Searching for $2.7 billion result, Google files IPO plan

Most-watched tech deal since '00 dot-com collapse

April 30, 2004|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Internet search giant Google Inc. filed its highly anticipated initial public offering plan yesterday, revealing details for the first time about its profitable business and its expectation of raising $2.7 billion in the most-watched technology deal since the dot-com investment meltdown four years ago.

In keeping with its founders' quirky management style, anti-big business sentiment and "Don't be evil" motto, the Mountain View, Calif., company said it will hold an online auction designed to give the public a better chance to purchase stock before shares begin trading. IPO shares are usually sold to a select group of investors chosen by the investment bankers handling the transaction.

The announcement was the most visible manifestation of a reblossoming of the dot-com economy since its devastating crash in 2000.

Google, Yahoo, Amazon and a half-dozen other survivors of that disaster are increasingly profitable and energized with plans for growth.

Internet advertising has revived. Online consumer markets are thriving - online Christmas sales jumped more than 20 percent to an estimated $9.8 billion last year, up from $8 billion in 2002 - and investors are showing renewed interest in the stocks of profitable Internet companies.

In its Securities and Exchange Commission filing yesterday, Google did not disclose a price per share or identify a date for the IPO, which could take place in the late summer or early fall at the earliest.

Yesterday, industry experts said the public offering will not only make billionaires of Google's founders but will also help rejuvenate the technology sector's search engine and online advertising markets. With 200 million queries a day, Google is the world's largest search engine.

"It's going to be an amazing public offering," said Chris Winfield, a search engine expert and president of 10e20 LLC, a search engine marketing firm in New York City. "Other smaller technology search engine firms will ride their waves. Overall, I think it's a great thing. I don't think anyone doubts that. But what it holds for them in the future is up for grabs."

Long-rumored step

A Google public offering, which is being led by Morgan Stanley and Credit Suisse First Boston, has been rumored for more than a year. Google founders have relished the relative freedom of operating as a private company. They acknowledged their hesitancy to take the company public, restating that view in a letter enclosed in the SEC filing.

But as the company - begun in 1998 by University of Maryland alumnus Sergey Brin and his Stanford University graduate school colleague Larry Page - grew more successful, the pressure intensified.

The IPO decision became more concrete when Google had to comply with an SEC rule requiring private companies with more than 500 shareholders and $10 million in assets to start disclosing financial results.

In the first disclosure of the powerhouse's finances, the SEC filing shows that Google's net revenue last year was $961.9 million, a 177 percent jump from its 2002 net revenue. In the three months that ended March 31 this year, Google's net revenue was $389.6 million, up from $178.9 million in the same quarter a year earlier.

Google's net income was $64 million for the first quarter of this year, a 148 percent increase from the $25.8 million it made in the corresponding quarter a year earlier. Its net income for last year was $105.6 million.

Advertisers generated about 95 percent of the company's net revenue, the SEC filing said.

"That's a tremendous cash-generating machine," said Eric Martinuzzi, a senior research analyst at Craig Hallum Capital Group in Minneapolis. "Google is such a powerful brand out there. Their secret was that they created a way to search and categorize the Web that was better than other search engines out there. What you have here is a tremendous algorithmic search engine married with a direct marketing vehicle putting ads in front of consumers at a time when they're looking to purchase a product or service."

Instead of basing a search on the number of times a word appeared in any Web site, Brin and Page developed algorithms that would list Web sites and pages valued most by Internet users.

That technique helped launch Google as the top search destination, attracting 65 million Web surfers last month, according to Nielsen/NetRatings. Yahoo Search and MSN Search were the second and third most popular destinations drawing more than 48 million and 45 million unique visitors, respectively.

Rivals in pursuit

Google's competitors are working hard to close the gap. Yahoo Inc., a one-time investor, has steadily acquired several companies that will go head-to-head against Google. Microsoft, whose Windows products are the dominant operating systems of personal computing, also said it is working on a search engine product.

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