Google (NASDAQ:GOOG) Hoarding Cash Offshore for Acquisitions and R&D
NEW YORK – According to a report from Bloomberg, Google (NASDAQ:GOOG) is keeping an ever growing share of its cash reserves outside of the U.S. to use for acquisitions. In a letter to the Securities and Exchange Commission (SEC), Google revealed that it currently has more than $ 30 billion in cash offshore. While the excuse given to the SEC was the need to facilitate acquisitions, the reality is that the company generates nearly half of their revenue from outside the U.S. and keeping it offshore helps the company to avoid a massive tax bill.
In the letter, the company noted they ‘continue to expect substantial use of our offshore earnings for acquisitions as our global business has expanded into other product offerings like mobile devices.’ Adding ‘it is reasonable to forecast that Google needs between $20 (billion) to $30 billion of foreign earnings to fund potential acquisitions of foreign targets and foreign technology rights from U.S. targets in 2013 and beyond.’
Whilst the announcement has garnered criticism from some who claim that Google is using a loophole in U.S. tax law, the company has also increased its deal activity. This includes the recent acquisition of the Palo Alto-based Nest Labs for $ 3.2 billion. The company has also made several smaller acquisitions as they attempt to beef up their advertising, cloud services, and mobile businesses. In their statement to the SEC, the company noted that acquisitions should continue for the foreseeable future, ‘in the past few years; we have completed significant acquisitions with the individual deal size increasing in more-recent years, and this trend is likely to continue in future years.’
According to research by Bloomberg, the 307 largest U.S. companies added more than $ 200 billion to their foreign nest-eggs last year. At the end of last year, more than 60 percent of Google’s cash and equivalents were held offshore by their foreign subsidiaries. The company noted their ‘plans do not demonstrate a need to repatriate’ the funds.
Besides acquisitions, the company is using a portion of their overseas earnings for capital expenditures such as data centers and other operations. There are also plans to invest between $ 12 billion to $ 14 billion for research and development.
The filing was in answer to queries regarding the company’s 2012 annual report as the SEC asked for more information on advertising, mobile, and revenue. While the news that Google intends to continue acquisitions and investments in research and development should be welcome by investors, the even more telling revelation is the growing importance of international markets for the company. Going forward this is the expected to surpass the U.S., and it is believed that Google could be positioning themselves for a major acquisition in either China or India.
Shares of Google are down .27 percent year-to-date and will open at $ 552.70 on Monday.