By Kristen Kelly, Co-Founder of The Wall Street Skinny
Last week, Google announced its largest acquisition ever: a $32 billion all-cash deal to acquire cybersecurity startup Wiz. You’d think such a massive investment in a high-growth sector like cloud security would get investors excited, right? But instead, Google’s stock dropped nearly 2.5% on the news.
So what happened? Why did investors balk at this deal—and what’s the disconnect between Google management and public equity investors?
Let’s break it down.
Investors in public equity care deeply about EPS, or earnings per share. EPS is simply net income divided by shares outstanding. It reflects the amount of profit attributable to each share of stock—and when companies announce big deals, investors immediately think about whether that number will go up or down.
This transaction is an all-cash deal. That means Google isn’t issuing equity to fund the purchase; instead, they’re taking the $32 billion in cash (from reserves or possibly by raising debt) and giving it directly to Wiz. Here’s where that becomes a problem.
Google, like most big tech firms, keeps its cash parked in interest-earning accounts, especially with money market rates hovering around 5%. So by spending $32 billion, they’re essentially giving up the $1.6 billion in annual interest income they would have earned. On a tax-affected basis, that’s about $1.2 billion lost in annual net income.
So that’s the cost side of the transaction. What about the benefit?
Well, Wiz posted $500 million in revenue in 2024 and is expected to double that to $1 billion in 2025. Impressive! But revenue is not net income.
We’re not told Wiz’s exact net income, but based on margins in the cybersecurity space (which tend to fall in the 5–20% range), we can estimate. Let’s be generous and assume a 20% profit margin on $1 billion in revenue. That gets us $200 million in net income—still far short of offsetting the $1.2 billion income hit from lost interest.
In other words, this deal is likely dilutive to EPS in the short term, even with Wiz growing rapidly.
Now, Google’s leadership is probably banking on synergies—particularly revenue synergies—to make up the gap. By combining customer bases, plugging Wiz’s platform into Google Cloud, and expanding enterprise relationships, they hope to create incremental value.
But here’s the issue: investors tend to discount revenue synergies. They’re hard to quantify, take time to realize, and can be risky to execute. Which explains why the stock sold off—investors are skeptical that the math adds up in the near term.
It’s also worth noting that this isn’t a valuation analysis—this is about affordability. EPS accretion/dilution simply tells us how the deal affects shareholders’ claims on future income. Whether Wiz is “worth” $32 billion is a separate (and important) question, but one investors are likely debating in parallel.
Bottom line: The deal could pay off long term, but for now, investors see short-term dilution, uncertain synergies, and a big price tag. Time will tell if Google’s strategic bet pays off.
Watch the full breakdown here:
Original coverage: Google Agrees to Buy Cybersecurity Startup Wiz for $32B – Reuters, March 18, 2025
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