GOOG Options and the FCC
July 31, 2007
Back in my crazy financial gunslinger days, I lived for days like today where a big decision or announcement was due that could have a big impact on a stock. I'd bet a pasture, if not the farm, on whether or not the news would be in line with what people thought it would be. If I thought it'd be in line with expectations or even slightly exceed them, I wouldn't touch it, because then even when you're right you lose (buy the rumor, sell the news). If I thought a surprise altogether would happen, I'd go with the short term puts or calls, depending on where the potential surprise may have lodged itself. That made me a few overnight killings percentage-wise, but these weren't large sums being thrown around.
Back to today. I actually looked at Google's stock price this morning with the excitement of the big FCC 700 mhz auction decision due out. It was around $516, with a recent low of around $508 and high of $558. GOOG is obviously the ultimate long-term play, but I was whisked back to my "what's the impact on it TODAY?" mentality for a few exhilarating moments. But then I was stumped: in my mind, the market expectation was that 0-2 of Google's 4 "demands" for the upcoming auction would be met by the FCC's decision, so my choices would have been: 0,1, or 2 demands met would be par; 3 or 4 would be unexpected upside, and might have had calls purchased accordingly in the good ol' days (not today though, with speculation on both sides running so rampant as to make either side unattractive in the short term as far as I'm concerned). But here's what stumped me: would it really have been a good thing for GOOG if all 4 conditions had been met? If that would have come to pass (it didn't; 2 of the 4 were met, and GOOG closed at $510, which I think was it's low for the day, and was still at $510 in the after hours), then of course Google would be obliged to not only bid in the upcoming auction, but to knock it out of the park and win the nationwide footprint, which in my mind is going to go for upwards of $12-15B.
I've seen estimates as high as $10B for the rights to the nationwide footprint of spectrum, and the supposed minimum for just a slice is $4.6B, but Google would have demolished all estimates in order to become a nationwide wireless service provider overnight if all 4 of their conditions had been met. And I don't know that that would have been an enticing short-term development for near-term calls. It can kind of go back to an old post of mine that discussed the definition of "winning" in military terms, with many instances of the side that loses far more people actually "winning" the war because they have gained their sought-after objective(s). In business though, where $ stand in for soldiers, the cost in $ in the achievement of stated objectives can indeed be too high and thereby negate the apparent victory in reaching those goals. I'm wondering if this FCC decision may have served to save Google from itself, with its recent larger and more aggressive appetite for growth and technological progress through very expensive acquisitions potentially slipping all the way into a full-blown stupid financial move, just because they could or because they felt like they had to.