The Mystery of Google

I cannot get over the fact that people are so befuddled by Google's reluctance to go public. Today's New York Times attributes the delay to the quirkiness of founders Sergey Brin and Larry Page. By all accounts, they are quirky, but it is an open secret that their "idiosyncratic" management style threatened to tank the company and that the venture capitalists demanded (and got) some adult supervision at the company. As a result, despite their large shareholdings, I do not believe that Brin and Page are calling the shots. In my view, the delay likely has another cause.

I think the company is still struggling to find a business plan that will justify the outrageous valuations being tossed around. Google's website says the following under "Business Model": "Google generates revenue through two programs: highly targeted keyword-advertising and search services." That's it. No mention of Froogle or Gmail or any of the other recently added bells and whistles. With increasing competition from Microsoft and Yahoo! on the search front and the general ineffectiveness of internet advertising, the Google business model is simply not very exciting.

Nevertheless, this is a company preparing to move. The venture capitalists need to exit, and this is the right time. Prompted by an SEC deadline later this week, I believe that the company will move forward with an IPO. Moreover, despite the hype, I predict that the public offering valuation will disappoint those who are rooting for another bubble-inspiring offering along the lines of Netscape. We will finally see the financial statements, and when the reality of the search engine business is combined with the vision of "been-there-done-that" add-ons like Froogle and Gmail, institutional investors will become justifiably cautious. The excitement among retail investors will ensure a successful offering, but don't count me among those clamoring for shares.

UPDATE: After I wrote the foregoing entry, I noticed that the WSJ ($) is reporting that Google "has tapped Credit Suisse First Boston and Morgan Stanley to lead an eagerly anticipated initial public offering that likely will be announced this week, according to people familiar with the situation." The story also includes the inevitable comparisons with Netscape: "The deal has all of the hoopla of the biggest IPOs of the 1990s, when Netscape Communications sold shares publicly and helped set off a frenzy that sent the stock market soaring." Don't say you weren't warned.

ANOTHER UPDATE: Last week, I wrote that Google's new businesses --like Froogle and Gmail -- were designed to prepare the company for an initial public offering. If I had thought to use the word at the time, I would have called them "gimmicks," because that is what they are. Nevertheless, the WSJ is eating out of Google's outstretched hand: "Google couldn't be filing for an IPO at a more opportune time: The company is the No. 1 Web-site destination for Internet searches. It has expanded its offerings in recent months, with sites devoted to news and shopping. Most recently, it began testing a free e-mail service."

FINAL UPDATE: The WSJ reports that "Google ... is intent on crafting an IPO so that individual investors, not just big institutional investors, could buy shares, the people say." This makes sense. As I noted above, institutions will be skeptical, while retail investors will be rabid for the stock.

Posted by Gordon at April 26, 2004 12:47 AM | TrackBack