•What is the outlook for the search industry as seen in 2004? What are Google’s strengths and weaknesses in its main business line?

•Do you think Google should go public? To answer this question, list the pros and cons of doing an IPO, and assess these points in the context of Google. Consider Google’s competitive position in its industry, the market conditions, concerns of managers, firm’s financial health, etc.

Pros and Cons of doing an IPO:

Pros Cons
An IPO allows a company to tap a wide pool of investors to provide itself with capital for future growth, repayment of debt or working capital. • Significant legal, accounting and marketing costs
•Get new capital to sustain growth/improve financial position. • Ongoing requirement to disclose financial and business information
•Greater liquidity for firm’s equity. • Meaningful time, effort and attention required of senior management
•Potential increase in equity value. • Risk that required funding will not be raised
•Diversification of initial share holders’ personal portfolios and easier transfer of ownership. • Public dissemination of information which may be useful to competitors, suppliers and customers

Google would be under intense scrutiny from Wall Street because of many failed IPO’s for the past couple of years.
They also have a lot of competition from Yahoo and Microsoft. An area of concern was that Microsoft might design a version of its text processing software that could block the access of Google’s search technology to text documents.
Their financial health is pretty stable and their revenues and profits have been growing.

•If you were the founder of a private firm about to do an IPO, which method would you prefer (book-building or Dutch auction)? Why? Discuss this specifically in the context of the pros and cons of the book-building and the auction methods of doing an IPO. Also, discuss how the type of IPO (book-building or Dutch auction) affects the various market players in IPOs: i.e., the issuer, the underwriter, the institutional investor, and the retail or small investor.

Prefer Book-building because in most markets, Book building mechanism predominates. Auctions are rarely used and underpricing is far higher when book building is used rather than when the company is auctioned off.

•Google, in its IPO prospectus, maintained that it will not publish earnings guidance in the short term. The company also said that it will issue a large number of shares in a class with reduced rights (class A shares). Who owns class B shares in Google? Would these two actions be in the interest of a company? Why or why not?

•What percentage of its offering price did Google pay to underwriters? How does this compare to the typical book-built offering?

Morgan Stanley and Credit Suisse First Boston.