Google registers eagerly awaited IPO

Internet search provider Google Inc. registered yesterday to sell shares of its stock on the open market in a hotly anticipated initial public offering that will seek to raise $2.7 billion and could reignite the technology business boom that stalled four years ago.

In a Securities and Exchange Commission filing remarkable for its tone of quirky idealism, the search-engine company said it would break with some traditional IPO practices by auctioning shares to ordinary investors and establishing a dual-class share structure that is rare in the technology industry. The auction is intended to dampen speculative trading by setting a more rational price, while control of voting stock will enable Google's founders, Sergey Brin and Larry Page, to resist a narrow focus on quarterly results, the company said in its filing.

''If opportunities arise that might cause us to sacrifice short-term results but are in the best long term interest of our shareholders, we will take those opportunities," Page promised in a founders' letter to prospective shareowners. ''We will have the fortitude to do this. We would request that our shareholders take the long term view."

Google's filing, which didn't specify an IPO date, said the Mountain View, Calif., company would list its shares on either the Nasdaq or the New York Stock Exchange. And for the first time yesterday, the company disclosed financial data, revealing that it earned $105.6 million on revenues of $961.9 million in 2003, up from $99.7 million on revenues of $347.8 million the prior year. For the first three months of this year, Google posted earnings of $64 million on revenues of $389.6 million, more than double its $25.8 million on revenues of $178.9 million last year, exceeding the estimates of many investment professionals.

''Their revenue growth is extraordinary, and the profitability is solid," said Paul F. Deninger, chairman and chief executive of Broadview Holdings of Waltham, a firm that advises technology companies on mergers and acquisitions. ''These guys are investing intensely in order to maintain their technology leadership."

The financial disclosures had been awaited eagerly by investors, as a way of gauging the potential of a company that has gained widespread popularity among Internet users who are captivated by its stripped-down and fast results. Competitors ranging from Yahoo Inc. to Microsoft Corp., which are publicly traded, had also anticipated the SEC filing as a window on the profitability of a company that makes most of its money selling contextual advertisements on its site and on the sites of companies with which it has partnerships.

''Obviously, Google is a successful company, and it's got good technology," said David B. Walek, partner at the Boston law firm Ropes & Gray and cohead of its technology group. ''What's been hard for people to get their arms around is how profitable the company is, and they'd been very coy about that. . . . It looks very healthy to me."

But there has been vigorous debate about whether a Google IPO, even if attracts strong investor interest in a forthcoming auction, will lift other technology stocks, or merely inflate a short-term bubble.

Certain signature IPOs, such as Genentech Inc. in 1980 and Netscape Communications Corp. in 1995, have propelled broad venture capital investment into hot sectors, such as biotechnology or Internet companies, according to new research by a trio of Harvard Business School professors. Such outlays can often be good for an industry but not necessarily for the company that had the successful IPO, said Josh Lerner, a Harvard business professor specializing in venture capital.

''Google has the potential to be one of those IPOs that not only conveys that there is a great company but also that there is a broader opportunity in an area," Lerner said. ''Success attracts imitators."

In fact, rivals like Microsoft, Yahoo, Ask Jeeves Inc., and a roster of start-ups are already targeting Google's leading position in search engines. Yahoo, which had used Google to power searches on its site, launched its own search technology this winter after it acquired a pair of search engines, Inktomi and Overture. Microsoft, meanwhile, is working to integrate search into the next version of its Windows operating system, code-named Longhorn, expected to be introduced in 2006.

Forrester Research founder and chief executive George F. Colony, citing the ease with which rivals can enter the Internet search business, said Google might find it hard to maintain its market leadership. Changing technology, such as the shift from static to more dynamic and interactive Web pages, could create an opening for Google competitors to exploit.

''You can switch from one search site to another in 20 seconds," Colony said. ''We all did it when we went to Google. And they have voracious competition."

Brin and Page -- who met as Stanford University graduate students in 1995, developed their search technology in dorm rooms, and incorporated their business in 1998 -- are expected to become billionaires on the day of the initial public offering, probably this summer. The founders hired Silicon Valley veteran Eric Schmidt, who had run Novell Inc., to be Google's chief executive in 2001, but Brin and Page have remained deeply involved in the company's strategy. In the months leading up to yesterday's SEC filing, the Google management team has been unusually secretive as it considered its future path.

Yesterday's filing was prompted by a tripwire: a 1934 law that requires private companies to disclose broad financial information 120 days after the end of a year in which they have amassed 500 shareholders and $10 million in assets. The law is thought to have applied in Google's case because it had issued stock options to so many of its employees. Even without exercising their options, the owners counted as shareholders under the law.

By creating two classes of stock, Page and Brin will maintain their influence on the company's direction through control of voting shares -- an arrangement more common at multigenerational, family-run companies, such as newspapers, than at technology companies. Investors sometimes shy away from dual-class ownership because nonvoting stock owners have less power.

''In the case of Google, though, they might look more favorably on it," said Ropes & Gray's Walek, ''because these guys created a remarkable technology."

Google's decision to auction its shares over the Internet, rather than hire investment bankers to price the stock based on demand from institutional investors, such as mutual funds or pension funds, was seen as a slap to the Wall Street underwriters who managed most of the IPOs during the technology boom. In the end, that move could turn out to be as important to the Google legacy as the company's search technology.

''If it reforms the IPO market, Wall Street isn't going to like it," Colony said. ''But it will be much more fair for the companies and the shareholders, and it will create a much more efficient market."

Robert Weisman can be reached at weisman@globe.com.