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Will Google follow in Apple’s footsteps and pay some of its more than $50 billion cash hoard out to investors in the form of a dividend?Not any time soon.
Some investors told Bloomberg yesterday that they’d like to see a dividend from Google, and the article pointed out that Google is the only tech company worth more than $125 billion NOT to pay one.
On today’s earnings call, the company didn’t rule it out, saying only that the board meets regularly and considers how to use cash, but right now considers it an “incredible strategic asset.”
In fact, Google would be nuts to pay a dividend now. It’s a totally different company, in a totally different situation, than Apple.
- Google is buying Motorola. Integrating a huge company — 20,000 employees with major physical assets — will be costly and complicated. Larry Page says that Google has no other huge acquisitions planned right now, but what about next year? Or five years from now?
- Google’s business relies on data centres, which require big capital investments. One of Google’s biggest competitive advantages is its network of data centres. Total Internet usage is exploding thanks to the rise of Web-connected smartphones around the world, and Google has been making big capital investments — including on data centres — to keep up with demand. The pace of spending slowed a little this quarter, but Google warned on the earnings call not to read anything into that.
- Huge legal risks. The company is being investigated for unfair competition in Europe and faces potential antitrust lawsuits in the U.S. as well. These are not trivial risks — recall that the U.S. government once ordered Microsoft split into two companies in its antitrust case (the ruling was later reversed, but it shows what can happen). Microsoft also paid out billions in fines related to antitrust litigation. That’s not to mention risks from losing a huge patent suit — like the one brought by Oracle, where trial starts next week.
- Google needs to diversify. More than 8 years after going public, most of Google’s revenue still comes from one source: advertising. And most of that advertising revenue probably still comes from Web search on desktop computers. (Google doesn’t break it out, but we’d wager it’s more than 50%, still.) If Google wants to build a long-lasting, sustainable business, it has to keep investing in promising new ad businesses — mobile, display, and video — as well as trying to discover other sources of revenue.
- Big threats. Google faces threats from many different directions: mobile apps replacing Web usage (particularly search), huge social networks like Facebook and Twitter using their masses of data to sell more relevant ads, even the possibility that Microsoft gets its act together with Bing. The tech industry changes fast. Being conservative with cash can help companies adjust to big changes.
- Google is a lot younger than those other companies. Declaring a dividend is often viewed as an admission that you’re no longer a growth company. Google is only eight years old as a public company. That’s way too soon for Page to give up — and investors who bought in eight years ago should understand that. By way of comparison, most of the other huge tech companies that pay dividends have all been public for decades. Cisco went public in 1990. Microsoft in 1987. Apple in 1981. And Intel, way back in 1971. No company can grow forever, but eight years is not long enough to give up.