Described by Fortune
magazine as “perhaps the most anticipated securities filing ever,”
Google has finally filed for its long-awaited IPO, announcing that
it plans to raise $US2.7 billion through a huge online auction.

When Google – the world’s leading internet search engine – floats it
is expected to value the company at more than $US20 billion.

The New York Times has a good report here:

Google founders Sergey Brin and Larry Page – whose personal stakes in
company are expected to worth $US3 billion following the float – issued
a letter to potential investors – entitled “An owner’s manual” for
Google’s shareholders – outlining their thoughts on the company and
plans for its future. Read the full letter here:

It begins “Google is not a conventional company. We do not intend to become one.”

As if to prove it, they announced that the company would hold an online
auction-based IPO for the entire offering. Google hope that such a
process will ensure the stock will be available to small investors and
minimise the problems of unreasonable expectations and the boom-bust
cycles that have hurt other high-flyers in the tech sector. “Our goal
is to have a share price that reflects a fair market valuation of
Google and that moves rationally based on changes in our business and
the stock market,” wrote the founders.

But despite the decision to snub Wall Street by holding an online
auction, the lead bankers handling the offer, Morgan Stanley and CS
First Boston, shouldn’t mind too much. The Times of London predicts it
will generate Wall Street’s biggest pay day this year, the fees
amounting to $US100 million.

Google wanted a float that bypassed
the usual backroom deals that favour large investors over the general
public and laid out strict rules to the investment banks pitching to lead the flotation. According to the UK’s The Daily Telegraph,
Wall Street giant Goldman Sachs were excluded from the deal after
they approached Kleiner Perkins – one of Google’s biggest
investors – to discuss share allocations, angering Google management
who believed the investment bank would still rely on old-style
relationship banking.

In the SEC filing, Google disclosed its earnings and revenues for the
first time. Last year, it had net income of $US105.6 million on
revenues of $US961.8 million. So far this year, the company has earned
$63.9 million, up sharply from the $US25 million in net income it
earned in the first three months of 2003. Brin and Page also reported
that their annual salaries are a modest $US150,000 each.

Most of this revenue is driven by Google’s targeted advertising
systems. We have Google’s Adsense advertising on the Crikey website,
which generates steady revenue based on the number of click thoroughs.
This morning we received a cheque from Google for $US517.24 for the
month of March and we’ll be banking it today before the Aussie dollar
rises again.

On the issue of corporate structure, Page and Brin addressed the
concerns that “the standard structure of public ownership may
jeopardise the independence and focused objectivity that have been most
important in Google’s past success and that we consider most
fundamental for its future. Therefore, we have designed a corporate
structure that will protect Google’s ability to innovate and retain its
most distinctive characteristics. We are confident that, in the long
run, this will bring Google and its shareholders, old and new, the
greatest economic returns.”

It’s certainly a unique company. Under the sub-heading “Don’t be evil”,
the Google geniuses pledged, “We believe strongly that in the long
term, we will be better served by a company that does good things for
the world even if we forgo some short term gains.” Maybe Bill Gates
should take note.

There is sure to be huge interest from investors as the auction
approaches, but Forbes warns that investing in the world’s No.1 web search
provider is not without its risks:

Is Crikey getting ripped off by Google?

Sealed section May 6

Crikey was most interested to see the first ever financials from Google this week because it shed some light on our relationship with the outfit.

As you’ve probably noticed by now, we’ve effectively out-sourced the
sale of ads on the left hand tower ad throughout the Crikey website.
One of the benefits of this is that we get reliable daily page view
figures as measured by Google.

However, the revenue that Google pays is very unpredictable and we can’t work out on what on earth is going on.

For instance, on April 28 we had 26,332 page views and 82 clicks on
the various ads placed by Google. This was a typically miserable click
through rate of just 0.3 per cent but Google paid us $US47.40 for that
day or US57.8c per click through.

However, on Monday May 3 we had 27,478 page views with 92 click
throughs on the Google ads but this only provided $US7.52 in ad revenue
or US8.17c per click through.

Google obviously has different deals with its thousands of
advertisers but how can the payments per click through to Crikey vary
so wildly.

There is no doubt that this is a hugely profitable business model
for Google and it is no wonder they don’t explain the formulas to
customers because now we know that they collected almost $US1 billion
in advertising revenue but only pass on a fraction of this to the tens
of thousands of websites that actually publish the ads.

At this stage, it is not clear whether the Google relationship will
yield more monthly revenue for that space than if Mrs Crikey sold the
space directly herself.

However, if we pull the plug, the Google float should still stagger over the line.

Peter Fray

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