking service Dodgeball.com, and a stake in Chinese search engine Baidu.com. Baidu has long been seen as a potential takeover target for Google.
Google's announcement of its add-on offering came one day before the anniversary of the company's IPO (initial public offering) last year, which took place via an unusual auction method that left financial analysts unsure about the company's post-IPO stock market prospects. Google debuted at US$85 per share. Its share price immediately shot into the triple digits and hasn't looked back since: in July, it topped US$300 for several days.
(Google being Google, the precise number of shares in the add-on offering is a geek joke: The company filed to sell 14,159,265 shares, a figure yanked from the first eight numbers after the decimal point of the mathematical constant pi. In Google's initial IPO filing last year, it capped its maximum offering price at US$2,718,281,828 -- a multiple of the irrational, transcendental constant e.)
Hosted software's poster child, Salesforce.com, felt the weight of high expectations crash down on it Thursday following its second-quarter earnings report. The young company, which has a record of hypergrowth, posted a 77 percent revenue increase, to US$71.9 million, and an 83 percent increase in its paying-subscribers count. It still saw its share price on the New York Stock Exchange drop 8 percent on Thursday, to US$20.32, as it fell short of analysts' even loftier forecasts.
"Expectations were still running relatively high into the quarter and anything short of a flawless result was likely to be punished," Morgan Stanley analyst Ross MacMillan wrote in a research note. Analysts were hoping for even larger subscriber growth and higher guidance from the company on future revenue. Still, MacMillan maintained his bullish outlook and US$24 price target on the stock: "We continue to think the business model and strategy is sound and over time the business can be highly profitable."