Google Shares Surge in Debut
Investors lifted shares of Google Inc. into the triple digits in their stock-market debut Thursday -- and carried the spirits of Silicon Valley along for the ride.
Google’s stock gained 18% to $100.34 on its first day of Nasdaq trading. By the closing bell, the search-engine company launched six years ago in a suburban garage was worth more than venerable Ford Motor Co.
The first-day bounce was a vindication for Google’s co-founders, who bucked Wall Street convention by using an unorthodox stock auction to hand over 7% of their company to the public. By the end of the lunch hour, former Stanford classmates Sergey Brin and Larry Page were each worth $3.9 billion on paper.
A day earlier, the success of the initial public offering had been thrown into doubt as slack investor demand and grousing from Wall Street professionals prompted the company to slash its offering price as much as 37% to $85 a share.
Google’s stock, trading under the ticker symbol GOOG, moved above $100 on the first trade at 8:55 a.m. Thursday and held strong all day. The Mountain View, Calif., company ended the session with a market value of $27.2 billion.
In Silicon Valley, which has struggled to regain the optimism that fueled the dot-com boom days, the Google news was warmly welcomed.
“We were hit pretty hard the last few years,” said Jamis MacNiven, whose Woodside, Calif., restaurant Buck’s is popular among deal-making venture capitalists. “People are pleased and proud that there’s another big offering in the valley. Makes us feel real again.”
On Thursday, Brin, 30, reported for work in Mountain View as though it were any other day, though Page, 31, was on hand at Nasdaq’s broadcasting facility in Manhattan for the opening.
The two met in 1995, when Page was visiting Stanford’s computer science program from Michigan. Brin, a Moscow native, was assigned to show him around. Within a year, the two were working on creating a better way to retrieve information from huge piles of data, focusing on the links that connect websites to each other.
Page filled his dorm room with powerful computers, Brin established a business office, and the pair started looking for people who would pay to use their new search technology.
After raising almost $1 million in seed money, they set up shop in a friend’s Menlo Park, Calif., garage replete with a washing machine, dryer and hot tub. As the company grew, it took in $25 million from top-drawer venture capital firms Kleiner Perkins Caufield & Byers and Sequoia Capital Partners.
Google attracted an army of committed users with its simple interface and relevant search results. But it didn’t make any real money until it began placing text-based advertisements next to those search results. The company became a profitable enterprise at the end of 2001; it cleared $143 million in the first half of 2004.
The founders declined to cash in during the bubble days, when an IPO would have brought sure riches. Even as the value of their Google holdings rose to billions of dollars, Page and Brin maintained modest lifestyles that fit with their corporate motto, “Don’t be evil.”
They drive low-emissions Toyota Prius hybrids and live in rented apartments. They play roller hockey in the company parking lot. They expect Google employees to work hard, but they reward them with perks such as free meals cooked by the chef who used to cater to the Grateful Dead.
Their business philosophy was captured in an “Owner’s Manual for Google’s Shareholders” included with the company’s prospectus. “Our goal is to develop services that significantly improve the lives of as many people as possible,” they wrote. “We aspire to make Google an institution that makes the world a better place.”
Brin and Page were reluctant to proceed with an IPO, which they feared would make them beholden to the short-term interests of shareholders and force them to give up the independence and secrecy to which they had become accustomed.
But a 1934 federal securities law forced them to reveal much of their carefully guarded information when they accumulated more than $10 million in assets and 500 shareholders, including employees with stock options. So they decided to go public on their own terms with a Dutch auction designed to put mom-and-pop investors on an equal footing with the well-heeled clients of investment banks.
In many ways, the unusual auction process backfired. The Wall Street insiders who typically drum up demand for new stocks weren’t eager to support a process that threatened to reduce their role in future offerings, especially with the low fees Google insisted on paying its bankers. Meanwhile, some individual investors backed away from the auction because they found the bidding process too confusing.
In the weeks leading up to the IPO, Google also suffered from a general slump in technology stocks and from blunders that brought bad publicity and scrutiny from securities regulators. Just weeks after declaring that its shares were worth between $108 and $135 apiece, the company on Wednesday reduced its valuation to $85 a share.
Even at that price, the IPO minted hundreds of Google millionaires, along with a few billionaires. The value of their holdings grew as the shares rose in trading Thursday.
At the end of the day, Google was worth more than AT&T; Corp., Xerox Corp. and RadioShack Corp. combined.
Chief Executive Eric Schmidt’s stake in the company rose to $1.5 billion. Omid Kordestani, a senior vice president recruited from Web browser pioneer Netscape Communications Corp., has stock worth $479 million.
The riches spread beyond the Googleplex, as the company’s two-story office complex is known. Early investors K. Ram Shriram and Andy Bechtolsheim held stakes worth $530 million and $357 million, respectively. Film critic Roger Ebert, an early Google convert who asked to invest, holds shares worth $2 million.
At Google’s headquarters, employees streamed from the building at midday with packed lunches and paper bowls of ice cream. In a park next door, workers made preparations for the company’s annual picnic today.
“It’s very festive inside,” said a contract employee in a Google T-shirt who declined to give her name. “It’s like a big party.”
Those optimistic feelings rippled throughout the larger Silicon Valley community.
“It’s energizing,” said Karen Burnett, director of the Mountain View Public Library a few miles away.
“It’s a nice antidote to the regular dot-com news we’ve been having, to know that it’s still possible to have a valley-of-the-dreams story happen.”
Times staff writers Terril Yue Jones in Mountain View, Calif., and Alex Pham in Los Angeles contributed to this report.
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Paper riches
Google shareholders saw their holdings jump 18% on Thursday as the shares traded publicly for the first time.
Gain in value of investors’ shares, from IPO price to Thursday (In millions)
Larry Page, founder $584.6 Sergey Brin, founder 583.0 Michael Moritz, venture capitalist 366.5 John Doerr, venture capitalist 322.8 Eric Schmidt, CEO 220.7 AOL 102.7 Yahoo 101.1 K. Ram Shriram, board member 77.6 Omid Kordestani, VP 70.1 Andreas Bechtolsheim, investor 49.9 Stanford University 25.4 Wayne Rosing, VP 21.4 Gilad Elbaz, executive 16.1
Source: Times research
