On-line search company Google Inc. ended months of speculation Thursday when it filed with U.S. regulators to sell $2.72-billion (U.S.) worth of shares to the public in an electronic auction, creating quite a buzz on Wall Street.
The filing for the highly anticipated initial public offering of Google stock was made to the Securities and Exchange Commission, providing investors with their first look at the company's finances. The company revealed it has been profitable for the past three years, with sales of almost $1-billion in 2003.
"People have expressed a lot interest in this IPO for a number of reasons but one of the reasons is the fundamentals are really big, the company is growing fast, and the margins are really high. You rarely get that opportunity," said Mark Mahaney, an analyst at American Technology Research in Connecticut.
Google is not a conventional company
"The first sentence in the company's filing is 'Google is not a conventional company' and true to form, they are offering their shares in an unconventional auction format," he added.
In the SEC filing, Google said it earned $105.6-million last year, compared with $99.7-million in 2002. Annual sales more than doubled to $961.9-million from $347.8-million. Sales of on-line advertisements generated 95 per cent of Google's overall revenue in 2003.
For the three months ended in March, profit was $64-million, up sharply from $25.8-million a year ago. Sales jumped to $389.6-million from $178.9-million.
"They are growing revenue at 118 per cent year-over-year. These are impressive numbers," Mr. Mahaney said. He estimated that Google stock could start trading between the start of July to the middle of August.
Google said it would list either on the Nasdaq composite index or the New York Stock Exchange. The Mountain View, California-based company named Morgan Stanley and Credit Suisse First Boston as lead underwriters for the proposed offering.
Analysts estimate that Google's IPO, the biggest to hit Wall Street in more than two years and the first Internet-related share offering since on-line vendor eBay Inc. went public in September 1998, could generate investment-banking fees of between $80-million and $100-million. Financing company IT Group Inc. emerged with an IPO of $4.6-billion in July, 2002. The biggest IPO to date was AT&T Corp.'s $10.26-billion offering in April, 2000.
Dutch auction share sale
Unlike traditional IPOs, Google will make its shares available by way of an electronic auction. In such an auction, investors wanting to buy shares can submit the number of shares they want and the price they are willing to pay by email, telephone or fax. The underwriters then accept the lowest price necessary to sell all of the available shares, with all bidders paying the same price.
"It is important to us to have a fair process for our IPO that is inclusive of both small and large investors," Google said. "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."
Google will continue to be run closely by Larry Page and Sergey Brin, the two Stanford University graduate students who founded the company in 1998, and chief executive officer Eric Schmidt.
The company will have a dual-class voting structure, a situation company executives said would leave it with increased control over operations and prevent possible takeovers. The Class B shares, which will be owned by the founders, will be worth 10 votes a share, while the Class A's will enable holders to one vote a share.
"The main effect of this structure is likely to leave our team, especially Sergey and me, with significant control over the company's decisions and fate, as Google shares change hands. New investors will fully share in Google's long term growth but will have less influence over its strategic decisions than they would at most public companies," said Mr. Page.
The IPO will also make the founders rich men. Mr. Page and Mr. Brin each have a roughly 15 per cent stake in Google, or 38.5 million shares. They said in the filing they plan to sell a "fraction" of their stock. Mr. Schmidt has a 6 per cent stake in the company.
Google will not provide earnings targets, a practise the company said puts companies under pressure to conform to analysts' forecasts, Mr. Page said. "We will make decisions on the business fundamentals, not accounting considerations, and always with the long term welfare of our company and shareholders in mind."
Free meals, doctors and washing machines
The company also said it would maintain its practise of attracting and keeping excellent staff.
"We provide many unusual benefits for our employees, including meals free of charge, doctors and washing machines... Expect us to add benefits rather than pare them down over time. We believe it is easy to be penny wise and pound foolish with respect to benefits that can save employees considerable time and improve their health and productivity," the SEC filing said.
Google said going public will not alter its internal corporate culture, they repeating the company intentions not to "be evil" and to make the world "a better place."
In the SEC filing, Google said it has added John Hennessy, president of Stanford University; Art Levinson, chief executive of biotech firm Genentech; and Paul Otellini, president and chief operating officer officer of chipmaker Intel Corp., to its board of directors.
Investment bankers and industry executives have said they believe an IPO would put a total value of as much as $25-billion on Google. Last fall, some of Google's prospective advisers estimated the company's valuation could be in line with Internet powerhouses Yahoo Inc., valued at $38-billion, Amazon.com Inc. at $20-billion, and eBay Inc. at $54-billion.
© The Globe and Mail
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