Google IPO Official Options

[rustybrick]

http://news.com.com/2100-1024-5201978.html

"Finally, Google files IPO papers"

[bwelford]

Thanks for posting this, rustybrick.

I guess it was good to see the following in a letter to investors from Brin and Page:

The letter outlines the company's goals, warning investors that Google as a public company will not follow the usual path.  

\"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.

So it will continue to be the Google we know and love. :roll:

[Respree]

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.

This statement should prove interesting.

There is so much pressure from shareholders for public companies to produce 'short-term' results. I wonder if they will 'bow.'

I suspect they will find they won't enjoy the flexibility they once enjoyed as a private company.

[rustybrick]

Yea. Lets see. In the other forums people are using the term 'googlesoft'.

[bragadocchio]

Here's a link to the SEC filing.

I just started to read it now, so I don't have much in the way of analysis, except to say that the "letter" Barry referred to above is part of the filing.

http://www.sec.gov/Archives/edgar/data/128...4073639/ds1.htm

[Respree]

Shouldn't take to long to get through 100 pages, Bill. Don't forget the 28 'F' pages too.

Looking forward to your analysis.

[bragadocchio]

It did take a while to go through all of those pages.

They were definitely worth a look and I might read through them again this weekend.

Rather than a full-blown analysis, I'd like to just point out some of the words in the filing, and urge people to read through as much of it as they can or want.

A couple of observations. One is that they have not chosen between the New York Stock Exchange or NASDAQ yet.

Another is that they will have two classes of shares, class A and Class B. They will only be selling class A shares. There are $2,718,281,828 worth of shares at a par value of $0.001 per share (that's not the selling price, but rather a valuation for purposes of registering the shares.)

There are a couple of sections that should interest most people who make a living working on the web.

One of them is the "Letter from the Founders" subtitled "'An Owner’s Manual' for Google’s Shareholders." It's written by Larry Page, and presented with a promise that Sergy Brin will write next year's letter, and the two will alternate from then on out.

The two founders and their CEO are possibly indispensable parts of the company. Google relies upon these three, and their efforts as a team at Google are a major part of the success of the business. The letter tells us how they work together.

To facilitate timely decisions, Eric, Sergey and I meet daily to update each other on the business and to focus our collaborative thinking on the most important and immediate issues. Decisions are often made by one of us, with the others being briefed later. This works because we have tremendous trust and respect for each other and we generally think alike. Because of our intense long term working relationship, we can often predict differences of opinion among the three of us. We know that when we disagree, the correct decision is far from obvious. For important decisions, we discuss the issue with the larger team. Eric, Sergey and I run the company without any significant internal conflict, but with healthy debate. As different topics come up, we often delegate decision-making responsibility to one of us.

The two different types of shares have different voting powers, with the class B shares having ten times the votes as class A shares. The duo class system is supposed to "make it harder for outside parties to take over or influence Google. This structure will also make it easier for our management team to follow the long term, innovative approach emphasized earlier. "


Google has recently added three more directors. They are named in this filing, and in Larry Page's letter:

John Hennessy is the President of Stanford and has a Doctoral degree in computer science. Art Levinson is CEO of Genentech and has a Ph.D. in biochemistry. Paul Otellini is President and COO of Intel.

We also learn a little about the inner workings of Google, and now know that Google employees often refer to themselves as Googlers.


The other part that I found was really interesting were the risk factors. One of the major reasons for a filing like this is to disclose to potential purchasers of shares risks that face the company. There are a few points in the document where these are reviewed.

Here's one of them:

We are susceptible to index spammers who could harm the integrity of our web search results.  

There is an ongoing and increasing effort by “index spammers” to develop ways to manipulate our web search results. For example, because our web search technology ranks a web page’s relevance based in part on the importance of the web sites that link to it, people have attempted to link a group of web sites together to manipulate web search  
results. We take this problem very seriously because providing relevant information to users is critical to our success. If our efforts to combat these and other types of index spamming are unsuccessful, our reputation for delivering relevant information could be diminished. This could result in a decline in user traffic, which would damage our business.

We are told by Larry Page that, "We plan to conduct this auction in five stages—Qualification; Bidding; Auction Closing; Pricing; and Allocation."

Those stages, and the auction process are detailed in the filing if you want to find out more. You might want to discuss that part of the document with someone who can understand the processes involved.

[rustybrick]

To expand on Bill's last post (not that I am a financial expert), I want to discuss the process by quoting some key passages from the document.

The Qualification Process
When the preliminary prospectus becomes available, you will be able to obtain a unique bidder ID from a web site. You will not be able to obtain a unique bidder ID after our underwriters begin taking bids in the auction for our initial public offering.

