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Google's strong debut still short of forecast

By MATTHEW FORDAHL
The Associated Press

Google officials, from left, Eric Schmidt, Omid Kordestani and co-founder Larry Page.

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Despite the first-day jump, the debut generated much less money than the company envisioned after it launched an unorthodox auction designed to open the stock beyond large investors who typically get first crack at new stock issues.

Google priced the 19.6 million shares at $85 per share Wednesday night. It opened at $100.34 per share, up 18 percent, and after topping $104, finished the day at $100.33. The stock offering raised $1.67 billion.

The company originally hoped to open at between $108 and $135, generating as much as $3.6 billion and making the company worth up to $36 billion.

"If it's not a failure, it clearly didn't work the way Google's management intended it," said Barry Randall, portfolio manager for the First American Technology Fund.

Still, Google had a market value of $27.2 billion after its first day of public trading — on par with General Motors.

Google's triple digits Google became one of 20 companies traded on the New York Stock Exchange, the Nasdaq Stock Market or the American Stock Exchange whose shares trade for more than $100 apiece. Berkshire Hathaway A $86,490.00 Berkshire Hathaway B $2,881.10 Washington Post $903.01 Grey Global $882.55 Seaboard $540.00 NVR $504.50 White Mountains $498.50 Wesco Financial $346.00 Markel $285.00 Allegheny $254.50 Alexander's $173.01 National Western Life $155.72 Student Loan $139.50 Chicago Merc Exchange $133.77 Park National $120.40 First Citizens $115.25 Golden West Financial $106.04 Titanium Metals $104.22 Great Northern Iron $101.50 E.W. Scripps $101.31 Google $100.34 Source: Bloomberg News

The IPO also brought instant riches to hundreds of employees of a company that was dreamed up in a college dorm room in 1998 but soon became synonymous with Internet searches. In true dot-com fashion, a scheduled summer picnic planned for today near Google's Mountain View headquarters is expected to turn into an IPO party.

About 1,000 of Google's nearly 2,300 employees are now millionaires on paper, according to an analysis done by Salary.com, which tracks employee compensation.

"There are going to be some pretty good parties in the Bay Area this evening — probably not a lot of work getting done at Google tomorrow," said Bill Coleman, the firm's senior vice president of compensation.

The offering also made co-founders Sergey Brin and Larry Page billionaires — at least on paper. From share sales in the IPO, Page collected $41.1 million and Brin got $40.9 million, but that pales in comparison to the more than $3 billion each still holds in Google shares.

Celebrations are likely to be more muted in the offices of Google's underwriters, who will share just $46.7 million for handling the stock offering. That is just a 2.8 percent commission, a fraction of the 7 percent they typically receive.

Google's price was set Wednesday after the close of an unusual auction in which would-be investors bid how much they thought the search engine to be worth. All winning bidders paid the same price — one that guaranteed the sale of all 19.6 million shares.

Though the so-called Dutch auction was designed to open the IPO beyond large investors, that isn't what actually happened, said David Garrity, a technology analyst in New York with Caris & Co.

Investors needed large bank accounts to qualify for the auction, and international investors were barred from participating. And others might have been scared by Google's initial per-share price estimate.

"It was supposed to democratize the process and let people buy in at just a few shares, but it was a miserable failure because the organizers didn't realize the securities regulations that require people who bid to have a certain net worth," said Garrity.

Most analysts expect Google's stock price to be volatile, both because of missteps leading up to the IPO and its executives' statements on how they run the company.

Since Google first filed to go public, it has painted itself in regulatory filings as an untraditional company.

Its leading position as a search engine and hot stock prospect quickly led to unprecedented attention that both revealed several warts and raised doubts about its executives.

Before any shares were sold, the company announced that it was the subject of regulatory attention for failing to register pre-IPO stock and options as well as an interview in Playboy magazine by its founders during the so-called quiet period.

Now, investors must both digest the implications of those missteps and the company's structure.

The company also faces stiff competition — from small startups like Vivisimo to tech titans like Yahoo! and Microsoft.

"Google came out of nowhere and it's entirely possible that the next big competitor could come out of nowhere, too," said Tara Calishain, co-author of "Google Hacks" and author of the soon-to-be-released "Web Search Garage."

Material from The Washington Post and USA Today is included in this report.

Copyright © 2004 The Seattle Times Company

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