BW - If Google Shopped Until It Dropped

It was a glorious Thanksgiving for the founders of Google Inc. (GOOG ), whose shares now trade around $500, having more than quintupled in 27 months. Yes, a market value of $155 billion is some kind of cornucopia. So with tryptophan coursing through their veins and visions of search algorithms dancing in their heads, Sergey Brin and Larry Page let their post-meal thoughts drift to what most other Americans were fixating on: shopping.


If they didn't, they should have. The market has handed Google a pile of paper money that may or may not hold its value. Just ask rival Yahoo! Inc. (YHOO ). At its peak, it was worth $150 billion; now it's worth $37 billion and kicking itself for not having spent more of its stash.

Google's surging stock is practically begging to be used for acquisitions. The company trades at 37 times next year's expected earnings per share, more than twice the broader market's price-earnings ratio. Analyst Laura Martin of Soleil-Media Metrics notes that to justify its valuation, Google would have to deliver 25% annual compounded growth over the next decade. Can its killer search engine pull off that kind of streak? It's doubtful. "At some point, they'll have diminishing returns from paid search," says Martin P. Pyykkonen, senior Internet analyst at San Francisco investment bank Global Crown Capital. "There's no question they need to diversify." The $1.6 billion acquisition of Internet upstart YouTube Inc. was a start, but much more can be done.

Portfolio strategists say investors can allocate as much as 5% of their portfolios to purely speculative holdings, also known as mad money. But with the stakes so big, Google would be wise to put aside even more of its paper value--say, 7% or 8%--for investments to add some real diversification. Herewith: a $12 billion holiday shopping list.

It should start with a contrarian media play: the New York Times Co. (NYT ), now worth just $3.5 billion, roughly its 1998 level. The industry has never been so uncertain, and Google has already struck deals with some newspapers to post archived content. Meanwhile, Times management is under fire from a big shareholder, Morgan Stanley (MS ) Investment Management, which is trying to change its governance structure to take some power away from the controlling Sulzberger family. What better time for a white knight to step in?

The asking price, including the assumption of debt and the satiation of the Sulzbergers, might be $6.5 billion. That would land Google the Web site About.com, 155 years of searchable Times archives, and swank new headquarters in Times Square--all for just 1/25 of the Google pie. If it acts now, Maureen Dowd might even emcee its holiday bash.

Next stop: real estate, of which Google has too little. Any self-respecting media giant needs a theme park. For a piddling $2 billion or so, Google could buy Walt Disney's (DIS ) aging Epcot Center in Orlando and rechristen it Google World. The prospect of animatronic Larrys and Sergeys might not get millions of tourists flooding in, but Google could actually use some losses to ease its tax load.

Commodities, baby! Google is light in natural resource holdings. Peruvian copper would kill two birds with one stone by providing emerging markets exposure as well. The problem is that pollution-spewing Peruvian copper mines kill thousands of birds each year. Google's Prius-loving staff won't go for that.

So why not invest in Pacific Ethanol Inc. (PEIX )? It can be had for an easy $1 billion, assuming a more than 20% premium. Besides improving the planet, ethanol would give Google reason to pursue another complementary asset: Ted Turner, America's largest individual landowner, with 2 million acres across seven states. Google's ethanol plants would need vast tracts of land on which to grow corn and switch grass--and Ted's 40,000 head of bison could happily fertilize that acreage. Price tag? Totally affordable.

That leaves emerging markets. How about assuming the balance of Turner's $1 billion philanthropic tab to the U.N.? Don't dawdle, guys. Use it or lose it.