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Google Stock Slips as New Shares Hit Market

Price Is Still More Than Double IPO's

By David A. Vise
Washington Post Staff Writer
Wednesday, November 17, 2004; Page E05

Google Inc. stock dropped more than 6 percent yesterday as tens of millions of new shares held by early investors and employees of the search engine giant became available for sale for the first time.

The stock price fell $12.33, to $172.55, on heavy volume yesterday. About 20.9 million shares changed hands, nearly double the 11.9 million shares that traded on Monday.


Google co-founders Larry Page, left, and Sergey Brin saw their company's stock price fall slightly yesterday as 39.1 million shares became available. (Ben Margot -- AP)

_____Google In The News_____
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Complete Coverage: Google

When the company went public in August, it placed restrictions on trading by early investors and laid out a six-month timetable for when they could sell. Those restrictions were lifted on 39.1 million new shares yesterday, a block that exceeded the 22.5 million shares sold in Google's initial public offering in August. In the months ahead, more than 200 million additional shares are slated to become available for sale, with the biggest chunk of stock becoming available in February.

Since no public disclosure of sales is required for about a month, it will likely be weeks before it is clear whether Google co-founders Sergey Brin and Larry Page, the company's two biggest stockholders, were among the sellers yesterday, and, if they were, how much they sold. That same uncertainty holds true for other Google employees and early investors.

Around the Google campus, however, some employees have vowed to cash in at least a portion of their holdings to diversify their investments and minimize the risk that the price may fall. Many still remember missing opportunities to sell pricey stock they held in other Internet firms several years ago, shares that subsequently collapsed after being high-fliers. Some said they want to avoid getting caught on the wrong end of another boom-bust cycle.

After a meteoric rise in its stock price since August, Google has a total stock market value of more than $50 billion. The company went public at $85 a share. Since then, the stock has traded as high as $201.60 before dropping back into its current trading range. As recently as last week, the stock was trading in the mid-$160s.

The leading Internet search engine, Google is used by millions of computer users to find information and answers to their questions swiftly online. The company profits almost entirely through the sale of online advertising related to search requests.

Google stock is trading for more than 200 times its per-share profit, leading some analysts to caution investors that it appears overvalued. Those fears were stoked last week when rival Microsoft Corp. released an early version of a competing search engine.

But Jordan Rohan, an independent Internet analyst, said the drop in Google's stock price yesterday was much smaller than some had feared. "I didn't think it was so steep. I think the modest drop in Google's shares on a percentage basis says that there is plenty of demand to soak up the additional supply of shares," Rohan said.

Rohan added that it appears to him that some financial analysts are underestimating Google's profit potential, especially if its growth overseas accelerates.

"I think Google has the potential to significantly exceed all published forecasts over the next year. The area of greatest outperformance is likely to be the international market in Japan, South Korea, Germany, France and elsewhere. People are keyed to trends domestically, but these new markets are going to be bigger than anybody expects."

A major test of Google's stock price will come in February, when 176.9 million additional shares become available for sale. Analysts anticipate that Google's stock price will decline somewhat before the market is flooded with the new shares early next year.

"The stock will react ahead of that," Rohan said. "I imagine employees will sell fewer shares than everybody thinks. The feeling around the Google campus is overwhelmingly optimistic. That type of optimism doesn't coincide with heavy selling."


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