Web Leader Google Files To Go Public in Unusual IPO Offering Will Be Most Closely Watched Since Netscape Started '90s Net Frenzy A WALL STREET JOURNAL ONLINE NEWS ROUNDUP April 29, 2004 3:40 p.m. Google Inc. filed to go public today, setting plans to raise as much as $2.7 billion in an initial public offering and giving investors their first look at the secretive company's revenue and earnings. The deal's lead underwriters are Credit Suisse First Boston and Morgan Stanley. Unlike a traditional initial public offering, Google plans to sell the shares through an unusual auction conducted by its underwriters on the company's behalf, in an effort to make the shares more widely available. The filing didn't specify a price per share. The $2.7 billion proposed maximum size of the deal -- which is used to determine the size of filing fees and can change later -- would immediately rank it among the fifteen largest IPOs in U.S. history. Estimates of the post-offering market value of the company have varied significantly, topping out at around $25 billion. (See chart.) According to the filing with the Securities and Exchange Commission, the company posted a profit of $105.6 million in the year ended Dec. 31, 2003, up from $99.7 million a year earlier. The company had revenue of $961.9 million in the recent year, up from $347.8 million in the year-earlier period. The company has been profitable since 2001, when it posted net income of $7 million on revenue of $86.4 million. The offering documents were filed with a lengthy letter, called the "Owner's Manual" for the company. In it, co-founder Larry Page said he and co-founder Sergey Brin have worried that the "standard structure of public ownership may jeopardize the independence and focused objectivity that have been most important in Google's past success and that we consider most fundamental for its future." (See text of the letter.) As a result, the founders "have designed a corporate structure that will protect Google's ability to innovate and retain its most distinctive characteristics." Part of that will be a dual-class structure, in which the founders will hold a higher-vote class of stock that will allow them to control much of the company's fate. Executive Salaries According to the filing, Chief Executive Eric Schmidt made $250,000 in salary and got a $301,556 bonus last year, plus other compensation of $2,894. Co-founders Mr. Brin, now president of technology and Mr. Page, now president of products, both got salaries of $150,000 and bonuses of $206,556. (See more on compensation.) Google also revealed other closely guarded secrets, such as how many employees it has. As of March 31, 2004, the filing says, Google had 1,907 employees, consisting of 596 in research and development, 961 in sales and marketing and 350 in general and administrative. Although Google's stock won't actually be sold for several more months, Thursday's filing represents a significant milestone in the company's evolution from a fun-loving start-up to a corporate adolescent that will be held more accountable for how it manages its money. The company's headstrong founders, Messrs. Page and Brin, long resisted going public, to avoid disclosing details about the business and their strategy. From the earliest days, the two Stanford graduate students limited investments by venture capitalists, so that they could continue to call the shots and allow themselves as much freedom as possible. Echoes of Netscape Deal The deal has all of the hoopla of the biggest IPOs of the 1990s, when Netscape Communications sold shares publicly and helped set off a frenzy that sent the stock market soaring. As in some 1990s deals, this public offering stands to make some computer-science whiz kids wealthy beyond their wildest dreams. Some things, however, are different now. Google is already an established powerhouse, unlike so many of the young wonders of the bubble era. And its IPO will test many of the reforms put in place by regulators in the wake of the bubble's burst. Those reforms are intended to wipe out abuses that favored Wall Street investment-banking and trading clients, and Wall Street itself, at the expense of many other investors. The enthusiasm for a Google IPO also demonstrates the importance the search function has assumed in how people use the Internet, helping shape the sites they view, the news they read and the products they buy. There is a revenue stream to match: Advertisers increasingly use search sites as a way to buy more targeted advertising, since the sites can match up ads with what people are looking for. Microsoft Corp. and Yahoo Inc. are among the players that have concluded that search is of such strategic importance that they have poured money into their own search offerings recently. Google offers its search engine to Internet users free of charge. It also licenses the technology to organizations such as Procter & Gamble Co. and the U.S. Army for their internal use and to Web sites such as Time Warner Inc.'s America Online unit to power consumer searches. Most of Google's revenue comes from small text ads that Google sells on its own site, as well as the Web pages of other companies. Advertisers bid for the right to have ads appear each time a user searches for certain keywords or those words appear on the Web site of a Google partner.