We seek to enable all interested investors to have the opportunity to qualify to bid and, following qualification, place bids in the auction for our initial public offering. To help meet this objective, we expect to use an underwriter group that serves all segments of the investing public.

The Bidding Process
All investors that have qualified to bid may submit bids indicating their interest in our offering through one of our underwriters.

You must provide the following information:
- The number of shares you are interested in purchasing.
- The price per share you are willing to pay
- Additional information to enable the underwriter to identify you, confirm your eligibility and suitability for participating in our initial public offering, and, if you submit a successful bid, consummate a sale of shares to you

To submit a bid, you should contact one of the following underwriters:
- Morgan Stanley & Co. Incorporated
- Credit Suisse First Boston LLC

Many of these underwriters have the ability to receive bids from their customers over the Internet, and all can receive bids from their customers by telephone or facsimile.

The Auction Closing Process
You will have the ability to modify or withdraw any bid until the auction is closed and successful bids are accepted. If you are requested to confirm your bid and fail to do so before the auction is closed to bidding, your bid will be rejected.

Once the auction has closed and the underwriters have accepted your bid, you will not be able to withdraw it. If your bid is accepted, our underwriters will provide you electronic notice of their acceptance of your bid. If the price for our shares set in the auction is at or below the price you bid and your bid is accepted, you will be obligated to purchase the shares allocated to you in the auction process, up to the total number of shares represented by your successful bid.

The Pricing Process
We expect that the bidding process will reveal a clearing price for the shares of Class A common stock offered in our auction.

We intend to use the auction clearing price as the principal factor to determine the initial public offering price and, therefore, to set an initial public offering price that is near or equal to the clearing price. However, we and our underwriters have the ability to set an initial public offering price that is below the clearing price.

The Allocation Process
All investors who have submitted and not withdrawn bids with a price per share that is equal to or greater than the initial public offering price will be eligible to receive an allocation of shares and a confirmation of their purchase in our offering. All shares will be sold at the initial public offering price. Bids with a price per share below the initial offering price will not be eligible to receive an allocation of shares.


I think i got the goodies from the process quoted here.

[Respree]

Nice review, Bill. Thanks.

Other highlights below.

I agree. The opening "Letter from the Founders" is a must read. It’s highly unusual in this type of document, very cleverly crafted and highly effective at the same time. Here are a few short snippets highlighting their philosophy.

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. 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.”

We will not shy away from high-risk, high-reward projects because of short term earnings pressure. Some of our past bets have gone extraordinarily well, and others have not. Because we recognize the pursuit of such projects as the key to our long term success, we will continue to seek them out. For example, we would fund projects that have a 10% chance of earning a billion dollars over the long term. Do not be surprised if we place smaller bets in areas that seem very speculative or even strange. As the ratio of reward to risk increases, we will accept projects further outside our normal areas, especially when the initial investment is small. a

Our employees, who have named themselves Googlers, are everything. Google is organized around the ability to attract and leverage the talent of exceptional technologists and business people. We have been lucky to recruit many creative, principled and hard working stars. We hope to recruit many more in the future. We will reward and treat them well.  a
 
We provide many unusual benefits for our employees, including meals free of charge, doctors and washing machines. We are careful to consider the long term advantages to the company of these benefits. Expect us to add benefits rather than pare them down over time. We believe it is easy to be penny wise and pound foolish with respect to benefits that can save employees considerable time and improve their health and productivity. a

Don’t be evil. We believe strongly that in the long term, we will be better served—as shareholders and in all other ways—by a company that does good things for the world even if we forgo some short term gains. This is an important aspect of our culture and is broadly shared within the company.

I thought this was a bold and clever statement when they're declaring from the get-go, "we're not bowing to earnings pressure." In a way, they're saying, if you don't agree with our long-term growth strategy, don't buy the stock.

Here is a risk factor disclosing how heavily reliant they are on three key players. The company could be devastated by the loss of one, two or three of them. They will probably never be able to fly together.

If we were to lose the services of Eric, Larry, Sergey or our senior management team, we may not be able to execute our business strategy.  

Our future success depends in a large part upon the continued service of key members of our senior management team. In particular, our CEO Eric Schmidt and our founders Larry Page and Sergey Brin are critical to the overall management of Google as well as the development of our technology, our culture and our strategic direction. All of our executive officers and key employees are at-will employees, and we do not maintain any key-person life insurance policies. The loss of any of our management or key personnel could seriously harm our business.

Nice to finally see some numbers.

