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The Google IPO Marches On

By Ben Elgin Undaunted by an increasingly grisly market and potential roadblocks, Google is plowing ahead in its drive to go public. The bidding for shares in the search service's unorthodox initial public offering is expected to commence on the morning of Aug. 13, according to the company's IPO Web site ( The auction will close and the pricing will be set sometime the week of Aug. 16, according to the site's most recent update. Google will not pre-announce a specific close date for the auction, to make sure bids reflect real-world demand and to prevent investors from gaming the system.

Google will be venturing out into an increasingly inhospitable market. The Nasdaq, where Google plans to list its shares, is down 12% since the start of July. More than half the companies to go public so far in 2004 are trading below their offer price. And earlier this week, Internet concerns Claria Corp. and PlanetOut withdrew their bids for a public offering.

RISQUE BUSINESS? The bidding phase marks the second leg of Google's IPO process. The first, registering interested investors, lasted through Aug. 12. Only investors who registered on Google's IPO site and selected a bank will be able to participate in the auction. Google's decision to utilize an auction to sell its shares has been controversial on Wall Street (see BW Online, 8/5/04, "Google: Will Blunders Rock Its Float?"). Typically, companies hire investment banks to help set the stock price and allocate shares to investors.

But the big gains in IPO shares that became the norm in the late 1990s were benefiting well-connected investors, instead of putting more money in company coffers. By utilizing an auction, Google is hoping the IPO price more accurately reflects real-world demand, thus limiting the first-day trading "pop" and helping it pocket more of the IPO proceeds.

Speculation of a delay has plagued the imminent offering, thanks in part to an interview with Google's founders featured in Playboy magazine's recently released September issue. Google reportedly granted the interview back in April, before it filed to go public.

LOFTY VALUATION. The Securities & Exchange Commission has delayed offerings before, deeming such exposure to be touting the stock and conditioning the market. "It's a gray area," says David Martin, partner and head of the securities practice at law firm Covington & Burling. But in more cases than not, "things like this don't push [the offering] back," he says. Given that the timetable on Google's IPO Web site was updated late on Aug. 12, it could indicate the search engine has dodged such a bullet. A Google spokesperson declined to comment.

Despite the tumultuous landscape, Google expects to fetch a hefty return (see BW Online, 8/10/04, "Putting a Value on Google, Part 2"). In its IPO paperwork, the outfit estimates its shares will cost $108 to $135. At the midpoint, Google's valuation would be $33 billion. Although close competitor Yahoo! (YHOO) boasts a $37 billion valuation, their multiples would be nearly equal based on 2005 projected earnings.

That's a bit lofty, say some analysts, considering Yahoo is a more seasoned company with proven management and more diverse revenue streams. But given the popularity of Google's service and the hoopla around its offering, such a scenario isn't far fetched. Elgin writes for BusinessWeek in San Mateo, Calif.

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