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Google Shares Surge Nearly 18 Percent

Posted on: Thursday, 19 August 2004, 06:00 CDT

NEW YORK - Shares of Google Inc. surged nearly 18 percent in their market debut Thursday, in 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. Within a few minutes of trading, Google was at $98.08, with 5.5 million shares having traded hands.

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 $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, Google would have raised as much as $3.6 billion and given the company a market capitalization as high as $36 billion.

"When you finally cut through the hype, economic rationality wins out," said Bob Clarkson, a securities attorney at the Menlo Park-based Jones Day law firm who did underwriting work for many IPOs, including Yahoo Inc.'s. "Bidders who wanted to buy the stock have done a reasonably hard-nosed analysis and they say they like $85 better than $108 or $120."

According to Google, pre-IPO shareholders expect to sell 5.5 million shares, less than half the 11.6 million originally planned. The company itself will sell 14.1 million shares, which is unchanged from previous filings.

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."

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