Google's IPO

As someone who looked into friends turned foes Yahoo and Google while earning my BBA, I have started tracking Google's IPO which, along with Gmail, will result in all out war with Yahoo. This IPO is interesting, not just because the Internet wars has breathed in a new wind, but because Google is doing it differently.

In the dot-com era, IPOs were run as much for the benefit of the Wall Street underwriters as for the companies. Wall Street firms would set a price at which a company would sell shares to the broad investing public and distribute the shares. In practice, underwriters would dole out many shares to favored executives at client companies, or to hedge funds and mutual funds that threw a lot of trading business to the underwriters. By setting the price for dot-com stocks artificially low and by deciding who could get in on the IPO at the artificially low price, underwriters had a license to make their friends and clients rich in a matter of minutes, when frantic individual investors bid up the shares. (Before Eliot Spitzer came along, these conflicts of interest were known in Manhattan as "synergies.") In exchange for suppressing the offering price and thus depriving their client of needed capital, underwriters in most dot-com IPOs typically helped themselves to a fee totaling 7 percent of the offering.

But Google has largely cut out the underwriters. Its IPO is being structured as a Dutch auction. Any investor can submit a bid for as few as five shares. The underwriters will tally all the bids. They'll start at the top—$150, $200, whatever—and work their way down until all the shares are spoken for. That price then becomes the clearing price, which Google intends to use as the IPO price. There's no penalty for bidding high—if the clearing price is $140 and you bid $200 you'll pay $140. Those who bid under the clearing price get nothing.

- Daniel Gross

The other big factroid surrounding the IPO is how much they are asking. While a "typical initial public offering (IPO) will have a price range of, say, $12 to $14" or "if the offering is red-hot... $22 to $24", instead the price range is $108 to $135.

Based on its current share count, that's a valuation range of $29 billion to $36 billion. That's Yahoo! (Nasdaq: YHOO) country.

Some pundits say that the high stock price may scare away retail investors. Well, whenever there is a mania, no stock price is too high. After all, in the late 1990s, investors had no mental hang-ups when paying more than $200 per share for stocks such as, well, Yahoo!

A company with a $100-plus stock price is unusual in technology. In fact, it has become much more common to see tech stocks at lower prices. Even marquee tech giants, such as Intel (Nasdaq: INTC) or Microsoft (Nasdaq: MSFT), are in the $20 zone.

- Tom Taulli

How much is that worth really?

For $108, the prospective low end cost of a single Google share, you could buy an IBM (nyse: IBM) laptop battery or a motherboard for your computer. For $135, the upper range of the IPO, you could buy an Adirondack chair or a night at a hotel in Saratoga Springs (where, by the way, you could take another $135 to the racetrack and parlay it).

For $29 billion, you could make whole the world's software industry for their losses from pirated software last year (that number coming from a software trade group, so it may be inflated). You could also pay the cost to the 50 states from unfunded mandates imposed by the federal government. You could also buy, at the latest average price, roughly 152,000 new homes, enough to house (at four people per home) everyone in the city of Boston.

Raising the stakes to $36 billion, you could pay Microsoft (nasdaq: MSFT) back for the cost of its special dividend--and have $4 billion in change. Or you could house Baltimore. Or you could pay the entire U.S. foreign aid bill twice (not counting Iraq).

For $2.7 billion, the low end of what Google is looking to generate in its IPO, you could close New Jersey's budget deficit. You could also buy everything exported by Minnesota in the first quarter of this year. Raise the ante to $3.3 billion and you could fund the debt relief for Ethiopia (now covered by the World Bank and the International Monetary Fund).

- Dan Ackman

What I found most surprising from Ackman's article is "that Google would, to investors, be worth more than Ford Motor (nyse: F), Vivendi Universal (nyse: V), or Schering-Plough (nyse: SGP), and perhaps as much as Boeing (nyse: BA)."

According to Bambi Francisco, the first 6 months of this year Google had a operating profit of $326 million, with $1.3 billion of sales (25% profitability). Yahoo had only $281 million with 1.59 billion of sales (17.7% profitability). Her article is more number-gritty and explores the industry as a whole, so if interested, check out that link. The current date for the IPO is August 9th. Besides now offering 100 MB free, I wonder how Yahoo will attack back. A new free blog service perhaps?