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Extra
Google files $2.7B IPO -- and you can play
One of the biggest initial public offerings in history will make the people behind the search engine very wealthy men. And many of the shares will be auctioned off to everyday investors.
By MSN Money staff
Google, the world's No. 1 Web search provider, filed with U.S. regulators on Thursday to become a publicly listed company and sell as much as $2.7 billion in stock in a widely anticipated initial public offering.
And average investors may be able to get in on the deal; some, and perhaps all, of the available shares will be offered in a public auction over the Internet, Google's filing says.
Such offerings remain unusual, but perhaps that's OK with the company. "Google is not a conventional company. We do not intend to become one," its founders say in an introduction to its filing.
Mountain View, Calif.-based Google said it would seek to list on either the Nasdaq market or the New York Stock Exchange. The filing did not include a timetable or ticker symbol.
Morgan Stanley (MWD, news, msgs) and Credit Suisse First Boston were listed as lead underwriters.
The company cites Warren Buffett as an inspiration, and his Berkshire Hathaway (BRK.A, news, msgs) may have been a model for the company's share structure. Class A shares, with one vote each, will being sold to the public. Class B shares, with 10 votes each, will go to management and founders. That set-up also mirrors The Washington Post, where Buffett sits on the board.
It's designed to insulate management from short-term pressures so it can focus on the long term.
From the filing, it appears that all Class A shares in the offering will be sold through the auction.
Informed investors willing to pay the IPO price should be able to buy as many shares as they want, within reason, in the IPO, as on the stock market," the company says. "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. This has led us to pursue an auction-based IPO for our entire offering."
Finances finally revealed
The filing gave a much-anticipated look into the closely held companys finances. Google had nearly $1 billion in revenues last year with the vast majority, more than 95%, coming from advertising. Revenues have increased tenfold since 2001. For the three months ended March 31, 2004, the company saw revenues of more than $389 million, up 118% from more than $178 million in the year-ago period.
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The company is also comfortably in the black, with profit growing. Google earned more than $105 million last year. For the first quarter of 2004 it earned nearly $64 million, or 24 cents per share, up from a profit of $25.8 million, or 10 cents per diluted share in the same quarter a year ago.
Compare those results to search engine rival Yahoo! (YHOO, news, msgs), which still has an edge in quarterly numbers, for now. Yahoo! earned $101 million in the first quarter of 2004, or 14 cents per dilute share, on revenues of $550 million.
Its no Microsoft (MSFT, news, msgs), but unlike other Internet IPOs, Googles balance sheet isnt enough to turn an accountant a whiter shade of pale. As of the end of the first quarter, the company had more than $250 million in cash on the books. (Microsoft is publisher of MSN Money.)
| Google's financial position* | | 1999 | 2000 | 2001 | 2002 | 2003 | 1Q 2004 | | Net revenues | $220 | $19,108 | $86,426 | $347,848 | $961,874 | $389,638 | | Net income (loss) | ($6,076) | ($14,690) | $6,985 | $99,656 | $105,648 | $63,973 | | Net income (loss) per diluted share | ($0.14) | ($0.02) | $0.04 | $0.45 | $0.41 | $0.24 |
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*In thousands, except per share data
A different kind of public offering
But it does sound as though investors can expect intriguing finances going forward, from a company that will take risks and ignore analysts. Among the company's stated goals, according to the introductory letter to potential shareholders: "Don't be evil" and "Make the world a better place."
"If opportunities arise that might cause us to sacrifice short term results but are in the best long term interest of our shareholders, we will take those opportunities. We will have the fortitude to do this. We would request that our shareholders take the long term view," the founders write.
"Many companies are under pressure to keep their earnings in line with analysts forecasts. Therefore, they often accept smaller, but predictable, earnings rather than larger and more unpredictable returns. We intend to steer in the opposite direction."
To help steer the company, Google added three additional members to its board of directors: John Hennessy, president of Stanford University and a doctor of computer science; Art Levinson, CEO of Genentech (DNA, news, msgs) and a Ph.D. in biochemistry; and Paul Otellini, president and COO of Intel (INTC, news, msgs). Each received 60,000 options, according to the filing.
The competition
The companys outlook is not all unabated growth, though. Google said it expects revenue growth rates to decline and to see downward pressure on operating margins.
We believe our revenue growth rate will decline as a result of anticipated changes to our advertising program revenue mix, increasing competition and the inevitable decline in growth rates as our net revenues increase to higher levels, the company said. We believe our operating margin will decline as a result of increasing competition and increased expenditures for all aspects of our business as a percentage of our net revenues, including product development and sales and marketing expenses.
As for competition, Google identifies Microsoft and Yahoo! as its biggest foes. The company said it expects Microsoft will increasingly use its financial and engineering resources to compete with us. And the company said while Yahoo! uses some of Googles Web search technology, it is terminating that agreement as of July 2004.
Who will get rich from Google?
Those who stand to profit from the hottest IPO in years include an A-list of celebrities in addition to the slate of executives and directors. Because of their involvement in a celebrity mover-and-shaker venture capital fund, Tiger Woods, Henry Kissinger and Arnold Schwarzenegger all stand to benefit, CNBCs Corey Johnson reported.
Woods, Kissinger and Schwarzenegger put money into Google in 1999 through Angel Investors. Venture capital firms Kleiner Perkins Caufield & Byers and Sequoia Capital also invested in Google that year.
Sergey Brin and Larry Page will each receive more than 38 million shares in the company -- Page gets a tad more -- giving them each control of about 15.5% of the company. So if Google shares rise to $50 per share, not unthinkable at all, then each founder will take home $1.9 billion. Google CEO Eric Schmidt wont be doing too badly either, with more than 14 million shares, a 6% stake in Google.
Other institutional stockholders who will control more than 5% of the company include KPCB Holdings and Sequoia Capital.
Auction details still sparse
Along with the big players, Google seems ready to fulfill the hope of many fans and market followers to take part in a hot IPO.
Details in the company filing aren't crystal clear. But investors will need to file to become qualified bidders and have an account with one of the underwriters.
The company and the underwriters will be able to set and reset a price range, based on the response in case demand runs high. Bid will be taken by phone and mail, as well as over the Internet. (You'll find a few more details in the filing itself.)
The $2.7 billion offering would be one of the largest debuts in history. It also would give the company a larger market capitalization than a number of high-profile S&P 500 companies, including FedEx (FDX, news, msgs) and Lockheed Martin (LMT, news, msgs).
Check out a screen of S&P 500 companies with a market capitalization close to $25 billion.
The IPO could be one for the history books, possibly one of the largest ever in terms of market capitalization.
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