Two companies I'd buy with Google's $78 billion...

As of June 30, 2016 and according to it's balance sheet, Google has $78.46 billion in cash and short-term investments on-hand.(Okay, technically Google's parent Alphabet holds the key to the cash drawer. But it's well-publicized that it's Google putting all the money in the till.)

And if you missed it, that's "billion", with a "b".

The multi-billion dollar question is simply this: what should they do with all that money?

Sure, the company could save it for a rainy day. But the skies look pretty clear in the short-term; Google's core advertising business continues to generate billions of net income each quarter, far more than it would likely need to fund any minor acquisitions or make any exploratory bets. It could complete another multi-billion-dollar share buyback, but even another massive $5 billion commitment isn't going to make much of a dent in its cash pile. It could introduce dividends for shareholders, but that would assume that the company has no better way to invest its dollars... and I personally don't think that's the case.

Here are two acquisitions I think would be an interesting and valuable use of Google's cash:

1. Netflix, Inc. (NFLX, NasdaqGS, Market Cap. on Aug 4/16: $40.06B)

As the owner of YouTube, Google already owns the largest video site on the Internet. So why does it need Netflix?

A recent New York Times article articulated the value of Netflix well: "More than 81 million subscribers pay Netflix $8 to $12 a month, and slowly but unmistakably these consumers are giving up cable for internet television: Over the last five years, cable has lost 6.7 million subscribers; more than a quarter of millennials (70 percent of whom use streaming services) report having never subscribed to cable in their lives. Those still paying for cable television were watching less of it. In 2015, for instance, television viewing time was down 3 percent; and 50 percent of that drop was directly attributable to Netflix, according to a study by MoffettNathanson, an investment firm that tracks the media business."

In short, controlling Netflix would provide Google with exclusive access to a rapidly growing video platform. Of course, in order for this purchase to make financial sense, Google would need to introduce advertising to the Netflix platform... but I don't think that's a bad thing if it's done in an innovative and non-intrusive way. (I recently detailed how I would introduce ads to Netflix as part of this open letter to Netflix CEO Reed Hastings.)

Could Google acquire Netflix? Probably... but it would likely be expensive. Shares of Netflix were priced at $93.44 USD as of market-close yesterday, but due to the continued expected growth of the platform and the fact that it's currently trading closer to it's 2-year low than it's 2-year high, the premium Google would have to pay for a full acquisition would likely be significant. Let's estimate a 50% acquisition premium to the current share price, if only because that's the premium Microsoft recently paid to acquire LinkedIn. (Yes, the two companies are very different. But as a shareholder you'd be fairly happy with a 50% return, wouldn't you?) That would mean the cost paid per share would be $140.16, and put the cost of a Netflix acquisition in the $60 billion range. That's a big number (even for Google), but Netflix has current assets of almost $5.4 billion and a lot of strategic opportunity so assuming Google could monetize Netflix the same way it did with YouTube after they acquired it in 2006, the cost could be justified. 

2. Nielsen Holdings plc (NLSN, NYSE, Market Cap. on Aug 4/16: $18.93B)

Those outside the media or consumer packaged goods industries may not be very familiar with Nielsen, but it's a company that, "measures and monitors what consumers watch (programming, advertising) and what consumers buy (categories, brands, products) on a global and local basis." (Source: Wikipedia)

In other words, it's a company that specializes in understanding consumers, something that's clearly important to Google.

Acquiring Nielsen could potentially help Google directly address two of it's biggest opportunities for exponential growth in advertising revenue: convincing clients to shift more TV dollars to digital, and demonstrating the effectiveness of online advertising spend. Here's the thinking...

Companies have finite marketing budgets, and unfortunately for Google, many senior marketing decision-makers still believe television advertising is the most effective use of their dollars. Admittedly, the sheer reach of television is tough to beat, and television continues to be considered a safe bet compared to any newer technologies. (Often repeated in the CPG industry amongst conservative organizations: "Nobody ever got fired for running a TV ad.")  As such, TV spend continues to make up the largest percentage of marketing spend for many of the world's largest advertisers; that's changing -- eMarketer projects that by next year, total digital spend in the U.S. will surpass total TV spend for the first time -- but it hasn't quite happened yet. But what if Google had direct access to Nielsen's audience panels via their set-top boxes, and could better understand the true value of those television ads? They could understand exactly how often people were changing the channel when those ads came on, leverage that data with clients, and potentially use that information to hasten the transition from television to digital spend.

Perhaps the bigger opportunity for Google in acquiring Nielsen is to help demonstrate that client dollars spent online translates into offline sales. Let's consider one aspect of Nielsen's data collection business: the household panel. These panels are representative households that are paid to manually document every item purchased. CPG marketers are often wary of these panels, since they rely on the participants' ability to capture all of their purchases. (Did the chocolate bar purchased at the gas station and consumed in the car get captured, or did the respondent forget about it by the time they got home?) But let's re-imagine that part of the business should Google acquire Nielsen. What if members of the household panels are not asked to scan individual items, but rather, simply scan every receipt they brought into their homes -- from grocery stores, restaurants, gas stations, everywhere! -- with rewards given for the number of receipts scanned in a given week. The Google brain would then decode the receipts and determine what you bought and when. Now what if those panels were also offered free high-speed Internet access as part of the panel, in exchange for allowing Google to cross-reference their web-browsing with their purchases? In that case, Google would know if and when you were shown that banner ad for Product X, and they'd also know if that Product ended up in your house a few days later. Not a perfect attribution system, of course, but far better than what anyone has today. And a system such as this one could make the data collection process more timely (and thus relevant), thus adding tremendous value to existing clients too.

Could Google acquire Nielsen? Probably. Shares of Nielsen were priced at $52.96 USD as of market-close yesterday; Google could offer $60 USD a share (a 7.5% premium to Nielsen's 2-year high of $55.81 that I'd imagine most investors would consider a good deal based on historical share prices) and pick up the company for just over $21 billion.

With two purchases, I've managed to deplete Google's entire cash reserve, and then some. (Although I'm fairly certain Google could come up with the extra $2.5 billion they're currently short.)

But since we're on the topic, there's one other acquisition that I'd be considering if I were in charge of Google's strategy department..

3. Twitter, Inc. (TWTR, NYSE, Market Cap. on Aug 4/16: $12.63B)

There's already been a lot of talk about Twitter being acquired sometime in the next year, and Google is almost always mentioned as a prime suitor. But it seems the media often cites Google because of it's enormous cash reserve (you know, the one I've already depleted), and I think Google's acquisition of Twitter would be highly strategic.

Google's mission is to organize the world's information. It does a terrific job of that, but right now it relies on a web-page to be published before the content can be captured in search results, and in most cases that publishing doesn't happen in real-time. Twitter is essentially in the business of "in the moment thinking"; the fastest publisher the world has ever known, with millions upon millions of journalists. If Google owned Twitter, it could capture and analyze the sentiments expressed on the platform every minute, and that could offer interesting insights with broader implications.

We've already depleted Google's cash reserves, so this purchase would need to be made using Google stock; Twitter's total market capitalization is just under $13 billion, so 16 million shares of GOOGL should cover it.

Will these acquisitions ever happen? I'm certainly not in a position to know. But all three companies could be highly strategic acquisitions for Google that could add tremendous value in different ways, and if Larry Page ever decided to go on a shopping spree, I think they'd be worth a serious look.