Selected Financial Data:
Revenue (in millions):
99 $.2
00 $19.1
01 $86.4
02 $347.8
03 $961.9 (holy cow)
04 $????? (Q1=$389.6)

Net Earnings/(Loss) (in millions):
99 $(6.0)
00 $(14.7)
01 $7.0
02 $99.6
03 $105.6
04 $?????

- They have amassed a cash hoard of $454.9 million. a

- 95% of revenue comes from online advertising with most of the remaining 5% coming from licensed search technology. a

Employee Headcount:: 1,907 (as of 3/31/04)
01 284
02 682
03 1,628
Q1/04 1,907 (596 in research and development, 961 in sales and marketing and 350 in general and administrative)

Headcount rising very rapidly. They are gearing up for something big! What will it be???

Other:
- Measured in dollars, while the IPO wouldn’t break the all-time top 10, it will be by far the largest for and Internet concern. a

- 42% of all U.S. Internet users (65 million) visited Google in February. a

- Some analysts believe the post-IPO market capitalization will be as much as $25 billion. a

- The Brin/Page letter is described by securities lawyers as being unusual in its candor and intimacy. a

- The auction style IPO is a plan consistent with maintaining Google’s populist (believer in rights of the common people) image, as Main Street buyers are often shoved aside by insiders and institutional investors. a

Use of Proceeds:

We expect to use the net proceeds received by us from this offering for general corporate purposes, including:  
- Sales and marketing expenses, research and development expenses and general and administrative expenses.  
- Capital expenditures.  
- Possible acquisitions of businesses, technologies or other assets.  

Although we may use a portion of the net proceeds to acquire businesses, technologies or other assets, we have no current agreements or commitments with respect to any material acquisitions.

Fairly typical boiler-plate disclosure. That's not to say they're not eyeballing anyone.

03 Executive Compensation (Salary/Bonus):
Eric Schmidt, Chief Executive Officer and Director, $ 250,000/$301,556
Sergey Brin, President of Technology and Director, $150,000/$206,556
Larry Page, President of Products and Director, $150,000/$206,556

Surprisingly low executive compensation for for a company this size. That'll all change very shortly.

- Co-founders Brin (30) and Page (31) will collectively own 33% of Google after the IPO, making them instant billionaires (on paper). a

<edited for typos & formatting>
< a = edited for content, 4.30.04, 8:05 PST>

[bragadocchio]

Nice posts Respree and Rusty. I'm tempted (inspired by your posts) to go through that again, and condense and deliver another piece of it here.

This is the most "behind the scenes" information I've ever seen of the workings of Google, and it is eye opening in a number of ways.

Respree's look at the numbers especially.

Anyone interested in owning some pieces of Google?

[rustybrick]

Danny Sullivan did a great job of summarizing their financial position at http://searchenginewatch.com/searchday/art...cle.php/3347471

Bill, I am interested but probably not until after the IPO.

[projectphp]

My personal favourite quote (From danny Sullivan):

Stanford University, where PageRank was developed by Google's cofounders, owns the patent on PageRank. However, the filing reveals that Google has been granted a perpetual license and that in October 2003, it extended an agreement giving it exclusivity to PageRank through 2011. So speculation that issues over the rights to PageRank might complicate the Google IPO don't appear to be a problem.

Having suffered through the "Florida is a response to dropping PageRank" hysteria (it was an exellent theory, just was taken as fact to easily by too many), having this particular theory debunked is good.

[bwelford]

Oh, there's so much good stuff here. There are really a number of good commentaries by now.

One thing I noted is that they don't seem to know who their real competitors are. They keep mentioning MicroSoft, that's OK. However they also say that there's another called Yahoo. That's not true. Their competitor is called Yahoo!.

The problem was that when Yahoo! tried to acquire its trademark, others had already trademarked Yahoo. If you check it out with the US Trademarks office you will find among others the following Yahoo trademarks:

EBSCO Industries has the trademark for:
Knives, namely hunting knives, hunting and fishing protective eyeglasses, and other sporting goods.

OLD TOWN CANOE CO. has the trademark for:
human propelled watercraft; namely, kayaks and canoes

Yahoo is also a trademark for:
barbecue sauce
At least this one has now been acquired by Yahoo!

So perhaps Google is really worried that Y! (which is also a trademark for Yahoo!) will bring out a barbecue sauce and ... you can see where this might lead.

[rustybrick]

It also mentions Overture's law suit with Google AdWords.

AdWords is huge for Google and if Overture wins, which Google highly doubts, then it can play a major impact on Google's revenue.

[Respree]

Goldman may lose $100 million Google fees

Ouch. Easy come, easy go.