Google details IPO plans

By Matthew Fordahl
Associated Press

Google Inc., which has headquarters in Mountain View, Calif., announced plans yesterday to sell about 25 million shares at up to $135 each when it goes public as early as next month. Associated Press Sign up for IPO auction To participate in the Google IPO auction, first read the prospectus. Then register and open an account with Google's bankers Morgan Stanley or Credit Suisse First Boston. Morgan Stanley & Co. Inc., 1585 Broadway, New York, NY 10036; (212) 761-4000. Credit Suisse First Boston LLC, Credit Suisse First Boston, Eleven Madison Avenue, New York, NY 10010 (212) 325-2000.

Google said 24.6 million shares will be sold for $108 to $135 each, depending on the unusual auction Google plans to employ as early as next month, according to a regulatory filing.

That would mean that between $2.66 billion and $3.32 billion in stock would be sold in the initial public offering. However, the amount the company itself expects to raise is around $1.66 billion, because 10.5 million of the shares being offered are being sold by existing stockholders.

It would be the eighth-largest IPO in history, bigger than most that took place during the 1990s dot-com boom. Unlike those companies, however, Google consistently has been profitable and has posted steep revenue increases.

But although this IPO will be big, it's not expected to generate the kind of hysteria that surrounded tech offerings in the '90s, when companies like Netscape Communications, Pets.com and Webvan.com saw their stock soar despite a lack of profits and, in many cases, questionable business models.

"There are no virgins anymore when it comes to Internet investing. People have seen the upside as well as the down," said Barry Randall, portfolio manager of the First American Technology Fund at US Bancorp Asset Management in Minneapolis.

"All investors — whether institutional or individuals — are far more savvy about what's possible as an Internet company," Randall said.

Google, which is offering just 9 percent of its stock, would have a market capitalization — a company's total value — between $29 billion and $36 billion. The average in the S&P 500 is $21.25 billion. Rival Yahoo Inc. has a market cap of nearly $38 billion.

Once shares begin trading on the Nasdaq Stock Market, Google expects to have the ticker symbol "GOOG."

Google shares will be distributed in an auction designed to give the general public a better chance to buy stock before shares begin trading. In the past, companies' IPO shares have been restricted to an elite group picked by investment bankers handling the deal.

Analysts expressed some surprise that the search behemoth — given its "Do No Evil" mantra and its desire to democratize the IPO process — is not going to split its stock to bring the price range down to levels more appealing to average investors.

"I think that's a little bit ridiculous," said Paul Bard, an analyst at Renaissance Capital in Greenwich, Conn. If individual investors have $100 they want to invest, "they're not even going to get a single share."

Google executives appear to be following in the footsteps of star investor Warren Buffett, who has called splits a Wall Street gimmick. Class A stock in Buffett's Berkshire Hathaway Inc. has never split, and it now trades at about $88,000 per share.

Once issued, Google stock could be volatile, though analysts are debating whether the high initial price or the auction format might result in swings in either direction after public trading has begun.

Because the auction is set up to determine the price most people are willing to pay for the stock, theoretically few people would want to buy shares at a higher price in the first few days or weeks after they begin trading.

The scenario could cause IPO bidders to worry they overpaid for Google's stock and prompt a wave of selling that drives down the price, a phenomenon known as the "winner's curse."

Randall noted that volatility is inherent in any tech offering.

"At the end of the day, you're talking about a tech company growing revenues at over 100 percent annually," he said. "You should fasten your seat belt and have oxygen nearby. It just comes with the territory."

Google founders Larry Page and Sergey Brin, who developed the search engine in a Stanford University dorm room and formed the company in 1998, stand to profit handsomely, along with Google's stock-holding employees and venture-capital investors.

Page and Brin will each sell about 1 million of their shares, generating about $117 million for each based on the midpoint of the company's range, $121.50 per share. They will each still own more than $4.5 billion worth of stock, and their preferred shares will carry more voting power than the stock traded publicly.

But John Doerr of Kleiner Perkins Caufield & Byers and Michael Moritz of Sequoia Capital stand to profit even more. Doerr will sell 2.1 million of his 21 million shares for an estimated $255 million; Moritz will shed 2.4 million of his 23.9 million shares for more than $290 million.

Also due for a big payoff are Yahoo and America Online Inc., which were early investors in Google. Yahoo is selling 549,888 shares; AOL will unload 867,149, according to the filing. At $121.50 per share, Yahoo would collect $67 million, while AOL, part of Time Warner Inc., would reap $105 million.

Google's filing with the Securities and Exchange Commission gave an updated picture on the company's booming growth, fueled almost entirely by advertising linked to online searches.

In the second quarter, Google earned $79.1 million, or 30 cents per share, compared with $32.2 million, or 12 cents per share, in the same period last year. Sales more than doubled, to $700 million in the latest period from $311 million last year.

In the first six months of 2004, the company earned $143 million, 54 cents per share, on revenue of $1.35 billion. In the comparable period last year, the company's profit was $58.0 million, 23 cents per share, on revenue of $560 million.

Google also reported that it had 2,292 employees at the end of the second quarter, up from 1,907 three months earlier.