Google (GOOG) turns to Traders

Google has a near monopoly on internet search and advertising around the world. Now the company is thinking about what to do with it's $25 billion cash pile.

Google (GOOG), the $175 billion internet advertising and search giant, is hiring traders for its new bond trading platform. This is according to published advertisements on its job site.
There are currently three roles listed for trading at the company, and these are: trader of foreign government bonds, portfolio analyst for Google's U.S. government bond portfolio, and a portfolio analyst for agency mortgage-backed securities. All the positions will be far from Wall Street and the hedge-fund haven of Connecticut – they’re all based at Google headquarters in California.
Google is sitting with about $25 billion in cash at the moment, which makes up about 14% of the value of the company. Over the past four years the company has generated on average about $6 billion per year in cash from operations.
Speculation has been ongoing for some time as to what Google plans to do with the vast cash pile amassing at the company. Rival Microsoft (MSFT), after years of building up an immense cash pile which reached $43 billion, decided to start paying dividends to investors in 2003. Google currently does not pay a dividend, while Microsoft yields 1.74%.
Google co-founder Sergey Brin has in the past broached the idea of building a hedge fund given the access to information Google enjoys. Apparently the company’s CEO, Eric Schmidt, talked him out of it. Google as a hedge fund is an interesting concept – similar to an insurance business Google generates large amounts of cash that are not used in operations and earn low interest rates. Assuming Google could earn a market related 5% on its cash, less the return it currently earns in cash and cash equivalents; we’re talking between $650 million and $800 million that Google is losing out on.
Google has mastered the art of search on the internet and is a near monopoly in internet advertising. However, the company’s forays into alternate business areas have seen mixed results. While the Android operating system is used to power a number of mobile phone operating platforms, the Google Phone does not seem to be gaining much traction in the marketplace. Starting a hedge fund as a company that specializes in the dissemination of information is also a highly controversial and legally grey area to operate in.
Regardless Google is pushing ahead with its bond trading appointments and shareholders should feel pleased that the company, in lieu of dividends, is going to do something with their massive cash pile.
As well as requiring a host of top skills, as one would expect, the job advertisement also requires candidates to have “a good sense of humor”. It remains to be seen whether trading the company’s cash will be a comical undertaking.

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  • Herman Kline

    March 24, 2010

    Google's needs to stick to its core business. Investors want exposure to the best internet advertising company in the world. Microsoft would be much higher if they had stuck to Office. GE would be much higher if they had stuck to light bulbs instead of becoming a hedge fund.

  • Sean Riskowitz

    March 24, 2010

    Those who cannot remember the past are condemned to repeat it.

  • George Eddy

    March 24, 2010

    Google is looking for people to manage their cash, investing it conservatively along side their operations. It is a brilliantly run company looking for brilliant people to take care of these operations. When you have $25 billion, it is a good investment to find someone some people who can squeeze slightly better return on the cash. They will not become a hedge fund and will probably structure their portfolio very conservatively.

  • Sean Riskowitz

    March 24, 2010

    Google generates an ROE of 20.30%. However cash not invested in operations generates somewhere close to the risk free rate. I would much rather Google buy back shares (if they are cheap, which they are not), or return cash to shareholders through dividends. It's an opportunity cost for me as a shareholder (which I am not) as I can earn a return higher than what Google's bond geniuses may get. Excess cash should be returned to stockholders unless it can earn a return in the ROE range.

  • Googler

    March 25, 2010

    "I would much rather Google buy back shares (if they are cheap, which they are not), or return cash to shareholders through dividends."

    Yes, this is correct. Google should declare a divident of do a buy back. There is no reason to put the money into bonds which are yielding historicaly low returns.

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