Alphabet Decides to Start Buying Companies With Its $5.4 Billion Mandiant Purchase


Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has finally decided to spend some of its huge $140 billion cash and securities pile which sits unused on its balance sheet. As a result, if this kind of activity continues, GOOG stock could have a chance of realizing some of its value.

Alphabet Inc. (GOOG, GOOGL) and Google logos seen displayed on a smartphone
Source: IgorGolovniov /

And this could help the stock, which has had a rough time recently. As of Friday, March 11, GOOG stock was down to $2,609.51, putting it down almost 10% year-to-date (YTD). Actually, it’s down 9.8% since the end-of-year price of $2,883.59.

Moreover, recently Alphabet’s stock peaked at $2,960.73 on Feb. 2., which was right after its Feb. 1 release of fourth quarter and 2021 earnings. However, since then GOOG stock has drifted down by 11.9%, almost as the earnings were terrible.

Where Things Stand With Alphabet

That was clearly not the case, as I wrote on Feb. 14 in my article, “Alphabet Looks Like Good Value With Strong Q4 and 2021 Results and FCF.” I argued in this article and also in another article on March 4 that Alphabet displayed extremely strong free cash flow (FCF), both for the quarter and the year.

In fact, in Q4, 24.6% of its revenue became FCF and for the full year, its FCF margin was 26%. These are extremely high levels of free cash flow, which the company can use to buy back stock and make purchases.

And that is exactly what Alphabet has now decided to do with its free cash flow.

On March 8, Alphabet announced a purchase of Mandiant (NASDAQ:MNDT) at $23 per share. This involves paying $5.4 billion in cash in a definitive agreement with the company. If Alphabet keeps up with this kind of activity, it is possible that analysts and the market could see this as a catalyst that could push GOOG stock higher.

This is because it might allow the company to boost its cloud computing business as it battles against both Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT). Mandiant sells internet security products that it can use to enhance its cloud computing offerings to businesses and consumers.

According to Bloomberg, this “small” $5.4 billion acquisition, is still the second-largest in its history. In 2012 it bought Motorola for $12 billion, but that never turned into a major earnings contributor for the company.

Mandiant May Be Profitable For Alphabet

Bloomberg says that this signals that Alphabet has decided to step off the sidelines of large dealmaking. It shows the company understands it needs to bolster the third-place ranked cloud infrastructure division.

So far, there is no indication whether the deal will be accretive to Alphabet. On Feb. 22, Mandiant announced that its 2021 revenue was $483 million, up 21% year over year (YoY). However, Mandiant’s net income on a non-generally accepted accounting principles (GAAP) basis was $39.5 million, after eliminating a one-time $1.2 billion gain on the sale of a division.

Assuming that the two companies will have a number of synergies, this could allow the acquisition to be profitable for Alphabet. However, they did not talk about any synergies in the announcement. Moreover, all that Alphabet said in this vein, is that Mandiant would “complement” Alphabet’s existing strengths in its cybersecurity product line.

What To Do With GOOG Stock

In my last article on Alphabet, I discussed why the company’s buybacks are so important for the company and how it helps the stock price. It is one use of free cash flow.

Another use of FCF is to make small acquisitions like this. After all, Microsoft does this as well as paying a dividend and buying back stock.

Recently, for example, Microsoft made an all-cash acquisition offer for Activision Blizzard (NASDAQ:ATVI) which will cost it about $68.7 billion in cash. In addition, the company purchased Nuance and 14 other companies in the last year, according to Bloomberg.

If the deal goes through and becomes profitable for Alphabet, I suspect you can see further moves along this line at the company.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Mark Hake writes about personal finance on, and

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