Google Inc., the world’s No. 1 Web search provider, said on Monday its highly anticipated initial public offer could be worth as much as $3.3 billion as it prices its stock in a range that could value the company at more than $36 billion.
Investors were startled by a price range of up to $135 per Class A share. That would give Google a valuation, on the basis of its price to 2003 earnings ratio of 329, more than twice that of its closest competitor, Yahoo Inc. The S&P 500 had a 2003 price-to-earnings ratio, in comparison, of more than 20.
“Has there ever been one higher? I hate to say this ... but the thing is becoming somewhat like a circus,” said Mark Herskovitz, manager of Dreyfus Premier Technology Growth Fund, who gasped when told the potential IPO price.
According to Thomson Financial, at $3.3 billion, Google would rank as the eighth-largest IPO by a U.S. company. The IPO is expected to take place next month.
One of the most eagerly awaited public offerings in years, Google has become one of the world’s leading brands, its search engine so ubiquitous that its name is a verb for looking up information.
Its size and strength have pushed Microsoft Corp. into efforts to develop its own search technology, especially since the search business is one of the key drivers of Internet revenue growth.
But Google’s very size could set it up for a fall if it disappoints investors as a publicly traded company or if Internet stocks implode again.
“In a deal like that where it’s priced for perfection, anything that occurs that isn’t right on the number, you get hammered,” said Jim Huguet, chief executive officer of Great Companies LLC. The Florida company manages $230 million in technology shares.
Of the thousands of public companies in the United States, barely more than a dozen have prices above $100 per share and trade at least 10,000 shares a day. As of mid-afternoon Monday, none of the Nasdaq-100 stocks .NDX) or the components of the Morgan Stanley High Tech Index .MSH) traded over $90 a share.
Google loves you but not enough
While Google, which will trade on the Nasdaq under the symbol “GOOG,” is offering Class A shares, its founders and other executives will hold large blocks of Class B shares, which hold 10 votes each. That stood in contrast to the company’s idealism — its motto is “Do no evil.”
“So it’s like ’we love you but not enough to give you the same vote as we’ve got,”’ Dreyfus’s Herskovitz said.
Google founders Sergey Brin and Larry Page will each own about 16 percent of Google’s voting power after the offering. Brin plans to sell 962,226 shares, and Page is expected to sell 964,830 shares in the IPO.
Brin, Page, Chief Executive Eric Schmidt, and board members John Doerr and Michael Moritz will have between them just over 55 percent of the company’s voting power.
Among selling stockholders, Time Warner Inc.’s America Online unit and Yahoo both plan to sell 10 percent of their stakes in the IPO, including 743,745 shares by AOL and 549,888 by Yahoo, according to the prospectus.
About 24.6 million shares would be sold in the IPO for between $108 and $135 apiece, according to an amended prospectus filed with the Securities and Exchange Commission.
Mountain View, California-based Google plans to sell 14.1 million shares, while another 10.5 million would be sold by shareholders.
The company plans to use net proceeds, estimated to be $1.66 billion, for general corporate purposes. It will not receive any proceeds from shares sold by selling stockholders.
Google also posted second-quarter results in the amended prospectus, with earnings up to $79.1 million from $64 million in the first quarter. Revenue jumped 7.5 percent to $700.2 million from $651.6 million. Operating income increased to $171 million from $155.3 million in the first quarter.
A group of 28 underwriters, led by Morgan Stanley and Credit Suisse First Boston, will have the option to buy another 3.7 million Class A shares in the IPO. RBC Capital Markets Corp. and SunTrust Robinson Humphrey were no longer listed as underwriters of the offering.