Forthcoming Google IPO to rewrite Wall St conventions

30 Apr 2004

Search engine giant Google, the hottest property on the internet, said last night that it hoped to raise $2.7bn through an initial public offering of shares.

Registering the filing with the US Securities and Exchange Commission, the company said it would offer the shares through the unusual vehicle of a public auction. However, it did not disclose the number of shares that would be offered or give a price indication.

Google, which is currently establishing its European operations centre in Dublin, said it planned to create two types of share with different voting rights, a move that is seen as ensuring that control of the group remains with founders Larry Page and Sergey Brin.

Google also revealed its financial results for the first time. The company made US$961.9m in revenue in financial year 2003, of which US$105.6m was net profit. During the quarter ending 31 March 2004, Google generated US$389.6m in revenue and made a US$64m profit.

Google employed 1,907 employees on 31 March, six times the number of three years ago. Its famously employee friendly policies sees fridges stocked full of food and drink, bean bags to sit on and employees free to bring their pets to work with them.

The company is adopting a similarly original approach to the IPO, as typified by a letter that the company is sending out to investors, which it has dubbed an “owner’s manual for shareholders.” The letter outlines the company’s goals and tells investors that the company will be run for the long-term benefit of shareholders, not the short-term gratification of Wall St.

“As a private company, we have concentrated on the long term, and this has served us well. As a public company, we will do the same,” the letter states.

“In our opinion, outside pressures too often tempt companies to sacrifice long-term opportunities to meet quarterly market expectations. Sometimes, this pressure has caused companies to manipulate financial results in order to ‘make their quarter’. In Warren Buffett’s words, ‘we won’t smooth quarterly or annual results: if earnings figures are lumpy when they reach headquarters, they will be lumpy when they reach you.'”

The company is also placing an unusually high value on the small investor who it believes will most benefit from the auction mechanism.

“It is important to us to have a fair process for our IPO that is inclusive of both small and large investors. It is also crucial that we achieve a good outcome for Google and its current shareholders,” the filing states.

“This has led us to pursue an auction-based IPO for our entire offering. Our goal is to have a share price that reflects a fair market valuation of Google and that moves rationally, based on changes in our business and the stock market.”

Yesterday’s filings also for the first time revealed the salaries of top Google executives. Founders Page and Brin earn US$150,000 annually with a bonus of US$206,000. CEO Schmidt makes US$250,000 with a bonus of US$300,000. Omid Kordestani, senior vice president of worldwide sales, earns US$175,000, with nearly US$400,000 in bonuses. Wayne Rosing, vice president of engineering, takes home US$175,000, with US$150,000 bonus.

By Brian Skelly