Google Sets High Price Tag,
Picks 'GOOG' as Ticker Symbol
Separately, MyDoom Virus Slows
Access to Search Engine for Users
By KEVIN J. DELANEY and ROBIN SIDEL
Staff Reporters of THE WALL STREET JOURNAL
July 26, 2004 5:40 p.m.

Internet search giant Google Inc. put a price tag on itself, saying an initial public offering planned for August could value the six-year-old company at $36 billion, on a par with global brand icons such as McDonald's Corp. and Sony Corp.

In a filing with the Securities and Exchange Commission, Google estimated that its shares will sell for $108 to $135 each during the IPO. The final price will be set by investors, under the unusual Dutch auction process Google is using to allocate its shares.

While Google remains on track for a record-setting debut from which its two 30-something founders will each immediately pocket more than $100 million, the filing also highlights challenges the company faces in trying to rewrite the rules of IPOs. Analysts said the high per-share price may scare off some small investors, and two more underwriters dropped out of the deal, dramatizing the friction between Google's unconventional ways and the Wall Street firms it is counting on to pitch its stock to the masses.

The revised SEC filing provided a number of other key details, including Google's robust second-quarter financial results and a significant accounting change related to how it reports revenue. It will trade under the symbol "GOOG" on Nasdaq. (See Google's updated filing.)

Further highlighting the risks to Google's business was a problem that made the company's Web search results inaccessible to some Internet users for part of Monday. Keynote Systems Inc., a Web performance measurement service, said that problem appeared to be caused by a computer virus, which also affected other search sites and slowed down Internet traffic in general.

A Google spolesman said Monday afternoon that the search engine "experienced slowness for a short period of time early today because of the MyDoom virus, which flooded major search engines with automated searches. He said that "service for all users and networks is expected to be restored shortly." (See related article.)

The filing moves the process into high gear and sets the stage for a mid-August IPO. Google executives Tuesday will begin briefing the sales teams at brokerage firms that will take orders from prospective investors, according to a person familiar with the IPO plans. The company's top management will then spend as much as two weeks on the road meeting with prospective professional investors before launching the offering. In another indication of its unconventional plans, Google disclosed that it will offer a "virtual" road show on a Web site, and included a transcript of the presentation in its SEC filing.

In the filing, Google said it the company, and several existing shareholders, plan to sell 24.6 million shares at $108 to $135 a share, valuing the initial public offering between $2.7 billion and $3.3 billion, and the company at $29 billion to $36 billion.

Analysts said the Mountain View, Calif., company's valuation of itself appeared to be based closely on valuations of its publicly listed Internet peers, including Yahoo Inc., which sports a market capitalization of $38 billion. "The price range seems appropriate," said Marianne Wolk, an analyst at Susquehanna Financial Group.

In the end, the price will be determined by the auction, in which would-be investors propose to buy a specific number of shares at a specific price. Google will rank the bids based on the prices investors are willing to pay and then sell shares at the highest price at which 24.6 million shares would be sold. All successful bidders will purchase the shares at this price, even if they bid higher than that.

Some analysts said that the high per-share price tag and minimum five-share purchase could prove too rich for some small investors, reducing investor demand. They also said the planned August timetable for the offering could further cut demand, given that is when many people take vacations. The upcoming U.S. presidential elections and the summer Olympics could further distract individuals from bidding for the IPO.

As Google sells shares to investors, some of the company's biggest backers will be cashing in some of their chips. According to the filing, founders Sergey Brin and Larry Page plan to sell 962,226 shares and 964,830 shares, respectively, giving each of them windfalls of about $130 million if the stock goes public at $135. Chief Executive Eric Schmidt plans to sell 737,930 shares, which would earn him $99.6 million at a $135 per share IPO price.

Insider selling is typically seen as a warning sign to investors for newly public companies because it could mean that management thinks the company's performance is peaking. In this case, however, industry observers noted that the sales by Mssrs. Brin and Page represent less than 3% of their holdings in the company. Google previously had indicated there would likely be a substantial amount of selling by insiders when the company went public.

The filing disclosed that two more underwriters dropped out of the deal after determining that the low fees and high price range didn't justify their potentially small role in the IPO. The decision by RBC Capital Markets Corp., a unit of Royal Bank of Canada, and SunTrust Robinson Humphrey followed a similar move made last month by Merrill Lynch & Co.

"Basically, it is a matter of economics," said one person familiar with the situation, noting that the high share price would likely scare off some of the individual investors who would have been customers of the two firms. The deal is expected to spread about $90 million in fees among Wall Street, meaning the underwriters will earn slightly less than 3% of the deal's overall value compared with average fees of 3.5% on large IPOs.

A spokesman for RBC declined to comment. A representative of SunTrust wasn't immediately available to comment.

Still, Google faces no shortage of advisers to handle the offering; 28 brokerage firms remain in the deal. And the high-profile nature of the deal -- along with the big bragging rights that accompany it -- are likely to limit the number of drop-outs even though underwriters have been griping about Google's tight control over the process.

In the filing, Google changed how it accounts for revenue. The company now provides so-called gross revenue numbers that include payments it makes to its third-party advertising partners for ads Google places on their sites. In earlier filings, the company had argued that net revenue, which doesn't include those fees, was a more sensible measure of its business. But, likely because of SEC feedback on those filings, it now follows the practice of peers such as Yahoo.

Google also disclosed that David Drummond, its vice president of corporate development, secretary and general counsel since February 2002, was advised by the SEC staff this month that it intends to recommend that the SEC bring a civil injunction action against him, alleging violation of federal securities laws. Google said the SEC's recommendation arises out of his prior employment as chief financial officer of SmartForce, and "involves certain disclosure and accounting issues relating to SmartForce's financial statements." None of the allegations involve Google, the company said.