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Google: Should You Search for a Better Deal?

By Cynthia L. Webb
washingtonpost.com Staff Writer
Monday, August 2, 2004; 9:33 AM

Google Inc.'s planned stock offering has been touted as the biggest tech event of the century and as a herald of the sector's resurgence, but some are growing skeptical about whether the stock will be a good deal for investors.

"Sure, IPOs are inherently risky, but Google stock may be especially unwise at this nosebleed price range," Business Week wrote. "At the midpoint price, Google's would-be $33 billion valuation is a step down from its closest competitor, Yahoo, a seasoned Internet giant with a diverse revenue stream and a market value of $40 billion. Compare projected 2005 earnings against these valuations, however, and Google's multiple is just a speck below Yahoo's. That's troubling, since Google is largely a one-trick pony, with no easy means to diversify its business and hefty management challenges. 'It's priced for ultimate perfection,' says a skeptical Google investor who plans on selling after the IPO," the magazine reported. And long-term investors "should be very wary of Google's single-barrel business model," the magazine said, citing the company's ad sales next to paid search results model and the expected decline of the search market overall. "As long as Google remains so heavily dependent on a single search market, it should trade at a discount to Yahoo, says American Technology Research Inc. analyst Mark S. Mahaney. Citing its quiet period, Google won't comment."
Business Week: Google This: Investor Beware

_____About Filter_____
Filter looks at the day's top technology news through snapshots and analysis of what the world's media outlets are covering. Washingtonpost.com's new Mon.-Fri. feature is penned by technology reporter Cynthia L. Webb. If a technology story breaks, a company falters or triumphs, or there's a new trend in technology, Filter wants you to know about it.

_____Filter Archive_____
Linux Sees Open Field for Open Source (washingtonpost.com, Aug 3, 2004)
No Synchronicity for Apple, RealNetworks (washingtonpost.com, Jul 30, 2004)
Bloggers Type It Like It Is in Boston (washingtonpost.com, Jul 29, 2004)
Barry-ing the Hatchet (washingtonpost.com, Jul 28, 2004)
The Blogger Circus (washingtonpost.com, Jul 27, 2004)
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"If an investor asked me, 'Should I bid on this stock?' " David Menlow, president of independent research firm IPO Financial Network, told the New York Times, "I would respond with an unqualified 'no.' Yet one man's 'financial train wreck,' to borrow Mr. Menlow's phrase, is another's rare chance to magically transform a modest stash of cash into a single-stock retirement fund. 'Google might look ridiculously expensive,' said Michael Moe, the chief executive of ThinkEquity Partners, a research-oriented investment bank specializing in growth industries. 'But Microsoft, Cisco, Qualcomm -- take your pick. All came out with a lot of fanfare and people said they were ridiculously expensive -- and all of them proved a great investment. 'This is like making a bet on a thoroughbred,' he said. 'You're paying a premium.'" That's for sure -- the price range is $108 to $135 per share.
The New York Times: Before You Buy Into That I.P.O., Search Lemmings (Registration required)

USA Today reported that Google's steep per-share price range is making some investors turn skittish, noting that "some pros are planning to bid below that. If they get some, great; if not, oh well. Others are blowing it off, figuring they'll let others get caught up in the hype and later buy the shares for less," USA Today wrote. "Neil Hennessy, manager of Hennessy Funds, says the valuation is too high to make his short list of potential investments. He's also bothered that Google's dual shares of stock give the founders much more voting power than common stockholders. He says this IPO is 'not even close to the radar.'" The New York Post reported that Google's IPO process, designed to give small investors a slice of the deal through an auction process for shares, "could end up backfiring on mom and pop investors" since "with such a big valuation, the stock might have nowhere to go but down in the aftermarket." Menlow told the Post that "The stock could open and have little if any follow through. If that is the case, I don't think there will be aftermarket buying to support the high price."
USA Today: Google´s IPO Isn´t Hot With Everyone
New York Post: Wall Street, Google On Dutch Date

