Dollars and Jens
Thursday, April 29, 2004
Google plans Dutch auction for IPO
High, high kudos to Google for doing this the right way.
Internet search engine Google said Thursday it will sell $2.7 billion of its stock to the public through an auction process in an attempt to make sure individuals as well as institutions can buy the shares.

"Informed investors willing to pay the IPO price should be able to buy as many shares as they want, within reason, in the IPO, as on the stock market," the company said in its SEC filing revealing the plan.

"This has led us to pursue an auction-based IPO for our entire offering. Our goal is to have a share price that reflects a fair market valuation of Google and that moves rationally based on changes in our business and the stock market," it added.
Instead of pricing it cheaply so that there's a big, headline-making pop in share price on the first day of trading, to the profit of people who can get in on the IPO, they let anybody who wants to bid from the beginning, and keep all that capital in the firm. This is shareholder friendly management.

While we're on the Google IPO, though, I'm curious as to what the plans for the capital are. At expected values, they could almost make an all-cash offer for U.S. Steel, but realistically, are they planning just to acquire a lot of servers and real estate on which to put it? I wouldn't be surprised if they need to put a couple billion into that sort of thing in the next decade, but last year it had operating cash flow of $400,000,000, while "It plans to spend $250 million this year to expand its infrastructure."

This question is on top of the other point of discussion between my brother and me:
In the filing, Google admits that it faces significant competition from Microsoft and Yahoo and expects its revenue growth and operating margins to decline.
That question was, "How sustainable is Google's competitive advantage?" If you know the answer, let me know it so I can bid on the stock.

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