SAN FRANCISCO (AP) _ Google Inc. shares fell 2 percent Thursday morning after the online search engine leader disclosed it would sell another 5.3 million shares as the company's stock is added to the Standard & Poor's 500 index.
The sale could make it more difficult for Google to meet the lofty earnings expectations that have turned the company into such a hot commodity.
Its shares fell $7.95 to $387.03 in morning trading Thursday on the Nasdaq Stock Market. The share sale plans were disclosed after the markets closed on Wednesday.
The move comes just two days before Google's stock will be added to S&P's best-known index _ a breakthrough that snapped the company's shares out of a recent funk and presented management with an opportunity to capitalize on the surging demand.
In a Securities and Exchange Commission filing late Wednesday, Google said it expects to sell the 5.3 million shares primarily to index funds who must own a stake in the company because it's now in the S&P 500. Google's market value had shot up from $341.89 since S&P announced its decision to include the company's stock in the blue-chip bellwether.
Based on the stock's morning price Thursday, Google's offering would raise about $2.05 billion.
By issuing more stock, Google will have to boost its profits to match the average earnings-per-share estimates of industry analysts. That yardstick is widely used to gauge a company's value. Some investors already had been fretting about Google's earnings outlook, so the addition of more stock compounded those worries.
The additional shares sold in the offering means Google will probably have to earn an additional $45 million to $50 million this year to match the average earnings estimate of $8.82 per share among analysts polled by Thomson Financial.
The company expects to have 305.4 million shares outstanding after the latest offering, up from 271.2 million shares at the time of its IPO. Google's market value has increase by about $100 billion since the company went public.
Google's SEC filing indicated the company will sell its latest round of stock some time next month.
Even as its iconoclastic founders have thumbed their noses at Wall Street's conventions, Google has used the stock market like an automated teller machine since its much-ballyhooed initial public offering in August 2004.
If the latest offering is priced near Google's current market value, the Mountain View, Calif.-based company will have raised about $7.5 billion from investors in the past 20 months. The company's employees, led by co-founders Larry Page and Sergey Brin, also have personally pocketed billions of dollars by selling some of their shares.
After selling 14.1 million shares in its IPO, Google returned to the market last September when it sold an additional 14.2 million shares at $295.
Google provided few clues why it wants more money in its SEC filing. The company indicated it would earmark the money for its rapidly growing capital expenditure budget and possible acquisitions.
Earlier this month, Google told investors that it expected to spend substantially more on additional computers and other projects this year. The company spent $838 million on capital expenditures last year, causing some analysts to wonder whether Google's spending this year will approach $2 billion.
By comparison, Yahoo Inc. _ a slightly older Internet company that ranks among Google's biggest rivals _ spent $407 million on capital expenditures last year.
Google ended 2005 with $8 billion, but expects to draw down that amount during the second quarter when it spends $1 billion for a 5 percent stake in Time Warner Inc.'s America Online. That deal was first announced three months ago.
Since then, Google's executives have made it clear they envision running an empire that extends far beyond the company's influential search engine, which has become the hub of the Internet's biggest advertising network.
Google hopes to become an advertising magnet off the Internet too. Toward that end, Google paid $102 million in January for radio advertising agency dMarc Broadcasting Inc. and has been trying to place ads in print publications as part of an experiment that hasn't paid off so far.
The company also has signaled an interest in making sure more people have access to high-speed Internet connections. Google is currently bidding to provide a free wireless Internet access service in San Francisco.
Google also continues to spend heavily to fortify its search engine, which held a 42.3 percent share of the U.S. market through February, according to comScore Media Metrix. The company is reportedly negotiating a three-year deal that will pay Dell Inc. $1 billion to install Google's software on its computers.