Investors monitoring climate for Google IPO
Charlene Li knew expectations were overheating when her child's San Francisco preschool teacher recently asked her about the investment prospects of search engine company Google Inc.
"I hear it everywhere," said Li, a principal analyst for
Even before Google executives file for an initial public offering, or even acknowledge that they plan to, the event is shaping up to be the most-watched IPO in nearly a decade.
Google's unencumbered search box and fast-loading results have catapulted the company to leadership in Internet search and made it a part of the popular American lexicon. Some investment bankers have talked of a company valued at $15 billion to $20 billion the day it goes public, possibly this spring. Venture capitalists and ordinary investors are looking to Google to ignite the beaten-down IPO market and lift shares of other high-tech stocks.
"This is the most anticipated IPO perhaps in history," said Paul F. Deninger, chairman and chief executive officer of Broadview Holdings in Waltham, a firm that advises technology companies on mergers and acquisitions. "This is uncharted territory."
But accompanying the Google fever are growing jitters.
George F. Colony, the founder and president of Forrester in Cambridge, has warned that a Google IPO could usher in a second high-tech bubble. While nearly everyone agrees that Google is a strong brand and a profitable business -- unlike Netscape Communications Corp., with which it often is compared -- many critics question whether its rumored valuation is realistic or sustainable, especially when rivals
Yahoo launched its own search technology last month after acquiring a pair of search engines,
Microsoft's founder and chief software architect, Bill Gates, in an interview in Cambridge last month, praised Google but noted "we have some milestones out in the future" to improve Microsoft's search capability by integrating natural language, locality, and personalization features. "Just pure text indexing alone, while it's wonderful technology . . . that won't get us to where search needs to go," Gates said.
In addition to those giants, search engine rival
Google's product president, Larry Page, who cofounded the company with Russian-born Sergey Brin, said his company's scale and research innovations give it an advantage against all comers. Google has rolled out a stready stream of offerings over the past year, including a deskbar that lets users search the Web from any application without opening a browser, a news service with stories sorted by computer algorithms based on how and where they appear elsewhere, a social networking service, and a local search service that makes it easy to find restaurants or wireless hot spots in a particular city.
But Page conceded that the market will get more crowded. "We expect there to be a lot of companies involved in search," he said. "It's going to be a big, healthy commercial space."
For now, Google's pending IPO is a phantom.
Nearly every detail about it is shrouded in secrecy, even though it is the talk of technology gatherings from Silicon Valley to Route 128. As a private company, Google does not disclose its financial results, although analysts estimate it earns tens of millions of dollars a year from advertising and has annual revenues of several hundred million dollars.
Google, which has increased the number of indexed items it searches from 30 million when it started in 1998 to 6 billion today, makes most of its money through two kinds of advertisements: "paid placement" and "contextual ads." Placement ads surround the regular search results on Google's pages, and are related to the search topics. Contextual ads are similarly based on the subject of searches, but they appear next to the content on third-party sites, such as abc.com or boston.com, for which Google provides behind-the-scenes search technology .
Top executives of Google, while they will discuss their technology and strategy, would not comment about their plans to take the company public. Industry officials say Google already has tapped Lehman Brothers and Thomas Weisel Partners as underwriters, is considering employing some of its own technology to help conduct at least part of its offering, and is debating the timetable internally.
Google executives declined to address these issues.
Google's venture backers, led by Silicon Valley powerhouse Kleiner Perkins Caufield & Byers, figure to profit handsomely from an IPO. So could Google executives and a majority of the Mountain View, Calif., company's 1,000 employees, who have options to buy shares.
But ordinary investors not granted shares in advance could get burned by a run-up in the price such as that which propelled the Web browser firm Netscape, whose shares skyrocketed on their trading debut in August 1995 but later fell to earth when Microsoft backed its own Internet browser. (AOL acquired Netscape in 1999.) A similar stock surge might burden Google management with impossible expectations and a valuation that would be hard to sustain. And a subsequent plunge could damage the company's credibility.
"They are about to step out into a market they can't control -- the stock market," Deninger said. "And there is every reason to believe speculators will push the price up to a level that is not economically rational in the long term. I'm sure that is weighing heavily on them."
In the meantime, "Waiting for Google" has become a parlor game of high-tech veterans. Debates rage as to whether a Google IPO would sizzle or fizzle, and what power it would have, if any, to lift other offerings.
But some Google-watchers think the enthusiasm is justified.
"The public investor world is putting a premium today on a select number of companies that are coming out of the technology recession stronger than they went into it," said Dave Furneaux, managing general partner at Kodiak Venture Partners in Waltham.
"Google is in that category because it's done a terrific job of becoming a pervasive search tool. It's even become a word in the dictionary."
Robert Weisman can be reached at weisman@globe.com. 
