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Google's $30 Billion Question

Google (Nasdaq: GOOG  ) clearly marches to the beat of its own digital drummer.

  • When it went public six years ago, it didn't just settle for underwriters handing freshly minted shares to choice investment banking accounts. It reached out to the public, allowing individual investors to join the underwriter minions and buy IPO shares directly from Google at $85 a pop.
  • Its pricing also wasn't very conventional, as Big G was hoping to price its initial shares as high as $135. Engaging in a stock split before its offering would have given Google a more accessible price tag, but it didn't buy it. Google has also avoided declaring a split, despite its triple-digit share price.
  • Guidance? Who needs it? Google has largely avoided providing quarterly outlooks, leaving analysts to feel their way around their projection models like carnival patrons in a dark fun-house maze.

Now a quirky Google is avoiding the popular convention of returning money to its shareholders. Executives skirted the question during last week's conference call. Google is now brimming with $30.1 billion in cash, equivalents, and short-term investments. Does it really need that much? Where's the dividend? Where's the aggressive share repurchase?

Tech giants are overly protective of their balance-sheet stashes. Cisco (Nasdaq: CSCO  ) and Apple (Nasdaq: AAPL  ) also have tens of billions of greenbacks in the bank, refusing to pay out. Enterprise software company Oracle (Nasdaq: ORCL  ) didn't initiate a dividend policy until last year.

What is holding Google back?

It doesn't need the money. Think about it. Who can it acquire that would make a serious dent in its wallet without angering antitrust regulators?

Yes, Google's $700 million deal for ITA Software this month was a doozy, but it's not going to leave a mark. Google generated $1.6 billion in free cash flow this past quarter. In other words, it's generating enough money to buy the NBA's Golden State Warriors -- every single month -- and still end up with more cash than it started.

Worried about dividend taxes going up? Prefer to let Google make better use of its idle cash than you would? I hear you -- but Google doesn't need the money. It probably can't use it the way it would want to, either.

Payouts aren't the only way to return cash to investors. Google can embark on an aggressive share-repurchase plan. Shareholders benefit because earnings get divided by fewer shares. Google certainly could have used fewer outstanding shares when it missed Wall Street's profit target last week!

In this low interest rate environment, Google is doing its shareholders a huge disservice by stockpiling cash instead of deploying it. With its stock well off its 2007 highs and its growth rate well off that of its heyday, what're you waiting for, Google?

Grow up and pay up.

Should Google be returning chunks of its $30.1 billion to investors through dividends or larger buybacks? Share your thoughts in the comments box below.

Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor selection. The Fool owns shares of Google and Oracle. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz isn't calling for a search engine search party, but he may as well. He does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 19, 2010, at 1:05 PM, artheen wrote:

    A one time dividend of $85/- share will take care of its $30B cash. Of-course, that would make all the original holders look like WB!

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