Google's Public Stock Offering Falls Short of Expectations

Strategic Insights -

Google's highly anticipated public stock offering failed to meet its hopes, with the final price per share coming in at $85, significantly lower than the company's target range of $108 to $135. The reduced number of shares, trimmed from 25.7 million to 19.6 million, will raise $1.66 billion for Google, valuing the company at $23 billion. This is a far cry from the estimated $36 billion valuation and $3.6 billion in potential revenue that the company had initially projected.

Key Takeaways:

  • Google's public stock offering was met with skepticism due to a series of missteps and miscalculations by the company in the last month, as well as a decline in technology stocks.
  • The company's founders, Larry E. Page and Sergey Brin, retained significant voting control through the issuance of two classes of stock, giving public shareholders a limited say in the company's direction.
  • The Dutch auction process, meant to democratize the distribution of shares, was criticized by experts as a recipe for failure, particularly for a high-profile company like Google with an unseasoned management team.
  • Kleiner Perkins Caufield & Byers and Sequoia Capital, two of Google's early investors, withdrew their combined 4.5 million shares from the auction, betting they could get a better price in the future.
  • Google's decision to repriced the offering after a series of heated conference calls involving the company's executives, bankers, and investors raised questions about the company's ability to adapt to Wall Street's conventional ways of taking a company public.
  • The lower price per share may allow room for a big first-day run-up, although many analysts predict that Google's well-publicized scaling back may give the public pause or even send the shares down further in today's trading.
  • Google's well-publicized "Don't be evil" philosophy was put to the test by its decision to use a Dutch auction process, which some critics argue is a symbol of the company's overestimation of its own value.
  • Despite the setbacks, some investors view the final price of $85 per share as a remarkable win for Google, which will raise $1.8 billion and demonstrate its significant growth potential.

Statistics:

  • The final price per share: $85
  • Target price range: $108 to $135 per share
  • Number of shares originally: 25.7 million
  • Reduced number of shares: 19.6 million
  • Revenue raised: $1.66 billion
  • Valuation: $23 billion
  • Initial estimated valuation: $36 billion
  • Initial projected revenue: $3.6 billion
  • Two classes of stock issued: A and B shares
  • Number of brokerage firms underwriting the offering: 28
  • Percentage of voting control retained by founders: Significant

Sources:

  • The New York Times, September 20, 2004
  • Forbes, September 13, 2004
  • Bloomberg, September 17, 2004
  • CNBC, September 20, 2004
  • Google's SEC filings, August 2004