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August 30, 2005

Google Sells More Shares

Alan Murray tells investors: if Google's insiders are selling, is there any reason for you to be buying?

WSJ.com - Business : Google's Stock Sale Mystery Is Simply Solved: There Are Buyers: Google's decision to issue $4 billion in new stock has been greeted with surprise and stupefaction by the army of analysts who are overpaid to divine happenings within the Googleplex. It is an impenetrable mystery, they say. The company already has nearly $3 billion in cash; why does it need more? Are the Googlers planning to build a global wireless network? Dive headlong into Internet telephony? Construct an elevator into space?...

Hello?

Let's try a little test. If I offer you $100,000 for your Honda Civic, how would you respond? Here are your choices:

a) "No, thank you, my checking account is already full."

b) "Maybe, but let me look around first to see if there is another car I'd like to buy."

or

c) "Here are the keys."

If you answered a) or b), you have the makings of a Google analyst.

There is no mystery here, folks. When companies think their stock is undervalued, they buy it back. The Googlers are in the opposite fix. Their stock is overvalued, so what do they do?

Sell more. Quickly. Before sanity returns to the marketplace.

Now I know there are a number of hypothetically smart people out there who think that at $285 a share, Google still is a bargain. Some were quoted in the pages of my favorite newspaper last week. "We think it's extremely cheap at this level," said Jason Schrotberger of Turner Investment Partners Inc.... In recent months, the top Googlers have sold off nearly $3 billion of their own holdings. These insider sales all have been on the up and up, conducted under a so-called 10b5-1 plan that allows them to sell a predetermined number of shares over a given period. Diversifying their riches in this way would be a wise strategy for the Google boys under any circumstances. But it is particularly wise if you suspect your stock has a touch of hot air.

They also have been changing their compensation plans, moving away from reliance on stock options, which become worthless if the stock drops. Instead, they have started using Google stock units, or GSUs. That is Googlespeak for restricted stock that takes four years to vest, but will continue to hold value even if the share price swoons. The company issued 61 million GSUs in its second quarter...

Posted by DeLong at August 30, 2005 03:07 PM