There are few things that Google (Nasdaq: GOOG) loves more than ads and mobs, so it wasn't surprising to see the world's leading search engine snap up mobile marketing network AdMob this week in a $750 million all-stock deal.
I closed my coverage of the deal with two meaty questions:
The latter was answered almost immediately, after CEO Eric Schmidt
revealed that the company will embark on a $750 million share
repurchase -- the first in Google's history, apparently -- to offset
the deal's dilution.
In other words, this wasn't Google making a valuation call. Either
AdMob demanded stock as currency, or Google feels that the acquired
company will be more productive if it's tied to its stock's performance.
Now let's tackle the first question. Even if Google is, in theory,
turning a stock deal into a cash one via the repurchase, this is still
a company that began the quarter with a whopping $22 billion in cash
and short-term investments on its balance sheet. The interest being
generated on idle cash is pathetic these days, so it's not surprising
to see so many cash-rich companies in buyout mode.
If Google keeps shopping -- as it very well should, since
acquisitive fever may lead a rival to snap up one of Google's coveted
targets -- what should it buy? I have a few ideas.
With 300 million users --
tacking on new Facebookers at a breakneck pace of 50 million every
couple of months -- the world's largest social-networking site is a hub
to 5% of the planet, and a much larger percentage chunk of the Internet
This isn't just about the sheer volume of page views. Google doesn't play that game, and rightfully so. Yahoo! (Nasdaq: YHOO)
actually serves up more pages than Big G, but it commands just an
eighth of the market cap. Carving out a lucrative online life is more
about the quality of traffic than the quantity.
I believe that Facebook excels on both fronts, despite social
networks' bad rap in general. Facebook users publicly post their
interests and whereabouts. They bond with like-minded friends. Google
would have a field day serving up contextually relevant ads, beefing up
its local search business in a major way.
Ancestry.com (Nasdaq: ACOM)
The leading genealogy site went public this month, so Google has a shot to grab it while it's still in the crib.
Ancestry.com is profitable and growing quickly. Website users have
created more than 12 million family trees, lush with profiles of 1.25
billion descendants. This isn't a perfect model; the premium
subscription approach brings in money, but it also attracts problematic
churn rates. It's also just a matter of time before free, ad-supported
models make a bigger splash.
However, Google's prime business is attracting folks looking for something. Isn't this what Ancestry.com is all about?
IAC (Nasdaq: IACI)
IAC's Ask.com on the block? CEO Barry Diller hinted at the possibility
when he called the search business "challenging" during last month's
quarterly conference call. Most analysts agree that Microsoft (Nasdaq: MSFT) is the most logical buyer if Ask.com is indeed for sale. Google can't let that happen.
Microsoft is gaining momentum with the surprising popularity of Bing
and its paid search deal with Yahoo!. Ask.com would be a smaller piece
of that puzzle, but clearly an incremental one.
Google can try to outbid Microsoft for Ask.com, but it may be better
off trying to swallow IAC whole. Now that Diller has completed the
conglomerate's split, IAC consists of new media properties that would
look great on Google's arm. From ServiceMagic for contractor referrals
to local-hotspot hubs Citysearch and Urban Spoon to slick video-sharing
site Vimeo, IAC has dozens of prolific properties worth monetizing the
The Knot (Nasdaq: KNOT)
I've been promoting The Knot as a potential buyout site for years, to no avail.
I don't understand. The Knot would be perfect for any search engine.
As the country's leading wedding-planning site, it attracts millions of
brides and grooms eager to make their nuptials as special as possible.
The online leads and referrals business doesn't get any better than
The Knot has struggled financially during the recession, but that's
temporary. Folks who have delayed their weddings or scaled back plans
will eventually come around, giving Google a great "buy low"
Fellow Fool Tim Beyers and I pitted Facebook against Twitter
six months ago. I still think Facebook offers a richer, stickier
experience than Twitter's one-trick pony, but Google already has a
working relationship with Twitter's founders, and it's a logical fit.
Search engines need to stay relevant as portals. If they don't stay current, they'll wake up one day to see Time Warner's (NYSE: TWX)
AOL in the mirror. Folks who have Google or Yahoo! as their home pages
are probably switching over to Facebook and Twitter these days. News
breaks on Twitter. The online world's real-time pulse is measurable on
Twitter. It's the ultimate customized experience.
Even if Google doesn't want to pay up for Twitter, it can't afford to let Yahoo! or Microsoft beat it to the offer.
So get cracking, Google! $22 billion can go a long way, but it's going nowhere on your balance sheet.
I've summed up my selections in the poll below. If you've got ideas of your own, feel free to share them in the comments box.
© 2009 UCLICK L.L.C.