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The Key Word In Google's IPO: Risky


Google reminds me of my sadly departed friend George. He had a rollicking laugh, mostly when aimed at himself. I hear it now, recalling how George, no fan of football, once hit me up for a few quips to toss into the chatter at a Super Bowl party. George didn't care who won the game; he just wanted to have fun.

This is my sentiment exactly toward Google, the Super Bowl of initial public offerings. Operator of the Internet search engine that everyone loves to love, Google is set early in August to auction 9% of its equity at $108 to $135 a share. By Google's reckoning, that indicates a stock-market value of $29 billion, or $36.2 billion, or anywhere in between. By my reckoning, that gaping spread says one thing: Don't bother to bid on this shot-in-the-dark IPO. Bet on this much, though: You won't be able to avoid the hoopla as Google's IPO nears. So, in a Googlish spirit of sharing information toward the commonweal, here are some ideas to take along to the party.

Prepare to drop lots of first names. Google's prospectus is unusual in many ways, not least in its habit of referring to founders Sergey Brin and Larry Page and to CEO Eric Schmidt by first name. You can impress others by mentioning the name Gil, as in Gilad Elbaz, co-founder of Applied Semantics, a developer of online advertising software that Google bought last year. Gil is now a Google worker, albeit a filthy rich one. He owns 1,046,834 class A Google shares. With a 2.8% stake, he'll likely be the largest single class A holder after the IPO, into which he's not planning to sell.

Don't mistake Sergey and Larry for Warren. In a letter to prospective investors, Larry emulates Berkshire Hathaway (BRKB) CEO Warren Buffett, citing the need for long-term focus and the foolishness of quarterly earnings guidance. You might note, though, that he strays by also suggesting Google's two classes of stock are akin to Berkshire's. Google class A, which is being sold in the IPO, gets one vote per share; class B, Larry and Sergey's variety, gets 10 votes. The point, Larry says, is to keep control of Google with those who have its best interests at heart. Yet when Berkshire sold its class B stock in 1996, its explicit goal was different. It aimed to preempt plans by Wall Street to rake in fat fees by repackaging Berkshire's high-priced stock -- $36,000 a share back then -- into smaller slices for mom-and-pop investors. Berkshire's directors and officers hold 42% of the vote; Larry, Sergey & Co. will hold 60% of Google's votes.

Remember how fleeting are Silicon Valley's seasons. If Googlers strike you as cocky, you need only remind them of the last occupant of their headquarters in Mountain View, Calif. -- Silicon Graphics (SGI), the toast of the Valley a very few years ago. A miscalculation here, a slow product cycle there, and SGI's 1995 stock-market value of $8 billion shriveled to $430 million today. SGI last year sublet its home to Google and now operates a mile or so away in 59% of its old space.

Don't be evil. As every Googologist knows, avoiding evil plus "making the world a better place" are two management precepts Sergey and Larry swear by. How might you apply them at home? Unless you consider Powerball a sound portfolio strategy, shun the IPO. Instead, as my friend George would have done, look on it as a chance to have a ball: Throw a Google IPO party. Invite friends over, tune in CNBC, mix up some Google Cocktails. Start a pool to bet on Google's ultimate IPO price. Agree that the winner must give the pot to his or her favorite charity. Now, how's that for making the world a better place?

By Robert Barker


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