Google Inc. said on Monday (July 26, 2004) its highly anticipated initial public offer could value the company at more than $36 billion, prompting some investors to question whether growth prospects for the world's top Web search provider justified that rich valuation.

In a filing with the Securities and Exchange Commission, Google estimated it would sell its shares for between $108 and $135 through an online auction expected next month.

That price range would mean that the IPO could raise as much as $3.3 billion. It would also value the Mountain View, California-based company more richly than its closest rival, Yahoo Inc. and mark its emergence as a public company larger than old-economy stalwarts like Ford Motor Co. (F.N: Quote, Profile, Research) and McDonald's Corp.

At the projected pricing, Google would rank as the eighth-largest IPO by a U.S. company, according to Thomson Financial. It would also be the highest-priced offering on a per-share basis since Genentech's July 1999 IPO.

"I hate to say this ... but the thing is becoming somewhat like a circus," said Mark Herskovitz, manager of Dreyfus Premier Technology Growth Fund.

One of the most eagerly awaited public offerings in years, Google has become one of the world's leading brands, its search engine so ubiquitous that its name has become a verb for looking up information.

Its size and strength have pushed Microsoft Corp. into developing its own search technology, an area expected to remain one of the key drivers of Internet revenue growth.

Set Up For a Fall

But Google's size and the hype surrounding its listing could set it up for a fall if it disappoints investors as a publicly traded company, analysts have cautioned.

The company faces a number of risks, as highlighted Monday by the outbreak of a computer worm that made Google's search engine periodically unavailable worldwide throughout the day.

Google also depends on advertising for its revenue. Even as a public company, it will also remain under the control of its founders, a prospect that has limited the enthusiasm of some fund managers.

In a deal like that where it's priced for perfection, anything that occurs that isn't right on the number, you get hammered," said Jim Huguet, chief executive officer of Great Companies LLC. The Florida firm manages $230 million in technology shares.

Of the thousands of U.S. public companies in the United States, barely more than a dozen have prices above $100 per share and trade at least 10,000 shares a day. As of mid-afternoon Monday, none of the Nasdaq-100 stocks or the components of the Morgan Stanley High Tech Index traded over $90 a share.

While Google is a byword for search, the company also offers news, discussion groups, and email on a limited basis, and is expected to expand its product offerings as time goes by, much as Yahoo did in the years after its debut.

That expansion will be part of the key to the explosive growth that analysts said will be vital to justify Google's lofty valuation.

"I think this company could easily grow revenues, say 50 percent over the next three to five years," said equity analyst Scott Kessler of Standard & Poor's. "In terms of large quality Internet companies, not many if any at all are growing at that rate."

Top Executives Retain Control

Founders Sergey Brin and Larry Page will each own about 16 percent of Google's voting power after the offering. Brin plans to sell 962,226 shares, and Page is expected to sell 964,830 shares in the IPO.

Brin, Page, Chief Executive Eric Schmidt, and board members John Doerr and Michael Moritz will control just over 55 percent of the company's voting power.

Among selling stockholders, Time Warner Inc.'s America Online unit and Yahoo both plan to sell 10 percent of their stakes in the IPO, including 743,745 shares by AOL and 549,888 by Yahoo.

About 24.6 million shares would be sold in the IPO. Google plans to sell 14.1 million shares, while another 10.5 million would be sold by shareholders.

The company plans to use net proceeds from the sale of its 14.1 million shares, estimated to be $1.66 billion, for general corporate purposes. It will not receive any proceeds from the 10.5 million shares being sold by shareholders.

Google also filed second-quarter results on Monday. Earnings rose to $79 million from $64 million in the first quarter on revenue that jumped 7.5 percent to $700 million from $652 million.

At $135 per share, Google would have a valuation, on a ratio of its price to 2003 earnings, of 329, more than twice that of its closest competitor, Yahoo Inc. The S&P 500 had a 2003 price-to-earnings ratio, in comparison, of more than 20.

A group of 28 underwriters, led by Morgan Stanley and Credit Suisse First Boston, will have the option to buy another 3.7 million Class A shares. RBC Capital Markets Corp. and SunTrust Robinson Humphrey were no longer listed as underwriters of the offering.

Google disclosed Monday that its general counsel, David Drummond, has received a notice that the SEC staff intends to recommend the commission pursue civil penalties against him. Those penalties were related to his prior job as CFO of a company called SmartForce. Google said Drummond would respond to the SEC.