Google: Ipo Case Study

Before Google, search engines on the internet ranked sites by the number of times the term being searched for appeared on a web page. Sergey Brin and Larry Page, the creators of Google, wanted to develop a search engine that would seek out information by relevancy. They first named the search engine Back-Rub, but in 1997 renamed it to Google – a spin off the word “googol” which stands for the number 1 followed by 100 zeros. By December 2001, Google’s index size had grown to 3 billion web documents. On April 29, 2004 Google filed an S-1 form (Prospectus form) with the Securities and Exchange Commission (SEC). In calculating the registration fee on this form, Google inserted an amount of $2,718,281.828 as the proposed maximum aggregate offering price. Not coincidentally, e = 2.718281828 (had to throw in the math humor!). This initial filing did not contain the number of shares to be offered or a price range. Those numbers were first introduced in the July 26, 2004 amendment #4 filing. In this filing, Google offered the number of shares as 24,636,659. More than half of these shares, 14,142,135, were to be sold by Google. The remaining 10,494,524 shares were to be sold by existing shareholders. The price range given was $108-$135/share. Google anticipated that the proceeds from the sale of their shares would be $1,661.9M and would be used for general corporate purposes to include working capital and possible acquisitions. They also anticipated investing their proceeds in highly liquid, investment grade securities.

Amendment #9, the last amendment filed before the Final Prospectus, was filed on August 18, 2004. In this amendment, the number of shares to be issued was 19,605,052 (Google’s amount did not change, but the shareholder amount decreased, bringing the total number of shares down) and the price range was dropped to $85-95/share. Based on a $90 price, Google estimated their net proceeds to be $1,227.2M. When the bidding period ended, it was clear that Google...