[birken]

You don't have to spend the money or even have a plan to spend it right away for it to be useful. It has value as:

1. Rainy day fund. When the market is hot, you might as well stow some money away in case bad things happen.

2. Liquidity for existing shareholders at a good price

3. Sets a floor in valuation in case somebody tries to acquire you

4. More flexibility in acquiring other companies (who will probably want some part of it in cash)

5. Good press

Though of course maybe they also have plans to spend it. Who knows. But if people are throwing money at you at a good price, you might as well take it.

[x0x0]

never underestimate the value of #1

I think many people agree that's how doubleclick became a $3B acquisition. Doubleclick closed $40m in jun 97 and another $86m in 98. So they (luckily or cannily) raised a ton of money right before the dot com crash, slashed spending, and owe a piece of their success (definitely not all, but a piece) to having the financial reserves to be one of the few companies to weather the crash.

[melvinmt]

6. Push up the valuation to justify a bigger IPO.

[nevi-me]

I think not (rather, it depends), if they listed the day after say receiving a wire transfer of the amount, their NAV would only be higher by the $500M, so in a sensible world, investors would be buying the cash along with other assets essentially. This wouldn't pump up the fair value, as there would be a dilution (or likely anti-dilution) aspect to the NAV of each share post the transaction.

If on the other hand, they were to find immediate use for that amount, they could justify it being put into tangible and intangible assets whose fair value is higher than book value. Though since the grandparent poster states that they already make $250M in revenue, if they are making a net profit, the cash will only be useful in the medium to long-term for expansion.