Google's IPO Pricing

[garyp]

Google set to reveal IPO price range via the Financial Times

Google is set as early as Monday to publish an estimated price range for its shares, triggering the countdown to the most eagerly awaited initial public offering in years.

The eventual price, however, will be set in an auction that may drive it much higher. This has caused concern on Wall Street that Google's stock may collapse once trading begins. Google's founders, Sergey Brin and Larry Page, along with its powerful venture capital backers, John Doerr of Kleiner Perkins and Mike Moritz of Sequoia Capital, have picked an auction mechanism to ensure they get the highest possible price.

But some on Wall Street argue that Google is being naïve. According to this view, many private investors are likely to bid high during the auction simply to ensure they receive shares, pushing the price to an unsustainable level.

[McFox]

An auction is probably the only way to try to prevent a share-price collapse.

The usual route of selling shares for a fixed price en-mass, typically results in a sudden grab of shares by the fortunate few who then immediately sell them on for a big profit. The pattern continues until the share price hits its maximum, followed by a reappraisal of actual worth, followed by a quick rush to off-load the shares before a price drop, resulting in stock-price collapse.

By auctioning the shares, the cycle of buy-sell which typically over-inflates share prices should be avoided.

[rustybrick]

http://www.sec.gov/Archives/edgar/da...24025/ds1a.htm

Symbol GOOG

Class A shares will range between $108.00 and $135.00 per share.

"You may obtain a bidder ID from www.ipo.google.com. We currently expect this web site to become available within a few days after the date of this prospectus. This web site may only be open for obtaining bidder ID’s for approximately one week. You will not be able to obtain a bidder ID after our underwriters begin taking bids in the auction for our initial public offering."

[garyp]

This News.com article highlights some other facts from the S-1A filing.

No date for the IPO was given.

In Monday's SEC filing, Google also revealed recent financial results, a key step in preparing for the stock offering. During the six months ended June 30, Google posted revenue of $1.4 billion, up from $560 million in the same period a year ago.

The company's net income jumped to $143 million in the six-month period, compared with $58 million a year earlier.

Meanwhile, Google's general counsel is facing a potential civil injunction from the SEC regarding his former work at educational software applications maker SmartForce, where he served as chief financial officer, according to Google's SEC filing.

The Internet giant is also facing continuing attrition among its underwriters. In its most recent SEC filing, Google no longer lists RBC Capital Markets and SunTrust Robinson Humphrey among its underwriters. Google now has 28 underwriters, down from its initial 31.

[Nacho]

I highly recommend this one: http://www.google-ipo.com/

IPO Date: To be determined
Method: Modified Dutch Auction
Lead Underwriters: Morgan Stanley, CSFB
Stock Symbol: GOOG
Exchange: NASDAQ
Number of Shares: 24,636,659
Share Price Range: Between $108 and $135
Value of Offering: $2.66 bil. to $3.32 bil.
Net Proceeds to Company: Approx. $1.66 billion
Initial Market Cap: Up to $36.25 billion

From the news article on CNN Money, it looks like both founders are going to take at least $100 million a each to secure their fortunes.

Google founders Sergey Brin and Larry Page will each own about 16 percent of Google's voting power after the offering. Brin plans to sell 962,226 shares, and Page is expected to sell 964,830 shares in the IPO.

Well deserved guys!!! Enjoy every penny

[garyp]

More on Google's general counsel facing a potential civil injunction

[NFFC]

So let me get this right, at the top end of the valuation Google could be worth $36 billion.

Thats more than Gillette, more than Boeing, more than McDonalds' almost as much as GM and Ford combined.

More than Gap and Nike combined.

More than Adobe, Xerox, Symantic, Seagate and Apple combined.

Is it me or is that crazy?

Source [a little dated maybe?] http://bwnt.businessweek.com/global_...sp?country=U.S.

[andrewgoodman]

Probably the most pertinent number here is 2004 earnings. There's no reason to believe they won't be fantastic.

News reports today say the valuation of GOOG could put the price-to-earnings ratio based on 2003 earnings above 200... something like 239. Obviously that sounds high, but most startups at that stage have pretty weak earnings. Some have losses.

Should GOOG come in with $500 million in net income on something like $2.2 billion in revenues for 2004, the $33 billion valuation doesn't look off at all. That would bring the P/E down to 66, which is lower than the multiple a fair number of mature companies in the high-tech sector have traded at when things have been hot.

It's a bit rich, but not by orders of magnitude. Probably a fair/conservative value for Google would be $15-17 billion. But markets are neither fair nor conservative.

And who cares what the market valuations of other "big name" conglomerates might be. Some of them have debt. Some are in declining industries. Some face high fixed costs. Some own slow-growth properties or are too diversified to be anything but steady income instruments. Most of them haven't built a billion-dollar cash machine using the world's fastest computers and fastest minds inside of five years.

The proposed valuation on GOOG is rich, but it isn't crazy. It's a very pure play, though, so the risk in it is massive. Anyone who put more than 5%-10% of their portfolio into this sector probably would be crazy.

All that aside, it seems odd to invest in anything that remains so tightly controlled by the inner circle. Dual-voting structure, etc. What are you getting for your money? Certainly not an equal vote or even the hope that institutional money could bring pressure on the company if it's acting pig-headed.

[seobook]

Originally Posted by andrewgoodman

What are you getting for your money? Certainly not an equal vote or even the hope that institutional money could bring pressure on the company if it's acting pig-headed.

typically in my estimation usually the investor is more short sighted and pig headed than brilliant company founders are. i am sure they will have their ups and downs, but I think the dual class thing is exceptionally smart

[garyp]

More from Reuters

By setting its initial public offering share price at a range topping off at $135 (74 pounds), the founders of Google may be taking another cue from legendary investor Warren Buffett..."They've thrown out an expression, through the pricing policy, that they are looking for long-term investors that are partners," said Thomas Russo of Gardner, Russo and Gardner, which owns about 1,000 shares of Berkshire Hathaway. "They've also done this through their owner's manual when they cited Warren Buffett."

From the "that's business" file. One of Buffet's companies, GEICO, recently filed suit against Google and Yahoo. That's business.

[andrewgoodman]

Originally Posted by seobook

typically in my estimation usually the investor is more short sighted and pig headed than brilliant company founders are. i am sure they will have their ups and downs, but I think the dual class thing is exceptionally smart

If you don't want shortsighted investors, then don't take their money. Dual class share structures are oft used here in Canada to allow families to control "their" companies even when they don't have the shares to do so. This can prevent takeover offers that would help all shareholders, and generally allow the old families to run things the way they like even when institutional money actually owns a large stake. So if you're a teacher or a street sweeper, and your pension fund manager holds stakes in these large companies (as they must, given their weight in the index), you may get a poor shake because your fund manager can't exert the proper influence to protect your interests.

External reality checks and fair corporate governance are healthier for most companies, notwithstanding the fact that the Google founders have every right to set the rules as they see fit. Part of being a market darling is dictating terms.

Still, the quirky way they've gone to market makes you wonder if it's gotten to the "Bart Simpson with superpowers" stage...

Bart: [sees Snowball 2] Every day, same old cat. I'll make it more
interesting. [furrows his brow, turning the cat into a
multi-colored fire-breathing whatever]
Snowball: Meow. [fire breath singes the breakfast table. The cereal
box is on fire]
Bart: Ah, there. That's better.
Marge: Much better. Oh, good! The curtains are on fire.
Homer: [nervously] It's good that you made that.. awful thing, Bart.
It's real good.
[Marge hoses down the fire with the fire extinguisher]


IMHO only.