Google Gets IPO Go-Ahead

The Securities and Exchange Commission has granted approval for Google to proceed with its initial public offering of stock.

"Google has been granted its requested approval effective immediately," said SEC spokesperson Amy Best on Wednesday.

Now that the Mountain View, California, company's registration statement is declared effective--a day later than expected--Google can close its share auction inviting bids from potential investors and allow underwriters to begin accepting some of those bids to start public trading.

Google representatives could not immediately be reached for comment.

Earlier on Wednesday, Google posted a notice on its IPO Web site that the offering price for shares will be in the range of $85 to $95, down from the estimate of $108 to $135 originally cited in its IPO prospectus.

Google, which will trade shares on the Nasdaq stock exchange under the ticker symbol "GOOG," says it hopes to raise about $1.3 billion from the sale of about 14.1 million shares.

Do Missteps Matter?

Along with lowering its opening share price, Google has hit a number of hurdles in its highly anticipated, yet rather unorthodox IPO bid.

The company drew the attention of SEC and California authorities when it revealed it may have violated certain U.S. securities laws by issuing unregistered shares to employees and consultants in the past. Google offered to solve the problem by buying back the shares in question, at a potential cost of about $25.9 million. But on August 5 the company said informal inquires we looking into the matter. That inquiry is continuing, the SEC spokesperson says.

Another controversy centers on an interview Google's founders granted to Playboy magazine in April, before the company filed its IPO registration papers with the SEC. The interview appears in Playboy's September issue, released in August, raising concern that the company might be violating the Securities Act of 1933, which bars company executives from discussing their company's prospects as an IPO nears. Google contends it did not violate the law with the Playboy interview.

Opinions vary on how much Google's image is damaged by its missteps in the IPO process.

General consumer users shouldn't be too concerned about Google's IPO bloopers, because in the worst case, they can simply switch to a competitor for such Google services as Internet search, says Rob Enderle, principal analyst in Enderle Group. However, the IPO gaffes should be a source of worry for Google's enterprise customers, such as those who have purchased the company's Search Appliance, he says. The Search Appliance is a device that combines hardware and software to give companies a search capability similar to the Google search engine, at prices starting at $32,000 and rising to hundreds of thousands of dollars.

"The IPO has been horribly handled and it does reflect on the way Google is being run. A corporate customer buys something and expects to get support and a certain amount of service for its purchase, and if the vendor can't execute, it raises the level of risk the corporate customer has to take into account for the purchase," Enderle says. "The mistakes that have been made are pretty much unprecedented in a company like Google. From that standpoint, this should be something the corporate buyer should watch."

Shrugging it Off

Others think the fallout from the IPO bungles isn't as serious.

"The company has got a lot of publicity for what is an unorthodox way of raising money in the capital markets, and that plays well to its brand image as a pioneer," says David Schatsky, a Jupiter Research analyst. "There's been a lot written about [the IPO] glitches, but at the end of the day [the IPO] is only going to be good for consumers and other Google customers."

"If being interviewed in Playboy is a mistake, it's about the most benign mistake that a corporate executive has made in the last three years," Schatsky adds.

Of course, the ultimate purpose of taking the company public is to raise money, and Google has been tight-lipped about how it will use the funds it raises. In its prospectus, Google says the money will go for general corporate purposes, such as sales and marketing expenses, research and development expenses and general and administrative expenses; capital expenditures; and possible acquisitions of businesses, technologies or other assets.

"The company has been extremely quiet about its strategic plans and how it intends to use the money that it's raising, so it's reasonable to expect there will be no immediate visible impact for either enterprise customers or consumers following this IPO," Schatsky says. "Whatever changes they're planning are probably already planned and scheduled and will proceed according to a pre-determined timeframe, but the offering itself won't precipitate any noticeable changes, I would speculate." All that remains is for the IPO process to be completed so that the market can finally see Google's strategy unfold, he says.

What Next?

Google should focus on exploiting the value of its assets, such as its technology, its infrastructure, its brand, its intellectual property, and the vast traffic it generates as the world's most widely used search engine, Schatsky says.

"I think they would be wise to be selective about what they do. The world doesn't need another portal, unless Google can provide the functionality in a way that benefits dramatically from its unique search capabilities," he says. "The company is built on the strength of a small number of really good ideas."

How Google chooses to invest its IPO money will determine whether it succeeds like competitor Yahoo or collapses like Internet supernova Netscape, Enderle says.

"If we were talking about a mature company, you would expect them to be putting a lot of effort into research and development, to build out a product suite. An immature company might go on an acquisition spree. That's what Netscape did," Enderle says.

Based on the way Google has handled the IPO process, Enderle is skeptical about the company's future.

"Since they're behaving more like Netscape, I'm concerned they'll spend a lot of the money on perks and buying companies as opposed to spending the money on much more sure investments," Enderle says. "The IPO process gave us a view of Google that was anything but mature."

  
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