In what is likely to be Silicon Valley's biggest IPO, Google said Monday that it will sell nearly 25 million shares to the public, priced between $108 to $135, to raise as much as $3.3 billion.
However, in an unusual twist, the Mountain View Internet search company disclosed that a large portion of that money would go not to Google but to insiders who will be selling their shares into the market. More than 40 percent of the shares sold in the IPO will come from insiders such as co-founders Larry Page and Sergey Brin, as well as early investors such as Yahoo and AOL.
The steep stock price, as well as the fact that the Internet search leader's growth slowed last quarter, will test the appetite of investors. Google has warned repeatedly that investors should not expect a big bounce, or quick paper profits, from its IPO, and the high price may ensure that.
Moreover, many financial analysts note that the company may be coming into the market at the top of its value. If the stock sells at the expected price, Google would have a market value of between $29 billion and $36 billion, just shy of rival Yahoo.
``The question is, if you had $30 to $35 billion to spend, is Google what you would buy?'' said Kevin Landis, chief investment officer of Firsthand Capital Management in San Jose.
Ticker symbol: GOOG
Google will sell its shares on the Nasdaq under the ticker symbol GOOG. The IPO will likely take place in August, and perhaps as soon as Aug. 9. The price Google put on its stock Monday is not final, but an estimate. The actual price will be determined by bids in the unusual auction-style IPO that Google is planning.
Google executives, venture capitalists and other early investors are contributing 10.5 million shares to the IPO, an unusual move. Brin is offering 962,226 shares, or 2.5 percent of his 38.5 million stake, worth $129.9 million if the stock trades at the high end of the proposed price range. Page is selling 964,830 shares, also 2.5 percent of his 38.5 million holdings, worth as much $130.3 million. Venture capitalist John Doerr is selling 10 percent of his firm's stake, or 2.1 million shares.
The fact that insiders and early investors are selling such a high number of shares often raises red flags with investors, who wonder why people are bailing out on a company's stock.
Firsthand Capital stock analyst David DuChene said it's one negative too many.
``Seems to me there is no reason whatsoever to buy this stock until all those lockups come off,'' he said.
But Google's insider selling does not appear to be causing alarm among most professional investors. In some cases, such as with Yahoo, the sell-off makes sense, analysts said. Yahoo is offering 550,000 shares, or 10 percent of its holdings in Google.
The new details about the stock offering came in a filing with the Securities and Exchange Commission. In it, Google also updated its earnings statements for the quarter that ended June 30.
In the second quarter, Google earned $79.1 million, or 30 cents a share. That compares with $32.2 million, or 12 cents a share, in the same period last year. Sales more than doubled, to $700 million.
Google gets the vast majority of its money from selling ads alongside it own search results at www.google.com and those of its partners, including AOL and Ask Jeeves. It also places ads with Web site publishers, from small Weblogs to large newspapers such as USA Today. The company gets money each time a user clicks on an ad.
Google said fewer people visited its partners' Web sites and clicked on ads last quarter, slowing its revenue growth. Gross revenue grew 27 percent from the end of December to the end of March. But it increased just 7.5 percent between the end of March and June.
At the same time, the cost of its revenues grew, as Google paid more to have its ads placed on its partners Web sites.
Google characterized the slowdown as seasonal. Analysts interpreted that as meaning that more people are spending time away from their computers during summer holiday season.
``The growth rate came down, and we expected it to come down,'' said Mark Mahaney, Internet analyst with American Technology Research. ``I think, overall, the Google numbers were impressive.''
But others saw red flags in the latest earnings numbers. One IPO-watcher said Google's growth rate will need to improve if it's to justify the high stock price.
``It's strange, there is so much hype around this, but so many pundits are calling it a bad deal,'' said Francis Gaskins, editor of IPOdesktop.com. ``It's confusing. Where is the demand going to come from for this?''
Google also disclosed Monday that its general counsel, David Drummond, has been told by the SEC that Drummond could be subject to an enforcement action for possibly violating rules including the civil anti-fraud rules while he was chief financial officer at SmartForce before 2002. Drummond plans to dispute the action.
With Monday's filing, Google appears to have launched its road show, when it meets with major prospective investors -- including pension funds and other institutions -- and tries to sell them on the merits of its IPO. That means the actual IPO could come in the next two to four weeks. It was not yet clear when individual investors would get information about the sale from the various brokers handling the deal.
But Google did unveil a Web site, www.ipo.google.com, where investors will go to register to make bids in the auction. Google said the IPO Web site will become fully functional in the coming days.
Google's stock will apparently be coming to market at a premium, compared with its peers. One common benchmark of a stock's value, the ratio of earnings per share, suggests Google's 2004 price-to-earnings ratio would be 100, if the stock sells for $108 a share. By contrast, Yahoo's price-to-earnings ratio would be 94, and eBay's 64.
Some investment experts said that was too pricey for them.
``That's expensive,'' said Duane Roberts, head of equity strategy at Dana Investment Advisers in Brookfield, Wis. ``My thinking had certainly been lower than that.'' Some companies have been known to split their stock prices before their IPOs to hit a price point that is more appealing to investors. By not doing that,
Google may end up scaring off many individual investors who cannot stomach a three-digit share price when the broader stock market is treading water.
``For the investor who thinks about stocks in terms of share price, they may be trying to shake them out,''
However, in an unusual twist, the Mountain View Internet search company disclosed that a large portion of that money would go not to Google but to insiders who will be selling their shares into the market. More than 40 percent of the shares sold in the IPO will come from insiders such as co-founders Larry Page and Sergey Brin, as well as early investors such as Yahoo and AOL.
