The Google IPO

            
 
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Case Details:

Case Code : FINC037
Case Length : 14 Pages
Period : 1985 - 2004
Pub. Date : 2004
Teaching Note : Available
Organization : Google
Industry : Internet Search
Countries : Global

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"There are good IPOs, and there are great IPOs. The Google IPO is the rarest kind: one that draws the white-hot glare of public attention."

- Marc Andreessen, Co-founder of Netscape and a public-offering expert, in March 2004.1

"I would not be stunned if Google closes down. Internet search companies have been through the ringer for the past few weeks. A couple of up days don't make a trend. There isn't a full-throttle conviction behind this market."

- Brian Bolan, Analyst with Marquis Investment Research, in August 19, 2004.2

"It's certainly a success in that Google went public, and they did it the way they wanted to. But it was a failure in the sense that they didn't get the price they could've gotten if they had gone through the traditional method. And they did not eliminate the first-day jump."

- Matt Rhodes-Kropf, Associate Professor of Finance and Economics at Columbia Business School, in August 20, 2004.3

Introduction

On August 19, 2004, Google went public and came out with its initial public offering4(IPO). It turned out to be the 25th largest IPO in corporate history and the biggest technology IPO5 till date.

Before its release, the IPO had been the subject of several controversies and the target of a lot of criticism.

In fact, Google too seemed to have felt threatened by the controversies and just a day before it went public, it revised and scaled down its estimated per share price range from $108-$135 to $85-$95 per share.

The company also reduced the number of shares it had planned to sell from 25.7 million to 19.6 million. What was unique about the Google IPO was the unusual auction method by which the company chose to sell its shares.

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

Google used the "Dutch Auction method" (Refer to Exhibit I) to sell its shares because it felt that under the conventional IPO method, most small investors would be unable to invest and the IPO would get limited to some large institutions, investment bankers, and their clients.

Most investment bankers had declared the IPO to be fraught with risk even before it was launched and had said that the Dutch Auction method was too complicated for the average American who

"doesn't have the skills to analyze the business or the business prospect of a company going public, whether its Google or not." 6

Google took a remarkable risk by using an unconventional system and it seemed to have managed to pull it off successfully.p>

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1] Michael S. Malone, "The complete guide to Googlemania," Wired Magazine, Issue 12.03, March 2004.

2] Paul R. La Monica, "Google goes low," CNNmoney, August 19, 2004.

3] "Google Sets Possible Precedent for IPOs," The Associated Press, New York, August 20, 2004.

4] When a company lists for the first time on the stock exchange, the process is known as an IPO, new share issue or flotation. It is a way for companies to raise cash - and their profile.

5] "Google Sets Possible Precedent for IPOs," The Associated Press, New York, August 20, 2004.

6] "Google Sets Possible Precedent for IPOs," The Associated Press, New York, August 20, 2004.

 

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