> It's a 0-5% margin business for the foreseeable future; and best-case scaled scenarios it's a 10% margin business with huge capex. Google shouldn't be interested in anything with less than a 20% margin at scale. So from a portfolio standpoint, it was a stupid bet.
I know that's standard financial thinking, because a business is assumed to be able to absorb pretty much any amount of capital and invest it at a rate of it's core rate, which for Google is indeed 20%. However, obviously, Google cannot do that. It can invest maybe 10-15 billion, but no more (presumably unless you want to make Google a low-margin business). So that doesn't appear to be true.
Is it better for Google to "invest" their 80 billion or so at 3% in liquid assets versus investing it in a 10% margin business ? Here's the thing: they'll make more profit with the money in Fiber than they'll make with the money in bonds and stocks. Definitely. If fiber provides a 10% return on investment, definitely.
Sadly I know: for the GOOG and GOOGL stock prices, yes it is a better idea to keep cash on the sidelines, as then you get the benefit of investors assuming Google can deploy cash at 20%, despite it being obviously wrong. But it offends my sense of efficiency.
> Definitely. If fiber provides a 10% return on investment, definitely.
Telecoms return about 10% at scale. Startup stage of a telco is incredibly expensive; and you typically won't see positive cash flow until a decade or so later (which is why it's usually financed by debt offerings; not equity or cash). Risk is also high; because if you enter the wrong market as an overbuilder, you can ensure nobody in the market (including yourself) will ever turn a profit.
All in all, overbuilding a telecom is a high-risk, low-reward investment with a very long payoff period. There's a good reason there aren't more companies lining up to do it.
I know that's standard financial thinking, because a business is assumed to be able to absorb pretty much any amount of capital and invest it at a rate of it's core rate, which for Google is indeed 20%. However, obviously, Google cannot do that. It can invest maybe 10-15 billion, but no more (presumably unless you want to make Google a low-margin business). So that doesn't appear to be true.
Is it better for Google to "invest" their 80 billion or so at 3% in liquid assets versus investing it in a 10% margin business ? Here's the thing: they'll make more profit with the money in Fiber than they'll make with the money in bonds and stocks. Definitely. If fiber provides a 10% return on investment, definitely.
Sadly I know: for the GOOG and GOOGL stock prices, yes it is a better idea to keep cash on the sidelines, as then you get the benefit of investors assuming Google can deploy cash at 20%, despite it being obviously wrong. But it offends my sense of efficiency.