Tue | Jan 22, 2019

Google's pivotal IPO launched a decade of big bets

Published:Sunday | August 31, 2014 | 12:00 AM
In this January 15, 2004 file photo, Google co-founders Larry Page (left) and Sergey Brin pose for photos at their company's headquarters in Mountain View, California.-FILE
In this August 19, 2004 file photo, a photographer makes pictures of the board at the Nasdaq Marketsite in New York's Times Square shortly after shares of Google started trading. -AP

Google's IPO, a decade ago, launched the company on a trajectory that continues to reshape its business and much of the world in its orbit.

And CEO Larry Page is determined to push even further.

Page's vision is that Google's products and services will become the control centre of people's lives: The company's driverless cars will chauffeur people around safer roads and deliver goods within hours of an online order. People won't even have to bother leaving their homes, which will be made more comfortable and enjoyable through the use of smart appliances. Robots will handle tedious chores and other jobs, freeing up time for people to enjoy lives prolonged by health-management tools and disease-fighting breakthroughs, engineered by Google. Internet-connected eyewear and watches will supplement the smartphones that ensure Google is a constant companion capable of anticipating questions and desires.

Google's big bets are fuelled by Page's belief that "incrementalism leads to irrelevance over time, especially in technology, because change tends to be revolutionary, not evolutionary," he wrote in May in Google's annual letter to shareholders.

Although Page has been taking risks since he co-founded Google with Sergey Brin in 1998, the stakes probably wouldn't be as high if not for the company's pivotal IPO on August 19, 2004.

Besides raising about US$1.2 billion in cash, the IPO empowered Google Inc with a stock that the company used to attract more brainy engineers and buy promising companies such as YouTube. Google now employs 52,000 workers, some 20 times more than at the time of the IPO and has snapped up more than 250 companies in the past 10 years.

The ambitious expansion has extended Google's empire far beyond the influential search engine that processes more than 100 billion queries each month and still brings in most of the company's projected US$67 billion in revenue this year. Google is also a leader in email, Web browsers, Internet video and mobile computing now.

The company already has amassed so much power that it has been the subject of broad antitrust investigations in the US and Europe amid allegations that it uses its size and stature to stifle competition. The Federal Trade Commission absolved Google of wrongdoing last year while the European Commission is still examining the issue.


When Google filed its IPO paperwork in April 2004, the iconoclasm of Page and Brin shone through the legalese and standard boilerplate language.

The duo included an "owner's manual" that declared Google's intent to remain an unconventional company that pampered its employees, made risky gambles on long-term projects at the expense of short-term earnings growth and paid little heed to the unwritten Wall Street rules that prod executives to offer financial forecasts each quarter.

In another break from tradition, Page and Brin set up a bidding process known as a "Dutch auction" designed to give a larger pool of investors an opportunity to determine the IPO price and buy the stock before it began trading on Nasdaq.

This differed from the usual system that depends on bankers to set the IPO price and distribute the pre-trading shares to their preferred clients, who often expected to get them at a slight discount.

Page and Brin didn't help Google's cause. They showed up to investor presentations in casual attire and then answered questions with off-the-cuff remarks that provided little information. Things got even more complicated when a Playboy interview done with Page and Brin in April came out in early August as the IPO was heading into the stretch.

The piece revealed that Google hadn't properly registered millions of its shares with California regulators. Officials initially viewed the interview as breach of rules that forbid companies from sharing key information outside of IPO documents, but eventually, the agency backed down when Google included the entire Playboy interview in an amended filing.

Google's IPO ended up being priced at US$85, well below the company's earlier target range of US$108 to US$135.


Investors who bought Google's stock on the first day of trading have been richly rewarded. The shares rose 18 per cent to close at slightly above US$100 on in their Wall Street debut and have never fallen below the IPO price.

Adjusted for a split completed earlier this year, Google's stock has risen roughly 14-fold, leaving the company with a market value of nearly US$400 billion. Only Exxon Mobil Corp and Apple Inc are worth more.

Apple didn't fare quite as well as Google in the first decade after its December 1980 IPO. Apple's stock merely tripled in value during its first 10 years of trading. By comparison, Microsoft Corp.'s stock had soared 90-fold a decade after its March 1986 IPO and Amazon.com Inc.'s stock had climbed 40-fold a decade after its May 1997 IPO.

Google's performance helped stoke demand for the IPOs of other rapidly growing Internet companies. Facebook Inc would never have been able to command a market value of US$104 billion when it went public in May 2012, nor would Chinese e-commerce conglomerate Alibaba Group's expected IPO value be at US$150 billion if Google's IPO hadn't performed as well as it had, said longtime IPO expert and University of Florida finance professor Jay Ritter.

- AP