The Google IPO Case

The Google IPO in 2004 could possibly be one of the most speculated IPOs in recent history. In 2004, the search giant was barely six years old yet it generated a ton of buzz, from rumors to constant scrutiny since its filing in April to its Initial Public Offering in August 19, 2004. This amount of attention was not surprising given the situation. Google was known to be a maverick company, embracing themes of innovation and long term vision as opposed to the short term quarter to quarter profits prominent in Wall-Street. Its founders, Stanford students Larry Page and Sergey Brin have run their company as a center of innovation and out-of-the-box thinking since the moment they founded Google Inc. in their friend’s garage. This Silicon Valley Company summarizes its culture in three words: “Don’t be evil”.  Another thing to bring the buzz about Google was the fact that the Google IPO is the first “Big” IPO since the crash of the dot-com bubble in the late 1990s/early 2000s. While not everyone may want a piece of the Google pie, it was evident that everyone was watching.

It is said that the two founders of Google, Stanford graduate students Larry Page and Sergey Brin did not hit it off immediately when they first met. Where they their found common ground was in solving the problem of retrieving relevant information from massive amounts of data. By the start of 1996, they already had a prototype of their search engine named “BackRub” which they perfected until the first half of 1998. Initially, they had no intention of starting their own company. Instead they showed off their search engine to popular portals like Yahoo! for licensing. They were met mostly with rejections as web portals underestimated the value of search, concentrating instead on providing content. David Filo of Yahoo! encouraged Page and Brin to grow their service on their own by starting their own company. With angel funding from Andy Bechtolsheim of Sun Microsystems and later Venture Capital funding from Sequoia and Kleiner Perkins, Google Inc opened their doors on September 1998.

From the onset, Page and Brin strived to create a company with innovation and creativity as its core values. Google workplaces have been famous for resembling playgrounds rather than offices of a billion dollar corporation. It has also branched out from search introducing several key products like email service GMail, targeted advertising service AdSense, Google Directory, Google Groups, shopping search Froogle, Google Maps among other things – all home grown technologies from Googleplex in Mountain View, California.

After months of speculation, Google filed for its IPO on April 29, 2004. It expected to raise $2.7 billion in capital through the IPO which was underwritten by Morgan Stanley and Credit Suisse First Boston. Analysts were abuzz with the news as the filing presents the first time that Wall Street will have the chance to see the internal finances of the search giant. Google has grown out of the garage into a billion dollar company without the capital from an IPO, thus analysts expected that the capital infusion would be used in its existing business.

Another thing that people watched was whether the IPO would change Google’s culture. The company is famous for its off-the-wall practices and some people worried that this creative environment would be hampered as Google became “corporate” and that Google would soon drop its “Don’t be evil” mantra. However, both Page and Brin reassured potential investors that the mantra would remain even after the IPO. (Baertlein)

Control of the company would still remain mostly with Brin and Page. The IPO was made so that Brin and Page will still have majority control of the stock. Only Class A stocks would be sold in the IPO while Brin and Page own nearly a third of Google’s Class B stock. Class B stock has ten times the voting power of Class A stock. (La Monica)  As a testament to how much influence the founders will have over the company, Brin and Page have veto rights on all major decisions of the company. These thirty-something pioneers have brought Google into the American consciousness. However, their inexperience has made analysts weary especially when Google goes public. Some analysts have expressed opinion that Google may need a management overhaul. Also, criticism has been leveled at the founders for being conservative in divulging information about the company’s performance. A series of high profile mistakes before the IPO worsened the notion that Google’s founders may not be ready to handle a public Google. (Elgin)

Google’s stock was finally sold to the public August 19, 2004. A total of 19,605,052 shares were sold at $85 per share. Google raised approximately $1.7 billion with their IPO, $1 billion less than initial expectation. (Vise) The final selling price was below initial expectations which projected the price of the stock to be between $100 to $135. The low price coupled with the cut in sold shares (Google’s initial offering was 24.6 million shares) was taken by some as a sign that the company is experiencing difficulty especially in a post dot-com age. Allan Sloan wrote in his column that people shouldn’t buy Google when its price was at $109.4 that “This price is Insane”. However, these fears seemed to have been alleviated as GOOG breaks the $500 barrier, a more than five fold increase over its initial IPO price. (“Google Inc.: Company Report.”)

If we are to look at Google’s new product offerings, it is apparent that Google’s roadmap is creating a new environment for computing by having applications run on the web as opposed to running on the client’s computer. Google has leveraged AJAX technology to run software over the internet as opposed to software sold over the shelves and installed in the computer. The Search market is also a hotly contested one as Yahoo! and MSN, both of which having deeper pockets than Google, bring more competitive search and advertising services. These new entries directly challenged the search superiority of Google.

Overall, Google is now the juggernaut on the block, acquiring newer startups left and right to integrate it with their services and products – the most popular being the $1.6 billion acquisition of YouTube in 2006. It seems that Page and Brin are still not done with growing their baby, and shareholders of GOOG are happy to be taken along for the ride.

Bibliography

Baertlein, Lisa . “Google IPO at $2.7 billion.” Cybermedia India Online. 30 Apr 2004. Cybermedia India Online. 1 Jun 2007 <http://www.ciol.com/content/news/2004/104043001.asp>

Christie, Les. “The ABCs of a unique IPO .” CNN Money. 29 Aug 2004. CNN Money. 1 Jun 2007 <http://money.cnn.com/2004/04/29/technology/googleauction/>.

Elgin, Ben. “Google: Whiz Kids or Naughty Boys?.” Business Week. 19 Aug 2004. Business Week. 1 Jun 2007 <http://www.businessweek.com/technology/content/aug2004/tc20040819_6843_tc120.htm>.

“Google Inc.: Company Report.” MSN Money. (2007). MSN. 1 Jun 2007 <http://moneycentral.msn.com/companyreport?Symbol=GOOG>.

“Google Milestones.” Google Corporate. (2007). Google Inc. 1 Jun 2007 <http://www.google.com/corporate/history.html>.

LaMonica, Paul. “Google sets $2.7 billion IPO .” CNN Money. 30 Apr 2004. CNN Money. 1 Jun 2007 <http://money.cnn.com/2004/04/29/technology/google/>.

Sloan, Allan. “IPO’s Success Doesn’t Justify Google’s Price.” Washington Post Online. 24 Aug 2004. Washington Post. 1 Jun 2007 <http://www.wpni.com/wp-dyn/articles/A10478-2004Aug18.html>.

Vise , David. “Google Ends Auction for IPO Shares.” Washington Post Online. 19 Aug 2004. Washington Post. 1 Jun 2007 <http://www.wpni.com/wp-dyn/articles/A10478-2004Aug18.html>.