Google's Latest Launch: Its Own Trading Floor
The search giant is hiring Wall Street vets to manage a $26.5 billion pile of cash
By
Douglas MacMillan
Last fall, some unusual job listings began cropping up on Google's (GOOG) website. Amid the requests for programmers and engineers were postings for bond traders and portfolio analysts. By spring, tech blogs were speculating about what was going on at Google.
The answer was very un-Silicon Valley. Google, it turns out, has launched a trading floor to manage its $26.5 billion in cash and short-term investments. The hoard is the third-biggest cash pile among U.S. tech companies, after Microsoft (MSFT) and Cisco's (CSCO).
One of the company's goals is to improve the returns on its money, which until now has been managed conservatively. Google doesn't disclose its rate of return on investments or the targets it has set, but analyst Aaron Kessler of ThinkEquity estimates the company's 2010 return (including interest income and realized and unrealized gains before tax) at around 2.5 percent. That's a higher return than some other large Internet outfits, such as Yahoo! and Amazon, he says.
Google is using some of its money to buy back shares in the wake of its $750 million acquisition of mobile advertising firm AdMob, which was an all-stock deal. The transaction was cleared by U.S. regulators on May 21. Investors have been wondering what else the company intends to do with its cash. IBM (IBM) recently announced plans to spend $20 billion over five years on acquisitions. Hewlett-Packard (HPQ) just bought Palm (PALM) for $1.2 billion. "Google could do 10 Palm kind of deals," says Michael Yoshikami, president and chief investment strategist of YCMNET Advisors, which owns Google shares. "That would be a pretty decent use of their money." Beyond the AdMob buybacks, Google has said it has no plans to return cash to shareholders.
Google's trading room opened in January. The plan is to keep the war chest growing safely and ready to be deployed should the right mergers-and-acquisitions opportunities arise. The investment team has grown to more than 30 people, up from six three years ago. Many of the new arrivals are former Wall Streeters who left lucrative careers at Goldman Sachs (GS), JPMorgan Chase (JPM), and other banks. The man in charge is Brent Callinicos, Google's 44-year-old treasurer, who joined from Microsoft in 2007, back when Google had $11 billion in cash. "This isn't fast money, this is patient money," he says. His crew works in a recently remodeled finance building on the company's corporate campus in Mountain View, Calif., complete with a rock climbing wall, massage chairs, murals of tropical sunsets, and bamboo wall panels. In a second-floor space accessed by key card—the trading room—the Wall Street vets tap out trades at desks with six computer screens.
Craig A. Jeffery, managing partner of Atlanta-based consultant Strategic Treasurer, says the financial technology at banks and most corporate treasuries tends to be an unwieldy hodgepodge of disparate software applications. If you're crunching numbers in Excel, you probably have to cut and paste the results manually into your foreign- exchange analytics software. Callinicos got around the coordination problem by tapping in-house engineers to meld the various pieces of software into one dashboard for trading and managing cash. "Callinicos built this mosaic of systems and a way of relating them together," says Jeffery.
