When filing for its IPO, search engine Google was required to disclose its financial information, by order of the SEC. This information contained Google’s revenue history and its profit margin from the revenue they took in. The disclosure also revealed what Google intends to do with a portion of its profits.
Google has planned to use a large portion of its profits towards capital spending. According to BusinessWeek Online, Google capital spending could be in the neighborhood of $250 million, nearly 25% of its 2003 revenue. This raised the question of “should a company that’s getting ready to be publicly traded be spending that much?”
“For a technology company, [the number] does seem awfully high,” says Paul Bard, an IPO analyst at Renaissance Capital in Greenwich, Conn., who adds: “for a company like Google, I would expect it to be well under 10%.”
The question is, what is Google going to spend all that money on? Google is said to be expanding its data centers, which are large clusters of servers that give Google the ability to work quickly from almost any location. With new data centers comes the need for more bandwidth.
Experts believe the reason for this large expansion is Google’s email service, Gmail. BusinessWeek offers an explanation: “even if a Gmail account holder only has 500 megabytes of mail — half the system’s capacity — Google will need to create enough storage space across its network to handle several times that amount in order to backup the account.”
Other Google projects, like Orkut and Google’s in-house projects, contribute to the need for expansion because they use large portions of resources as well.
Murdok | Breaking eBusiness News
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