Taking a cue from investment guru Warren Buffet, Google's founders set a high opening share price for their upcoming initial public offering of Google stock. With class A shares expected to run between $108 and $135 a share, Google made it clear that they are looking for long-term investors rather than speculators hoping to turn a quick profit on a few shares.
High stock prices are more likely to limit purchases by speculators, who often buy large quantities of stock at $10 or $15 a share and resell it at a profit of a few dollars per share. The higher commissions that accompany a stock priced in Google's range tend to limit the profitability of speculation and leave the shares available for more serious long-term investors to purchase.
The high initial price surprised many would be investors who had hoped to have a chance to buy into Google via the company's unorthodox planned dutch auction of shares. Of the thousands of public companies that trade more than 10,000 shares a day, only about a dozen have prices above $100 a share. Additionally, Google's IPO will only place about 10% of the company’s shares in the hands of the public.
The move has left many wondering if the often hyped Google IPO has been pushed past the point of reason. The announced stock price puts the company's valuation at around $36 billion, just shy of Yahoo!'s current $37.8 billion valuation. Many investors are wondering if Google, whose business revolves mostly around search and search related advertising dollars, can fairly be valued as highly as Yahoo!, which offers a variety of subscription based services on tops of its search and advertising offerings. Google's valuation based on the expected IPO stock prices is even higher than long-term stalwarts like Ford and McDonalds.
Scott Kessler, an equity analyst with Standard & Poor's pointed out the risks of the high IPO price to CNN Money, "There's not as much unbridled excitement about the offering now. A lot of technology and Internet stocks don't look nearly as appealing as they did in April, May or June." In other words, Google may not receive the warm Wall Street welcome that they've been expecting. Still, Kessler went on to state that "...this company could easily grow revenues, say 50 percent over the next three to five years. In terms of large quality Internet companies, not many if any at all are growing at that rate."
Google will trade on the Nasdaq under the symbol "GOOG," though an exact date for the IPO has not yet been set. The unconventional company plans to distribute shares via a public auction that would provide the general public with a chance to purchase shares before they begin trading. Google has stated that they hope to begin trading in August.
A copy of Google's prospectus is available by contacting:
Morgan Stanley & Co. Incorporated
New York, NY 10036
Credit Suisse First Boston LLC
One Madison Avenue
New York, NY 10010
July 26, 2004
Jennifer Laycock is the Editor of Search Engine Guide, the Social Media Faculty Chair for MarketMotive and offers small business social media strategy & consulting. Jennifer enjoys the challenge of finding unique and creative ways to connect with consumers without spending a fortune in marketing dollars. Though she now prefers to work with small businesses, Jenniferâ€™s clients have included companies like Verizon, American Greetings and Highlights for Children.
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