Dan Gillmor, technology columnist at the San Jose Mercury News, called the bid a dumb idea for investors. "Google is a fine company, maybe heading toward greatness. Yet even if I were allowed to invest in technology stocks (I'm not), I wouldn't bid on this initial public offering. At least, I wouldn't consider it at the nosebleed-altitude prices that Google suggested to the world Monday. This is starting to feel frothy. "We've told you this before, but I want to reinforce it: Go to Google's latest revision of its prospectus, formally known as an S-1, filed with the Securities and Exchange Commission (www.sec.gov). Read again the section on 'Risk Factors.' That's the part so many investors resolutely ignored in so many tech IPO filings in the late 1990s. In more than 14,000 cautionary words, Google makes a persuasive case that its ability to thrive in the long term is hardly a slam-dunk," Gillmor wrote last week. Despite these concerns, Business Week wrote that "Google will no doubt lure plenty of interest when it sells shares, likely in August. But given all the challenges ahead, smart investors will proceed with caution."
San Jose Mercury News: Why Not Bid On Google IPO (Registration required)

Still interested in becoming a Google shareholder? The San Francisco Chronicle poured more cold water on the high hopes of the little people, otherwise known as low-end investors. "Small investors will have unprecedented access to Google's highly anticipated initial public offering, but that doesn't mean everybody who wants to bid on shares will get to. Many brokerages let only customers with substantial assets at the firm invest in IPOs. Those firms may require customers to have large accounts to bid on the Google IPO as well, although some may reduce or eliminate their usual requirement. By last week, a number of firms had not finalized their policies," the paper reported yesterday. "Whether or not brokerage firms impose minimum account sizes to bid, all of them require investors to meet certain suitability requirements before they can invest in stocks, especially IPOs. These requirements vary by firm and are not always disclosed to customers. In addition, investors who open an account just to make the minimum five- share bid on Google could be hit with fees that some firms charge on small or inactive accounts."
San Francisco Chronicle: Not Every Investor Will Be Eligible For Google IPO

Allan Sloan wrote in a June column for The Washington Post that Google's IPO is going to focus on short-term gains for investors. "Google's public and private valuations prove that going public is in current shareholders' short-term interest. And on Wall Street, short-term is what it's all about. No matter how many safeguards the founders think they've erected to keep the Street at bay, the day that Google's IPO is completed, the score will be Wall Street 1, [Google co-founders Sergey Brin and Larry Page] 0," Sloan wrote.
The Washington Post: Pressure on Google to Go Public Reflects Focus on Short-Term Gain (Registration required)

Still Calling All Google Fans

Despite the skeptics, Google's IPO will have many willing investors. I still get a lot of e-mail from readers asking how they can get in on the Google IPO and financial advisors and investment firms are getting a slew of calls about it as well. On Friday, Google launched its Web site for people to register to be a bidder for its IPO. And that means Google's IPO could be right around the corner, "The company has still not given detailed information on when the auction will take place. But a number of industry executives have said they expect Google to go public soon, possibly as early as Aug. 9," the New York Times reported over the weekend. The San Jose Mercury News pegs the date at Aug. 11, according to an article that ran on Friday.

The New York Post explained more about Google's so-called "Dutch auction" of its shares. "For those interested in participating in the auction, Google requires that you open a brokerage account with one of the 28 underwriters listed in its prospectus. You'll then need to register for a bidder ID at www.ipo.google.com, which is not yet up and running. When the auction begins, investors will be able to contact their brokers and bid on a minimum of five shares," the newspaper said. The Minneapolis Star Tribune ran a good, brief how-to primer for wanna-be Google investors. And Google's new IPO Web site has video presentations by the company's top management. "One thing we are interested in is making the process more democratic, making our shares available to more investors and to do that in a sort of rational way that would work," Google co-founder Larry E. Page said in the video, the New York Times reported.
The New York Times: Google Web Site Readies Bidders For IPO (Registration required)
San Jose Mercury News: Google Opens IPO Web Site (Registration required)
Reuters via CNET's News.com: Google IPO Site Online
Minneapolis Star Tribune: Getting Google

There Are Other Search Engines

Google is so popular, it's now a verb. Despite that amazing ubiquity, there are other search engines out there -- and not just those of top competitors Microsoft and Yahoo. The Toronto Star has a rundown of some other interesting search sites, including Kartoo, Vivisimo, the Librarians' Index to the Internet and Topix.
The Toronto Star: Web Portals of Every Sort

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