The steep stock price, as well as the fact that the Internet search leader's growth slowed last quarter, will test the appetite of investors. Google has warned repeatedly that investors should not expect a big bounce, or quick paper profits, from its IPO, and the high price may ensure that.
Moreover, many financial analysts note that the company may be coming into the market at the top of its value. If the stock sells at the expected price, Google would have a market value of between $29 billion and $36 billion, just shy of rival Yahoo.
``The question is, if you had $30 to $35 billion to spend, is Google what you would buy?'' said Kevin Landis, chief investment officer of Firsthand Capital Management in San Jose.
Ticker symbol: GOOG
Google will sell its shares on the Nasdaq under the ticker symbol GOOG. The IPO will likely take place in August, and perhaps as soon as Aug. 9. The price Google put on its stock Monday is not final, but an estimate. The actual price will be determined by bids in the unusual auction-style IPO that Google is planning.
Google executives, venture capitalists and other early investors are contributing 10.5 million shares to the IPO, an unusual move. Brin is offering 962,226 shares, or 2.5 percent of his 38.5 million stake, worth $129.9 million if the stock trades at the high end of the proposed price range. Page is selling 964,830 shares, also 2.5 percent of his 38.5 million holdings, worth as much $130.3 million. Venture capitalist John Doerr is selling 10 percent of his firm's stake, or 2.1 million shares.
The fact that insiders and early investors are selling such a high number of shares often raises red flags with investors, who wonder why people are bailing out on a company's stock.
Firsthand Capital stock analyst David DuChene said it's one negative too many.
``Seems to me there is no reason whatsoever to buy this stock until all those lockups come off,'' he said.
But Google's insider selling does not appear to be causing alarm among most professional investors. In some cases, such as with Yahoo, the sell-off makes sense, analysts said. Yahoo is offering 550,000 shares, or 10 percent of its holdings in Google.
The new details about the stock offering came in a filing with the Securities and Exchange Commission. In it, Google also updated its earnings statements for the quarter that ended June 30.
In the second quarter, Google earned $79.1 million, or 30 cents a share. That compares with $32.2 million, or 12 cents a share, in the same period last year. Sales more than doubled, to $700 million.
Google gets the vast majority of its money from selling ads alongside it own search results at www.google.com and those of its partners, including AOL and Ask Jeeves. It also places ads with Web site publishers, from small Weblogs to large newspapers such as USA Today. The company gets money each time a user clicks on an ad.
Google said fewer people visited its partners' Web sites and clicked on ads last quarter, slowing its revenue growth. Gross revenue grew 27 percent from the end of December to the end of March. But it increased just 7.5 percent between the end of March and June.
At the same time, the cost of its revenues grew, as Google paid more to have its ads placed on its partners Web sites.
Google characterized the slowdown as seasonal. Analysts interpreted that as meaning that more people are spending time away from their computers during summer holiday season.
``The growth rate came down, and we expected it to come down,'' said Mark Mahaney, Internet analyst with American Technology Research. ``I think, overall, the Google numbers were impressive.''
But others saw red flags in the latest earnings numbers. One IPO-watcher said Google's growth rate will need to improve if it's to justify the high stock price.
``It's strange, there is so much hype around this, but so many pundits are calling it a bad deal,'' said Francis Gaskins, editor of IPOdesktop.com. ``It's confusing. Where is the demand going to come from for this?''
Google also disclosed Monday that its general counsel, David Drummond, has been told by the SEC that Drummond could be subject to an enforcement action for possibly violating rules including the civil anti-fraud rules while he was chief financial officer at SmartForce before 2002. Drummond plans to dispute the action.
With Monday's filing, Google appears to have launched its road show, when it meets with major prospective investors -- including pension funds and other institutions -- and tries to sell them on the merits of its IPO. That means the actual IPO could come in the next two to four weeks. It was not yet clear when individual investors would get information about the sale from the various brokers handling the deal.
But Google did unveil a Web site, www.ipo.google.com, where investors will go to register to make bids in the auction. Google said the IPO Web site will become fully functional in the coming days.
Google's stock will apparently be coming to market at a premium, compared with its peers. One common benchmark of a stock's value, the ratio of earnings per share, suggests Google's 2004 price-to-earnings ratio would be 100, if the stock sells for $108 a share. By contrast, Yahoo's price-to-earnings ratio would be 94, and eBay's 64.
Some investment experts said that was too pricey for them.
``That's expensive,'' said Duane Roberts, head of equity strategy at Dana Investment Advisers in Brookfield, Wis. ``My thinking had certainly been lower than that.'' Some companies have been known to split their stock prices before their IPOs to hit a price point that is more appealing to investors. By not doing that,
Google may end up scaring off many individual investors who cannot stomach a three-digit share price when the broader stock market is treading water.
``For the investor who thinks about stocks in terms of share price, they may be trying to shake them out,''
with a high share price, said Douglas Whitman, president of Whitman Capital. ``You want to protect the little person. I'm happier they haven't done a split.''
Other analysts said Google's share price was less relevant than the company's revenue growth and cash flow. By those measures, Google's earnings statement suggested that it has the potential to match Yahoo's peformance.
Other analysts said Google's share price was less relevant than the company's revenue growth and cash flow. By those measures, Google's earnings statement suggested that it has the potential to match Yahoo's peformance.
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