Friday, April 30, 2004

Google files IPO with attitude

Co-founders say firm will not become conventional

By Michael Liedtke
The Associated Press

Google co-founders Larry Page (left) and Sergey Brin. Google Inc. filed its long-awaited IPO plans Thursday.
Associated Press file
SAN FRANCISCO - Internet search engine leader Google Inc. filed its long-awaited IPO plans Thursday, thumbing its nose at Wall Street's traditions even as the company prepares to cash in on its meteoric success.

Without specifying a price per share, Google said it hopes to raise $2.7 billion with an initial public offering that has created the biggest high-tech buzz since the dot-com bubble burst four years ago.

The IPO is expected to give Google a market value of at least $20 billion, creating scores of new Silicon Valley millionaires - including many of the Mountain-View-based company's 1,900 employees.

"Feels great!" Google employee Edwina Beaus said as she walked between buildings at the company's headquarters - a hub known as "Googleplex."

Even as it prepared to dance with the Wall Street bankers who will take it public, Google warned investors that it won't take its marching orders from the markets.

"Google is not a conventional company. We do not intend to become one," co-founders Larry Page and Sergey Brin wrote in an open letter included in the IPO filing.

As expected, Google said the price of its IPO will be determined through an auction designed to give the general public a better chance to buy its stock before the shares begin trading, most likely in late summer or early autumn. IPO shares traditionally have been restricted to an elite group picked by the investment bankers handling the deal.

Google picked two long-established investment bankers - Morgan Stanley and Credit Suisse First Boston - to manage its populist IPO approach.

Cincinnati financial adviser Peter H. Williams, senior vice president at Sena Weller Rohs Williams, which has $1.5 billion under management, said Cincinnati investors might have interest because of the "novelty" nature of Google. But this IPO is likely to be much different from offerings during the dot-com boom because some Web companies have matured into brands.

"Here we have a large, well-heeled, successful company, so maybe if their offering is successful it could start a new trend," he said.

Although Google's stock won't be sold for several more months, the filing represents a significant milestone in the 51/2 -year-old company's evolution from a fun-loving startup to a corporate adolescent that will be held more accountable for how it manages its money.

Google has done well so far, according to a filing that shined a light on the privately held company's finances for the first time.

Depending almost entirely on advertising linked to online searches, Google earned $105.6 million, or 41 cents per share, on revenue of $962 million last year. Google got off to an even better start this year, with a first-quarter profit of $64 million, or 24 cents per share - more than doubling its earnings of $25.8 million, or 10 cents per share, at the same time last year.

Northern Kentucky investment adviser Mary Lyn Fledderman believes many serious investors will not buy Google shares because there is no five-year history of revenues and earnings.

Fledderman is vice president of membership and development for the National Investors Association Board, the volunteer arm to the National Association of Investors Corp., which teaches individuals how to be long-term investors.

"We teach principles that a company should have revenues and earnings - five years of history to judge their past to determine a future," she said. That isn't usually possible with an initial public offering.

By going public, Google will be under greater pressure to produce steady earnings growth - an expectation that some executives say leads to shortsighted management decisions.

As a public company, "you become sharper in some respects, but it also can cause you to make some decisions just so you can show growth from quarter to quarter," said Steve Berkowtiz, chief executive of Ask Jeeves Inc., a Google rival and business partner.

But Google says it won't fall into that trap, striving to remain true to the vision of the iconoclastic Page and Brin, former Stanford University graduate students who founded the company in 1998. In one of its first rebellious steps, Google will refuse to project its earnings from quarter to quarter, according to the letter signed by Page and Brin.

"A management team distracted by a series of short-term targets is as pointless as a dieter stepping on a scale every half-hour," they wrote.

Industry veterans, though, doubt Google will be able to buck Wall Street once it goes public.

"After the IPO, they're going to have to think in terms of predictable quarterly results and momentum," said Gordon Eubanks, who took software maker Symantec Corp. public in 1989 and now is CEO of Oblix Inc., a security startup. "You have to have a level of predictability and experience to warrant being a public company."

To insulate themselves from outside pressure, Page and Brin are creating a two-class stock hierarchy designed to give them effective veto power. The company is selling Class A common stock to the public, but Page and Brin will control Class B stock, which will have 10 times the voting power. The setup is similar to systems used by several major media companies and Berkshire Hathaway Inc., run by stock market sage Warren Buffett.

Google is already one of the world's best-known brands, with an online search engine that processes more than 200 million queries daily.

Despite its rapid success, Google faces an uncertain future as it tries to fend off stiffening competition from two much larger rivals, software giant Microsoft Inc. and Yahoo! Inc., which runs the world's most popular Web site.

Enquirer reporter John Eckberg contributed.

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