Google Inc. offered new warnings yesterday about the risks investors face in the company's upcoming $2.7 billion initial public offering of stock, including fresh cautions about potential trading losses for anyone who tries to dump its shares quickly.

Google plans to use an auction method to set the price of shares in its IPO rather than follow the traditional Wall Street practice of allowing investment firms to determine the price and allocation of shares. Unlike traditional IPOs, in which the initial price may be set artificially low so that early investors have a chance to capitalize when shares begin trading, the auction method is designed to yield the highest possible price for the company before the market opens.

Google has yet to say precisely how it will conduct the auction, but in a new filing with the Securities and Exchange Commission yesterday it disclosed that based on demand it may increase the number of shares sold in the offering or adjust the price, which it said could dampen demand once trading begins.

"Therefore, the price of our Class A common stock could decline following the offering, and investors should not expect to be able to sell their shares for a profit shortly after trading begins," the company warned. "You should consider whether to modify or withdraw your bid as a result of developments during the auction process."

Investors who participate in the auction must bid for at least five shares, though investors also may submit more than one bid, the company said in the filing. Investors will have the right to modify or withdraw their bids at any time up to one hour after being notified that the SEC has approved the company's IPO filing.

Google said a guide for bidders would be issued before the auction with details about the mechanics of how to participate, and the company said it will ultimately issue a press release with the IPO price. The company has not said when the auction will occur, but the offering is unlikely before the late summer or early fall, analysts said.

"One theme they seem to be ensuring is as well-understood as possible is that this is not your conventional IPO, and there are a couple of obvious caveats," said Scott Kessler, an analyst with Standard & Poor's. "If you succeed in winning IPO shares, you could also end up owning the stock at a high [price], and that high could be over the short term or long term, depending on what happens."

Google also disclosed yesterday that Merrill Lynch & Co. is no longer among the more than two dozen brokerage houses that will participate in the IPO. The company offered no explanation for Merrill's removal from the list.

Given Google's profitability and popularity as an online search engine -- it had sales of almost $1 billion and earnings of more than $100 million last year and first-quarter profit in 2004 more than double that from the same quarter of the prior year -- the disclaimers and warnings may do little to dissuade investors from participating in what has been billed as the biggest IPO of the year, analysts said. However, some investors who want to own Google stock might decide to sit out the auction and buy Google shares after they have started trading.

Much to the dismay of Wall Street firms, the search engine company, which has millions of loyal users around the world, has made a point of reaching out to individuals to participate in the initial offering of shares, and there has even been chatter that some major institutional investors may boycott the offering, Kessler said.

In addition to warning investors about its auction process, Google outlined other challenges facing its business. It said privacy activists had raised concerns about the way its new e-mail product, called Gmail, serves up ads based on the contents of the messages. Google said legislation has been introduced in both California and Massachusetts that, if enacted in its original form, would shut down the revenue potential of Gmail in those states and create further complications.

The company said it is taking steps to educate the public about the privacy protections it has put in place for Gmail users, and it said it is working with legislators to craft regulations that would not be overly broad.

"While the proposed legislation has been modified in one of the states so it does not inhibit the operation of the Gmail service, the legislation has not been finally adopted," the company said. "If the legislation is adopted as originally proposed, or other similar legislation is adopted, it could prevent us from implementing the Gmail service in the affected states. This could impair our ability to compete in the email services market."

Google, in an SEC filing, discussed possible state regulations that could decrease the revenue from its new e-mail service, called Gmail.