I know, I know - it's not supposed to matter right? Well, it does. This company is passed by many investors because they can only pickup 25 or 50 shares.
Which seems more likely to you: GOOG @ $57.70 moving towards $75 - OR - GOOG @ 577 moving towards $750
The more GOOG rises without a split, the more it seems overpriced. GOOG at $57 sounds like a bargain even though the market cap would remain the same. Look what the 10:1 split has done for BIDU. There is NO WAY Bidu would be $1300 today if they had not split, period.
When your EPS projections are approaching $40/share, you obviously should have split. Had they done this 2 years ago, GOOG would already be over $100/share in my opinion (versus 57 as it is today).
Also, there is no reason they should be sitting on $100/share in cash. I know a cushion is nice to have, but this amount of $$ represents enough coin to finance operations and all expenses for almost 2 years, even without a single dime in revenue. Also, they have no (or very little recent debt of 1.5 Billion I think).
I am OPPOSED to a dividend - I would MUCH rather that they announced a share buyback. This would ensure investor confidence remains strong and also increase future EPS. Institutions would love this. Some people are arguing that they pay out a 1 time dividend here of $25 - $50. I think that would be a monumental mistake as many people would receive the payment and selloff the stock knowinig no further dividends would be coming.
GOOG has historically cared about its investors, I think they should (and probably already are) seriously be considering this.
I know the fundamentals here are exceptional. The valuations are extremely favorable. IMO, a big part of this recent correction has more to do with the astronimical share price than anything else. People panic when a $600 stock begins to fall no matter how you slice it. Psychologically, thinking "goog could drop 100 points - I better sell" is pretty powerful stuff.
On a side note - I expect PCLN to selloff hard for the same psychological reasons mentioned above. When these types of high $$ stocks start moving, it's typically a major overreaction like the last 2 weeks with goog.
I agree with the split analysis. I also own shares of BIDU and they are killing GOOG in terms of stock performance.
My opinion is that when a stock gets this high, it is more attractive as an options play which is why we have been stuck in this range forever. The MMs are making a mint and the long term investors are being taken for a ride. The fundamentals are outragiously good but the stock doesnt move. The only way people can afford to play this stock is through options, that is why I am looking to sell into earnings next quarter and buy more BIDU. The announcement to switch leaders on earnings day last quarter cut the legs out from all the long termers who added to their positions. That was when I became convinced options market owns this stock until a split or stock buyback occurs.
Good topic for discussion on this board. Thank you for your comments.
Share buyback: I am in favor of a share buyback. I agree that a share buyback would find instant value and still leave plenty of money for acquisitions. Goog is a cash cow. A buyback would decrease the float and have some benefits for both the company and its shareholders.
10:1 split: I would not be opposed to a 10:1 split. But I would be opposed to a reverse split which is a bad sign. I don't expect Goog to do a reverse split.
If Goog does a 10:1 split, the increased retail participation could improve liquidity and potentially increase Google’s overall value. Greater share ownership could also reduce share price volatility. Retail investors typically have longer holding periods than institutions.
More retail ownership would diversify and strengthen the shareholder base. Google has one of the highest institutional ownerships of any company its size.
There are two reasons often cited for not splitting:
1) The company seems to think it is unique like Berkshire Hathaway. In a 1983 Berkshire annual report, Warren Buffett wrote that splitting the stock would “downgrade the quality of our shareholder population, and encourage a market price less consistently related to intrinsic business value.”
2) A split could potentially increase trading volume, which some view as increasing volatility ( I disagree- Goog is already extremely volatile ).
Regarding the buyback - how powerful of a message would it be if goog board announced that they were going to be buying back $20B worth of shares here? This would increase future P/Es about 12% and lower the current P/E the same.
This would still leave them with deep pockets and the best debt/cash ratio in the market.
This announcement is almost completely unlikely, but the stock would pop 10% or more instantly.
Basically what I mean by this idea - I DONT THINK PEOPLE TAKE GOOG $100/cash into account as many companies use it for terrible overpriced acquisitions or lawsuit payouts. Right now, its a nonfactor and does not add to their bottom line. A share buyback would find instant value and still leave plenty of $$ for acquisitions. They are currently a cash cow and need to put it to use and I believe the best way right now is decreasing the float and doing a 10:1 split.
I agree re share buyback. I would prefer larger than $20b, but I know that's unrealistic. GOOG doesn't want Apple and MSFT to have a larger cash balance. Of course, it's irrelevant because any of these companies can raise debt at extremely cheap interest rates and each of them is generating huge ongoing cash flow. But silicon valley execs don't like debt and they are culturally inclined not to care too much about the stock price. I think it's more of a cultural thing than anything else.
I also prefer a share buyback than one off dividend for a number of reasons, including taxes.
I also suspect GOOG execs don't want to split their stock because they like to be different and they think GOOG is exceptional so they shouldn't do what every other company would do. I don't see them changing their opinion here. A buyback is more likely.