Google Inc. stock traded heavily yesterday as hundreds of employees, early investors and others gained the freedom to sell as many as 177 million additional shares six months after the company first sold stock to the public in August.
This was the largest and final batch of company shares that had been kept off the market. Despite widespread selling by employees, Google's stock rose $5.59, to close at $192.99, as 38.6 million shares changed hands, nearly triple Friday's volume of 13.1 million shares. That was not what many on Wall Street had expected with the expiration of trading restrictions.
More than 38 million shares changed hands yesterday after some investors gained the freedom to sell as many as 177 million additional shares.
(Erin Lubin -- Bloomberg News)
"If someone told you they would have this lock-up expiration and Google stock would be up, I would be pretty surprised," said Scott Kessler, an analyst with Standard & Poor's Corp.
Analysts attributed yesterday's rise in Google's stock price to several factors. First, heavy selling by savvy investors seeking to profit in advance of yesterday's event already had driven down Google's share price more than $20 in the past 10 days.
John L. Doerr, a Google director and a managing partner of Kleiner, Perkins Caufield & Beyers -- one of two Silicon Valley venture capital firms that backed Google -- sold about $30 million of Google stock this month, according to public filings. Doerr sold shares at prices ranging from $198.13 to $201.50 per share.
Google's stock price peaked at $216.80 on Feb. 2, one day after the company, which runs the most popular Internet search engine, announced robust earnings for fourth quarter 2004. Since then, its stock price has declined, in part because investors had expected yesterday's flood of new shares.
A bullish endorsement before the start of trading yesterday morning from CIBC World Markets Corp., which boosted its price target on Google to $245 a share, bolstered confidence in the stock as well. The CIBC report said many institutional investors would feel more comfortable investing in Google because it would have more shares available, making it easier to trade. The company's initial public offering in August involved only about 23 million shares.
"Our analysis and client relationships suggest there will be enough institutional demand to soak up any supply that comes to market," wrote CIBC analyst Michael E. Gallant.
"Great brands are tough to displace and Google is innovating the fastest, which should enable it to hold onto its significant market share advantage for some time," the report said. CIBC acknowledged that it may have a conflict of interest since it seeks to do business with Google and other companies covered in its research reports.
A separate set of self-imposed and other regulatory restrictions on top Google executives reduced the number of shares that could have been dumped on the market yesterday.
Analysts said that despite the lifting of the broad "lock-up" on the 177 million Google shares, a number of top executives, including chief executive Eric Schmidt, co-founders Sergey Brin and Larry Page, and others, have entered into prearranged trading programs to sell shares over time. Those programs and other restrictions, analysts said, meant that an estimated 90 million new shares actually became available for sale yesterday, rather than the entire pool of 177 million.
Meanwhile, Google shares are changing hands in myriad ways. Both Kleiner Perkins and Sequoia Capital -- the other Silicon Valley venture firm that backed Google several years ago -- distributed billions of dollars in shares to investors in their respective funds recently, giving them the chance to decide for themselves whether to hold or sell. Separately, Jennison Associates LLC, an investment advisory firm owned by Prudential Financial Inc., disclosed last week that it had bought more than 4 million Google shares.
Despite what some analysts view as the lofty valuation of Google's shares, investors continue snapping them up.
"There is so much demand for this stock it is amazing," said Tom Taulli, co-founder of Currentofferings.com, which tracks initial public offerings. "It doesn't seem to let up."