Home > News > Web
Marketing Breaking News
Breaking Web Marketing News -
Google files IPO
April 29, 2004
Google, the world's No. 1 Internet
search engine, finally filed for its initial public
stock offering Thursday and promised to maintain its
long-term focus even though it will soon face the intense
scrutiny of Wall Street.
The company said in a filing with
the Securities and Exchange Commission that it expects
to raise as much as $2.7 billion from the offering,
which it will conduct in the unusual format of an online
auction in a bid to make its shares more widely available.
Morgan Stanley and Credit Suisse First Boston were named
as the lead underwriters for the deal.
The company's IPO filing has been
rumored for the better part of a year and recent speculation
has created a buzz about Internet stocks not seen since
online auctioneer eBay went public in September 1998.
Wall Street has been eagerly anticipating
a filing from Google so investors could finally get
a glimpse into the company's finances.
Gaga for Google's numbers
In the filing, Google said that it
generated revenues of $961.9 million in 2003 and reported
a net profit of $106.5 million. Sales rose 177 percent
from a year ago although earnings increased by just
6 percent. Google also revealed that has been profitable
For the first quarter of 2004, Google
reported sales of $389.6 million, an increase of 118
percent from a year ago. Net income was $64 million,
up 148 percent from the first quarter of 2003.
Google's core business of selling
search-based advertising, which allows companies to
purchase ads tied to specific keyword searches, is one
of the most lucrative and rapidly growing markets in
the tech sector.
Google, founded in 1998 by former
Stanford University students Sergey Brin and Larry Page,
has quickly become one of the most successful Internet
companies, thanks to search technology that many experts
say is superior to offerings from rivals. (For more
on the founders' stakes in Google and their pay,
Eric Schmidt, the former CEO of Novell
and chief technology officer at Sun Microsystems, joined
Google as its chairman in March 2001 and was named CEO
later that year.
The company has become not just a
tech juggernaut but a popular culture phenomenon as
well, with people using the verb "Googled" to describe
searching for information on the site.
IPO should increase competition
And during the past few months, Google
has stepped up its efforts to compete against large
Internet companies such as Yahoo!, Microsoft's MSN,
Time Warner's AOL and Amazon.com.
Google recently launched a comparison
shopping Web site called Froogle and a test version
of a local search engine.
The company also is testing a controversial
free e-mail service called Gmail, which provides far
more storage space than most other Web-based e-mail
offerings. Google has said it intends to sell ads that
will be tied to keywords in e-mails, which has raised
some privacy concerns.
Now that Google has filed to go public,
the search business could become even more intense,
said Safa Rashtchy, an analyst with Piper Jaffray.
"The competition between Google and
Yahoo! and MSN will certainly intensify," Rashtchy,
"They are already heavily competing to make sure that
each gets their share of the search business."
According to research firm comScore
Networks, Google sites had nearly 35 percent of Web
searches conducted in the United States in February,
making it the market share leader. Yahoo! was second
with 30 percent of searches. Worldwide, Google had an
even bigger lead over Yahoo!, with 43 percent of searches,
compared to 31 percent for Yahoo!
Many tech investors have been hoping
that an IPO filing from Google will lead to another
tech boom period. But one hedge fund manager said he
does not think Google's filing will cause a flood of
new Internet and technology companies.
"There's always a tremendous amount
of buzz with Internet IPOs but I don't think we'll go
back to people getting excited about all Internet stocks
like in the late '90s," said Peter Thiel, managing member
with hedge fund firm Clarium Capital. "Google is going
public because it's profitable. This is not a publicity
Thiel was the co-founder of PayPal,
which went public in 2001 and was sold to eBay a year
What's it going to be worth?
Demand for Google's shares is expected
to be extremely high. As such, Brin and Page said in
a letter included in the filing that the company intends
to use the auction process to price its shares.
"It is important to us to have a
fair process for our IPO that is inclusive of both small
and large investors. It is also crucial that we achieve
a good outcome for Google and its current shareholders,"
the co-founders wrote. "Our goal is to have a share
price that reflects a fair market valuation of Google
and that moves rationally based on changes in our business
and the stock market."
During the late '90s, many tech IPOs
rose sharply on their first day of trading because a
small amount of shares were available to the public.
"Many companies have suffered from
unreasonable speculation, small initial share float,
and boom-bust cycles that hurt them and their investors
in the long run. We believe that an auction-based IPO
will minimize these problems," Brin and Page said.
As part of the auction process, interested
investors will need to get a unique bidder ID from a
Web site, the company said in the filing. Qualified
investors would then be able to submit a bid detailing
how many shares they wanted and at what price. Once
the underwriters have determined the stock's opening
price, shares will be allocated, the company said.
The auction process is fairly unique,
particularly for a company of Google's stature. But
Google has a reputation of doing things differently,
which should make for some interesting times once the
company starts trading.
Brin and Page pledged in their letter
that they will not play the game of managing expectations,
trying to meet quarterly earnings estimates just to
appease Wall Street. The two even quoted legendary value
investor Warren Buffett.
"In Warren Buffett's words, 'We won't
"smooth" quarterly or annual results: If earnings figures
are lumpy when they reach headquarters, they will be
lumpy when they reach you'," the two wrote.
In addition, the offering is structured
in a way so that Brin and Page will continue to have
strong control of the company's fate. Brin and Page
own nearly a third of the company's Class B stock, which
has 10 times the voting power of the Class A shares
to be sold in the public offering.
Google did not say in its filing
whether it intends to list on the New York Stock Exchange
or the Nasdaq. Most of its competitors list on the Nasdaq.
Since Google did not say how many
shares it intends to sell or what the price would be,
investors can still only speculate about how much Google
will be worth when it goes public.
It probably makes the most sense
to compare Google with Yahoo! since it is Google's main
rival. Yahoo! reported net income of about $238 million
last year and has a market value of about $36 billion.
So it is valued at 151 times trailing net income. Based
on that multiple, Google's stock market value would
be about $16 billion.
But Google would be worth more if
you looked at a price to sales ratio. Yahoo! is valued
at about 24.5 times 2003 revenues of about $1.47 billion.
Using that multiple, Google could have a market worth
of about $24 billion.