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SPENCER MICHELS: From Silicon Valley to Wall Street, the buzz is that Google, the 6-year-old privately owned company that created the world’s most popular Internet search engine, may soon issue stock and go public.
That prospect has prompted intense interest in Google and in the possibility of a rebound for high tech. Google would become the first major high-tech firm to issue an initial public offering, or IPO, since the dot.com bubble burst in 2000, casting a pall on the whole field of technology. Veteran stock watchers like Tom Taulli, who writes and teaches about corporate finance, are intrigued.
TOM TAULLI: It’s really interesting, the phenomenon, and even the mania. I haven’t seen this since the late ’90s, you know, or the mid-’90s with the Netscape IPO.
SPENCER MICHELS: On the Stanford University campus, where the founders of Google went to grad school, there’s great anticipation about a Google IPO, especially among business students.
KARA NORTMAN: I’m definitely interested in seeing what’s under the covers when they disclose it all in their public statements.
MOHAN LAKHAMRAJU: They have been very aggressive at getting, you know, the brightest minds. So many smart people cannot go wrong. Four of my classmates from undergrad are at Google, and four of my ex-colleagues are at Google, so we’re all hoping that Google’s going to make them all very rich.
SPENCER MICHELS: These students and others in the investment community say Google’s going public could spur a renewal of enthusiasm for high tech.
EFE CAKAREL: The IPO market was shut down basically over the past two, two-and-a-half years. And so this IPO can really have a huge impact to show the people.
SPENCER MICHELS: Greg Raifman took his former Internet advertising company, Mediaplex, public, and watched as its price soared and then plummeted. Now running an investment firm, he’s watching the Google phenomenon, and says an IPO Could energize not just Silicon Valley, but Wall Street as well.
GREG RAIFMAN, Former Mediaplex CO: There’s no question that Google’s the flag bearer, if you will, of the return of the IPO, the big IPO. The interest level around investment is higher because of the Google IPO. Wall Street loves that because the average folk is asking, “How can I get shares in the Google IPO?”
SPENCER MICHELS: Today, Google is going strong. It has 1,500 employees, most of them in its Silicon Valley headquarters in California. It has recently added e-mail, an online shopping service called Froogle, and Orkut, for making business and personal contacts, to its main feature: Its innovative search engine.
Google handles 200 million online searches a day, in 86 languages for all manner of topics, using thousands of high-speed computers which comb through the Internet at the speed of light. The results of those split-second searches are displayed on the user’s computer, along with text-only advertisements placed near the search results. According to Charlene Li, principal analyst for Forrester Research, those ads, plus sales of Google’s ad technology have made the company highly profitable.
CHARLENE LI: Advertisers love it because they can target people online who are looking for their products, as opposed to general advertisements.
SPENCER MICHELS: Li says Google’s profitability would make for a successful IPO
CHARLENE LI: They have close to a billion dollars in revenues. It’s already proven that it has a business model that works, it has very loyal users, and it continues to innovate.
SPENCER MICHELS: The company’s exact profits are a matter of conjecture. Analysts are estimating its value at anywhere from $6 billion to $25 billion. In recent months, Google appears to be following government guidelines for companies going public by remaining silent about its intentions.
Google, which recently expanded to these quarters, hasn’t filed anything about an IPO with the Securities and Exchange Commission. Nevertheless, the company won’t comment about a possible IPO, saying it’s private and it doesn’t discuss its finances. Others potentially involved, like investment banks, won’t talk either, saying they fear legal action if they do.
Google’s CEO, Eric Schmidt, wouldn’t comment either, but his company has never denied its interest in an IPO, and has said eventually it expects to go public. And now the market has improved, and the timing may be right. Marc Andreessen, who took public both Netscape and his current software company, Opsware, says that for any growing company, pressures to issue stock increase over time.
MARC ANDREESSEN: Your venture capitalists want to be able to distribute their stock and sell it, which is very difficult for them to do if you don’t go public. You want to be able to go buy other companies and consolidate your industry, which is much easier to do once you’re public. Third is, ultimately, you want to give your employees a liquidity path, a way to ultimately sell some of their stock, to be able to put their kids through college or buy houses of whatever.
SPENCER MICHELS: What about the downside?
MARC ANDREESSEN: Oh, the downside. You’re open to public scrutiny. Every single quarter, everybody sees all of your financials. Your competitors see all of your financials; investors see all your financials. Your stock price is going to go up and down and up and down; that’s going to effect how people think about your business.
SPENCER MICHELS: Former CEO says from his own experience that newly issued stock can cause employees with stock options to lose focus.
GREG RAIFMAN: There were times when I walked down the hall and saw that employees spent maybe a little too much time looking at the quotrons or the computers than they did dealing with customers or clients.
SPENCER MICHELS: Distraction can be fatal if a company is facing major competition, and Google now has big-time rivals. At Netscape, Marc Andreessen lived through a similar scenario.
MARC ANDREESSEN: All of a sudden every big gorilla company out there, Microsoft and every other company, starts shooting at your head with high-powered ammunition. So, in my experience usually going public coincides with a big escalation in competition from much larger companies.
SPENCER MICHELS: Rivals Microsoft and Yahoo offer a variety of services like e-mail and shopping on their homepages called portals, and both are developing their own improved search engine. Analysts say they appear ready to take on Google.
CHARLENE LI: I think Google at this point is winning the battle for search. Yahoo is winning the battle for portals. Microsoft has a lot of the — it’s always in the running. It’s like second in many of these places and gunning for first
SPENCER MICHELS: Do you think Google is in trouble?
CHARLENE LI: I think Google needs to stay on its toes. In the past it’s had that luxury of being very smart and innovative. Now you have very strong competitors.
TOM TAULLI: Including Yahoo, including Amazon and maybe even E-Bay.
SPENCER MICHELS: And this writer points to another hazard for potential Google investors. Most new stocks drop in price.
TOM TAULLI: Historically they go down. On average they go down after one or two years. So it’s usually a losing proposition from the investor’s standpoint. But those are averages. If you happen to get the Microsoft, you happen to get the Oracle or the E-Bay, a totally different story.
SPENCER MICHELS: The likelihood of going public and the specter of Microsoft and Yahoo may be spurring Google into new arenas. Its launching of additional products in recent months is part of its strategy to keep ahead of the increasing competition at a crucial juncture in its short history.