Google as Mutual Fund

Lots of people are making much of Google’s filing earlier this month to try to avoid, given its nearly $10-billion cash holdings, being regulated like a mutual fund. While I see the entertainment value in the news, and I too am in awe at the company’s cash-spinning capacity, I read this more as a reminder of how technology companies continues to collect cash, rather than dividend it back, even when they have no idea what to do with all the money.

I mean, does anyone really think Google is building cash for some billion-dollar-plus acquisition, or that its capex plans are set to accelerate so much that it needs a multi-billion buffer on its balance sheet? I know I don’t buy it. Technology companies remain the Scrooge McDucks of business: Building cash piles just because they can, shareholders be damned.

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  5. Cash and the Oil King

Comments

  1. Richard says:

    Don’t you think investors (particularly institutions) have some culpability in this, when they automatically take a dividend announcement as a sign the company can’t grow anymore?

  2. Agreed, back in my analyst days I use to push exactly that line of patter. But a few prominent datapoints of companies that paid dividends and grew — wasn’t Google supposed to be different anyway? — would help disabuse large investors of that notion.

  3. Michael Robinson says:

    It’s an arms race.
    Only the paranoid survive.
    Google would look really stupid if they gave all that cash back to the shareholders, and then the next day Microsoft bought Yahoo, wouldn’t they?

  4. greg hillson says:

    Interesting paper by Kevin Warsh of the FED on why firms have increased cash holdings lately. May explain Google’s behavior…
    http://www.federalreserve.gov/boarddocs/speeches/2006/20060718/default.htm