As start-ups and investors pee in their britches over the thought that the U.S. economy is headed for a recession, Google and other cash rich companies are sitting pretty. Why? Because a recession would make their cash flow, cash piles, and global resources even more powerful relative to those of their would-be competitors.
Unlike those who argue that Google’s magical business will accelerate in a recession as advertisers spend only where they know they will get a great ROI, we think Google’s growth will be hit (not crushed, but hit.) We even think Google’s stock will drop. But we don’t think Google’s stock will drop anywhere near as much as the (private) stocks of thousands of revenue- and profit-less start-ups. The value of Google’s $13 billion of cash, meanwhile–and the value of its ability to pay fat cash salaries–won’t drop at all…
What will happen after a recession pulverizes the value of thousands of flavours of “search,” “video,” or “social networking” start-up? Google will pick up some of the wreckage for pennies on the dollar. Some of those companies–some–might have developed some interesting technology. Or amassed millions of videos or user profiles. Or attracted some talented-but-not-yet-dynastically-wealthy engineers who are suddenly eager to work for a company with cash flow.
Google won’t have to part with much of its cash for these companies or people, of course. It will be able to buy the former for pennies and hire the latter for far less than current market rates. Google will also be able to feast on the assets and people of companies like Yahoo–which, unlike Google, will likely be hammered by a recession. (Though Yahoo!’s cash and real business will help).
Does Google want a recession? Probably not. But it will do fine if we have one.