Feature

Google IPO approved by SEC

The US Securities and Exchange Commission (SEC) has approved Google's plan for its initial public offering (IPO).

Google can now close its share auction inviting bids from potential investors and allow its underwriters to begin accepting some of those bids to start public trading.

Google had said that the offer price for shares would be in the range of $85 ($46.49) to $95 - down from the estimate of $108 to $135 originally cited in its prospectus - but has now confirmed that it will sell the shares at $85 each.

Google will trade on the Nasdaq under the ticker symbol "GOOG" and is hoping to raise about $1.3bn from the sale of about
14.1 million shares.

The IPO has not been without hiccups. The company drew the attention of SEC and California authorities by revealing that US securities laws may have been violated when it issued unregistered shares to employees and consultants in the past.

Google has offered to solve the problem by buying back the shares in question, at a potential cost of about $25.9 million. An informal inquiry into the episode is continuing, an SEC spokeswoman said.

Another controversy centers on an interview Google's founders granted to Playboy magazine in April, before the company filed its IPO registration papers with the SEC.

The interview appeared in the magazine's September issue (already on the streets) raising concerns that it might put the company in violation of the Securities Act, which bars executives from discussing their companyies' prospects in the run-up to an IPO.

General consumer users should not be too concerned about Google's IPO bloopers because, in the worst case, they can switch to a competitor for internet services, said Rob Enderle, principal analyst in Enderle Group.

But enterprise customers, such as those who have purchased the company's Search Appliance, should be more worried, he said.

"The IPO has been horribly handled and it does reflect on the way Google is being run. A corporate customer buys something and expects to get support and a certain amount of service for its purchase," and if the supplier cannot deliver, said Enderle, it raises the level of risk the corporate customer has to take into account.

"The mistakes are pretty much unprecedented in a company like Google. This should be something the corporate buyer should watch," said Enderle.

Others think the fallout from the IPO bungles is not so serious. "The company has got a lot of publicity for what is an unorthodox way of raising money in the capital markets, and that plays well to its brand image as a pioneer," said David Schatsky, a Jupiter Research analyst.

"There has been a lot written about [the IPO] glitches, but [the IPO] is only going to be good for consumers and other Google customers."

"If being interviewed in Playboy is a mistake, it's about the most benign mistake that a corporate executive has made in the past three years," Schatsky added.

Google has been tight-lipped about how it will use the money it raises from the IPO. In its prospectus, Google, without being more specific, said it would use the money for general corporate purposes, such as sales and marketing, research and development  and general and administrative expenses; capital expenditures; and possible acquisitions of businesses, technologies or other assets.

"The company has been extremely quiet about its strategic plans and how it intends to use the money it is raising, so it is reasonable to expect there will be no immediate visible impact for either enterprise customers or consumers following this IPO," Schatsky said.

"Whatever changes it is planning are probably already scheduled and will proceed according to a pre-determined timeframe, but the offering itself will not precipitate any noticeable changes," he said.

Google should focus on exploiting the value of its assets, such as its technology platform, its infrastructure, its brand name, its intellectual property and the vast amount of traffic it generates as the most widely used search engine in the world, Schatsky said.

"It would be wise to be selective about what it does. The world does not need another portal, unless Google can provide the functionality in a way that benefits dramatically from its unique search capabilities," he said. "The company is built on the strength of a small number of really good ideas."

How Google chooses to invest its IPO money will determine whether it succeeds, like competitor Yahoo, or collapses like internet supernova Netscape, Enderle said.

"If we were talking about a mature company, you would expect it to be putting a lot of effort into research and development, to build out a product suite. An immature company might go on an acquisition spree. That is what Netscape did," Enderle said.

Based on the way Google has handled the IPO process, Enderle is skeptical about the company's future.

"Since it is behaving more like Netscape, I'm concerned that it will spend a lot of the money on perks and buying companies as opposed to on much more sure investments," Enderle said. "The IPO process gave us a view of Google that was anything but mature."

Laura Rohde and Juan Carlos Perez write for IDG News Service 
 
 

 


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This was first published in August 2004

 

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