GOING PUBLIC
August 19, 2004

The Internet search engine Google earned just over $100 per share as it traded publicly on the NASDAQ stock market for the first time Thursday. An Internet stock analyst discusses the highly anticipated initial public offering. Background Report Discussion

 

April 30, 2004: Google announces an Initial Public Offering and says it will sell its stock through an innovative Internet auction. April 22, 2004: Spencer Michels reports on the buzz that Internet search engine Google will soon to issue stock and go public. Nov. 29, 2002: Spencer Michels reports on the economic and technical success story behind the Google search engine. More NewsHour coverage of business   News for Students: The World Wrestling Federation Goes Public Oct. 19, 1999.     Google	JEFFREY BROWN: Several years ago, "Google" entered the English language, meaning, to search for something on the Internet. Today, Google entered the stock market. Shortly before noon it began trading on the NASDAQ as a publicly held company, one of the most anticipated moves in the technology sector in recent years. Founded six years ago by Stanford Ph.D. Candidates Sergey Brin and Larry Page, Google now has 1,500 employees, mostly at its Silicon Valley College campus-like headquarters. It handles some 200 million online searches a day, in 86 languages, using thousands of high-speed computers that comb through the Internet at tremendous speeds. The company sells ad space on its site, and collects a fee whenever a user clicks on an ad. CHARLENE LI, Forrester Research: Advertisers love it because they can target people online who are looking for their products, as opposed to general advertisements. JEFFREY BROWN: Google has recorded a profit since 2001, and recently added e-mail, an online shopping service called Froogle, and a service for making business and personal contacts. But its move to becoming a public company has been shaky. Google executives decided to conduct an initial public offering, or IPO, through an unusual process called a "Dutch Auction", bypassing traditional investment banks. Investors who registered to bid for shares were allowed to offer any price, the company then set a single offering price based on those bids. Google initially said it expected shares to go for between $108 and $135. But yesterday the company announced a much lower offering price of $85. Also this week the company said the Securities and Exchange Commission was looking into a recent magazine interview with Google's founders, possibly violating rules for companies about to go public. The SEC also opened an informal inquiry into Google's failure to register millions of shares and options given to employees and consultants. Today Google's stock closed just over $100 a share. Its initial public offering is expected to raise about $1.7 billion for the company.
	An initial public offering
	JEFFREY BROWN: And for more on Google's big move, I'm joined by: Tom Taulli, co- founder of current offerings, a technology research firm that analyzes new stock offerings. Tom, I threw a lot of numbers at our audience just now. But put in plain English what happened today when Google was first traded? TOM TAULLI: Yes, this is their debut as a public company. And it takes time. There's a lot of work involved in the background because the night before people were placing orders, people like individual investors and institutions placing orders, this morning placing orders. There are a lot of orders coming in. And there is a lot of organization in terms of getting those that process these orders to make it so it'll be a smooth opening. And that's what happens. And there was more buy orders than there were sell orders. In order to accommodate that, you have to increase the stock price. So the stock price yesterday was sold to a group of investors who bid on the option through this long process at $85 a share. And this morning there were a lot more buy orders than sell orders. And as a result, the stock price immediately went to $100 a share. So those who bought at $85 yesterday made a nice, tidy profit. JEFFREY BROWN: So let's step back. For those of us who don't do what you, tell us why Google wanted to go public? What does a company get out of an IPO? TOM TAULLI: There are a couple reasons for going public. But this is a company that did not want to go public. There is an arcane rule that forces this company to go public. And I think the company would have actually avoided it considering what happened in their path of going public. But most companies when they go public, the main reason is to raise capital. So last night the Wall Street firms that handled this IPO wrote a check to the company for $1.6 billion. And that goes into Google's bank account. So they're happy to have another $1.6 billion to work with. And so that's a big reason, and a lot of times the main reason why a company would go public. The other is the early investors in the company, the venture capitalists, the angel investors who invest in this company early on want to get some value from their investments, and the employees who have stock options and stock in the company would like to be able to sell their stock and to realize the benefit of the hard work they've put into the company. So there are a lot of reasons, you know, for going public. But those are the key reasons most companies do.
	A Dutch Auction
