Originally created 08/20/04

Internet giant Google shares trade higher in debut



SAN JOSE, Calif. -- Shares of Google Inc. surged 18 percent in their market debut Thursday, the culmination of a unique and bumpy initial stock offering for the 6-year-old dot-com dreamed up in a college dorm room.

The stock started at $100.01 on the Nasdaq Stock Market, $15.01 higher than its $85 initial offering price. They finished the day at $100.34 with just over 22 million shares having changed hands, making it one of the 10 most actively traded stocks on the Nasdaq.

The IPO price, set late Wednesday through an unorthodox auction that alienated many on Wall Street, cleared the way for the stock to start trading under the symbol "GOOG." Founders Sergey Brin and Larry Page opened trading on the Nasdaq, though Google didn't begin trading until midday.

Nasdaq officials said a delay in trading was standard for IPOs, and added that there were some technical issues as the Nasdaq matched bid and ask prices in the minutes leading up to trading.

The surge may indicate many institutional investors sat on the sidelines for the initial offering, said Barry Randall, portfolio manager for the First American Technology Fund.

"There were a lot of institutional investors who were spooked by not only the initial auction scenario but also the missteps along the way," he said. "I suspect many of them did regard it as a healthy business model, and now they have the ability to purchase the stock from the open market instead of the managers. I think they feel more comfortable."

The $85 initial share price was short of Google's original expectation of $108 to $135 a share. It also comes at the lowest end of Google's downward-revised range it made on Wednesday, when it also reduced the number of shares to be sold to 19.6 million from 25.7 million - a move that was expected to buoy prices.

"The good news for Google is that it didn't price below the low end," said Tom Taulli, co-founder of CurrentOfferings, an IPO research company. "If it had priced below the low end, maybe there could have been some selling pressure."

The IPO raised $1.67 billion. If the stock had priced at the high end of the original estimate, the offering would have raised as much as $3.6 billion and given the company a market capitalization as high as $36 billion.

According to Google, pre-IPO shareholders expected to sell 5.5 million shares, less than half the 11.6 million originally planned. The company itself sold 14.1 million shares, as originally estimated, putting $1.16 billion into its coffers.

The offering eclipses most of the hot tech issues of the 1990s and will make Brin and Page billionaires - at least on paper. Page collected $41.1 million and Brin got $40.9 million, but that pales in comparison to the more than $3 billion each still holds in Google shares.

The $85 price values the world's most popular search engine at $23.1 billion, more valuable than companies such as Amazon.com Inc., with a market capitalization of $16 billion, and Lucent Technologies Inc., valued at $13.5 billion, but slightly less than General Motors Corp.'s $23.7 billion.

The company eschewed Wall Street tradition and decided that the final IPO price would be set by an auction. Its founders wrote an idealistic letter in its prospectus, outlining the company's "Don't Be Evil" mantra and plan to avoid the trappings of traditional companies.

But Google has had a bumpy road to the IPO.

In one case, Google said the Securities and Exchange Commission "has requested additional information concerning the publication" of an interview with Brin and Page that appeared in September's issue of Playboy magazine. That was a potential violation of the SEC's rules against talking publicly before an IPO about information that is not included in the prospectus.

Google also has disclosed that the agency has launched an informal inquiry into its issuance of millions of pre-IPO shares and options without registering them.

But few deny that Google is both very popular and prosperous.

Since it was founded in 1998, it has always been something of an oddball. Its search engine design has no flashy ads but a simple, quick-loading layout. Its search algorithm out-powers rivals. Its name became synonymous with Internet search.

The Mountain View-based company, which makes money by selling text advertising, managed to prosper as a private company even while other dot-coms were collapsing. Now, as the technology industry is just recovering, Google stands to prosper even more.

"With all the negative publicity in the last few weeks," Clarkson said, "it's still a phenomenal success story and that's still a phenomenal valuation for a company as young as Google."