Google sets sights on a $3.3b IPO

Setting the stage for the most hotly anticipated stock sale of the decade, Web search provider Google Inc. yesterday said it expects to raise up to $3.3 billion in an initial public offering that could leave the Silicon Valley company with a market value as high as $36 billion.

Google, which will trade under the symbol GOOG on the Nasdaq exchange, plans to sell 24.6 million shares for between $108 and $135 a share, the company said in an amendment to the registration statement it filed April 29 with the Securities and Exchange Commission.

The company also reported that its second-quarter earnings jumped 24 percent from the first quarter of this year. The rapid growth could further whet the appetite of investors for what is shaping up to be the largest-ever Internet-related IPO, exceeding the $2.7 billion raised by Netscape Communications Corp. in 1995.

While the aggressive pricing is meant to maximize the amount the IPO takes in, it is also intended to minimize price swings on the first day of trading expected later this summer, financial professionals said yesterday. They suggested that a hefty share price would discourage day traders from ''flipping" the stock -- buying shares in the IPO and quickly selling them -- a practice associated with the excesses of the 1990s.

But the high price is also likely to scare off many small investors. ''Google has totally backtracked from wanting to get the smaller investors in this IPO," said James T. Swanson, chief investment strategist for MFS Investment Management in Boston.

Yesterday's valuation is a signal to investors of what Google thinks it is worth. But the actual price will be determined by an online auction and whether Google chooses to respond to heavy demand by increasing the number of shares it issues, thus dampening volatility. Still, the price range may be enough to place shares out of the reach of millions of middle-class computer owners. Google's valuation may prove too rich for many investors, said David Sowerby, portfolio manager and chief market analyst in the Detroit office of Loomis Sayles & Co. Sowerby said he feared it could be relatively easy for a rival to emerge with an equally compelling product.

''There's going to be another smart kid coming out of MIT or the University of Michigan who's going to come up with a better mousetrap than Google," he said.

Pricing a stock correctly is a delicate balancing act in the current IPO market. Although it has shown signs of life after years of stagnation, financial markets generally have been losing ground. Investment bankers recently have sought to target a 5 to 10 percent ''bounce," or aftermarket premium, on the first trading day. If the bounce is greater, it effectively transfers money to shareholders from the company treasury. But if it is less, or if the stock closes below where it was priced, it can rankle investors and damage the reputation of the company.

''They want a reasonable bounce in the aftermarket without having to overreach," said James M. Weiss, founder and chief investment officer at Weiss Capital Management in Concord.

With an estimated market capitalization of $36 billion, Google's value on the day it goes public would exceed that of the largest Massachusetts technology company, EMC Corp. of Hopkinton, which had a market value of $25.2 billion at the close of trading yesterday. Among Google's largest Internet search competitors, Yahoo Inc. finished the day with a market value of $38 billion, while Microsoft Corp., whose business portfolio ranges far beyond search, had a market value of $309.4 billion.

Google's amended prospectus said the Mountain View, Calif., company plans to sell 14.1 million shares in the IPO. Another 10.5 million shares would be sold by stock owners ranging from venture capital firms that initially funded the company to Google employees with stock options to one-time partners Yahoo and America Online, now a unit of Time Warner Inc. Google's cofounders Sergey Brin and Larry Page both plan to sell about 962,000 shares worth up to $129.8 million each.

In the IPO, the company will offer to the public Class A common stock, entitling owners to one vote per share. A second tier of stock, Class B common, carrying 10 votes per share, will be retained by Brin and Page, who each will be selling only 2.5 percent of their holdings in the public offering. The founders met as Stanford University graduate students in 1995 and developed their search technology in dorm rooms before launching the business in 1998. By creating the two classes of shares, Brin and Page are seeking to maintain their influence on the company's direction after the IPO.

Yesterday's document also included a second-quarter financial report. Google posted net income of $79.1 million on revenue of $700.2 million for the second quarter, up from income of $64 million on revenue of $651.6 million for the previous quarter. Operating income climbed to $171 million, from $155.3 million.

Weiss said potential investors would focus on the fact that Google's earnings were growing faster than its sales. ''These are the kind of numbers investors will like," he said. ''They should lubricate the deal."

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