	JEFFREY BROWN: Now, much of the attention in this case was because of the so-called Dutch Auction. Now, explain a little bit more about what that means and why Google wanted to do it in this case. TOM TAULLI: Yes. The Dutch Auction actually comes from the Dutch back in the 1600s. The first stock exchanges emerged in Holland. And the idea is that you will set a price range, as occurred here, and allow people to register to become bidders, just like any other auction. When you go to EBay, you have to register as a bidder. And then you will participate in that auction and you can set the quantity you want to buy, in this case the number of shares, and what prices. You can even have multiple bids. So you can have different prices and different quantities that you can put into this system. It goes into the computer system, and these bids and offers are processed and the ultimate price is determined. In this case, it came to $85-a share. And those who bid $85 or above got $85 a share, and so last night they got an e-mail saying, you own certain amount of shares if you won the bid. And this morning you were the proud owner of shares in Google and you had the ability to sell those shares. This is unusual because the traditional approach is that the company will go on a road show. And that happened in this case, but it would be to select investors, not individual investors, but usually to wealthy investors or institutions go on these special road shows. After these road shows, the investors will put indications of interest as to what they would want to buy. Then the night before the company debuts in its IPO, the company and the company's advisers will come up with a price. And a lot of times they'll try to price it below the fair market value so it increases on the next day of trading. JEFFREY BROWN: So in this case, if they were trying to make it, I think the word I saw was democratize it to reach small investors, do we know, did it work? TOM TAULLI: Anecdotally, yes. In fact, there may be a great amount of retail investors in this IPO, it's very clear, I have the access to real-time quotes and a lot more detailed quotes on my computer system. A lot of the trades today were 100, 200, 300 share trades. To me those are smaller investors; institutions would do 10,000, 20,000 share trades. I have a feeling there are a lot of people, individual investors like me and you who participated in this IPO; that was a clear goal from the company, from the two founders. They wanted to let everyone participate, and it sounds like there was widespread participation. And that's very unusual with an IPO of this nature. It's usually institutions or wealthy investors that participate early on.
	Individual investors
	JEFFREY BROWN: Now, Google said they expected to get a lot more money originally. Why did they not? Why was there not as much demand for it? Why did the value not go as high as they had hoped? TOM TAULLI: It could explain again that maybe there were more individual investors than institutions. People like you and I, we don't have a lot of money or at least nowhere near the kind of money an institution would have. So maybe there was retail interest in the IPO. And they came and, you know, put some bids in there. It sounds like a lot of the institutions sat on the sidelines and did not want to participate because they thought that they just would rather see the stock trade and not go through this, what many people are saying is a convoluted process, the Dutch Auction. Avoid that and then a lot of the institutions apparently thought that the price was too high and would just rather wait and buy it in the after market. And so I think it was more just lack of demand and lack of institutions being interested in participating in the Dutch Auction. JEFFREY BROWN: Does it tell us anything, though, about Google as a business? I mean, now, f you look forward, does the lower price suggest that there's any perceived questions about its business or about the search engine business in general? TOM TAULLI: Clearly there's uncertainty in the marketplace. Google's competitors, their stock prices such as Yahoo, Ask Jeeves, Find What -- comparable companies in this space have not done well. The technology indexes have fallen. We have been in a bear market since January in the tech area. NASDAQ, the index that has a lot of tech companies, is down close to 20 percent. That's a good indication we've been in a bear market. And also we are in a soft time. Summer is slow for Internet companies. Traffic goes down because people are on vacation. And it's also slow for investors because investors are on vacation, too, and they're not too interested in participating in a huge IPO like this. So if you take those factors together, I think it's part fundamental in terms of the industry maybe slowing down, and in some problems in the markets, but it's also seasonal, too. I think the company should have waited a month or so to do this IPO.
	Impact on the economy
	JEFFREY BROWN: Can you also now look more broadly beyond the tech sector? Does what happened with Google tell us anything about the broader U.S. economy because the tech sector is such an important part of that economy? TOM TAULLI: Absolutely. Again, this is a barometer. The IPO market is a barometer. When the IPO market starts to stumble, be concerned about the general economy. Be concerned about the general market because investors are getting risk averse. They're uncertain. They don't want to, you know, go out on the limb, and so they're pulling back. And we're seeing oil price at all-time highs. We're seeing the economy slow down. We're seeing companies pull back in terms of spending on technology. In terms of hiring, we're not seeing the hiring we once saw. Those are... those types of factors are impacting significantly the IPO market. And that means less capital for companies to hire, to build out and to grow. So it does have a ripple effect in the economy and it would have been a lot better for Google if they had $3 billion. $1.6 is nothing sneeze at but still... JEFFREY BROWN: It's still a very big company, right? TOM TAULLI: That's right. JEFFREY BROWN: Okay, Tom Taulli, thanks a lot for joining us. TOM TAULLI: Thanks very much.

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