Google plans to raise Google’s choice to raise $2,718,281,828.
From Peter Kaminski’s blog:
It turns out that 2.718281828… (…and an infinite number of digits after that) is ‘e’, the base of the natural logarithm. Because it can’t be expressed as a ratio of two numbers, it’s known mathematically as “irrational” — something some bankers might say about the way Google is going public. However, ‘e’ also happens to be “transcendental,” another fancy property of a number that means it can’t be expressed by a finite number of algebraic operations. Maybe Google is making a little wordplay — saying they expect to transcend expectations — to overcome or notably exceed ordinary limits.
The NYT has some insights on Google’s true margins, which were depressed in the S1 due to stock option grants:
Google can behave with so little regard for shareholders’ wishes because its business is so attractive that investors will be clamoring to buy stock no matter what conditions the company sets. The company’s sales and profits are increasing at a spectacular rate, at least for now, and its profit margins appear to be among the highest in corporate America.
In 2003, Google reported an operating profit of $340 million on sales of $960 million. But the 2003 figure appears to understate the company’s cash profit margin, since it includes very high expenses related to stock options that will probably decline in future years. On a cash basis, Google had an operating profit of $570 million in 2003, and an operating margin of 62 percent.
The WSJ, which I won’t link to as it’s sub required, had these tidbits:
The most prominent proponent of IPO auctions has been W.R. Hambrecht & Co., a boutique San Francisco investment bank founded by longtime technology financier William Hambrecht. Google’s filing didn’t mention W.R. Hambrecht, but people familiar with the matter say the firm is likely to be named an additional underwriter in coming weeks. A Hambrecht spokeswoman declined to comment….
Despite its size, Google continues to grow like the young company it is. Revenue more than doubled last year. Google said it generated $395 million in cash from operations last year and an additional $204 million in the first quarter of 2004.
The numbers are “stunning,” says Mitchell Kertzman, a venture capitalist with Hummer Winblad Venture Partners in San Francisco. “The question is, how do you sustain that?”…
.. Page and Brin each now own roughly 15% of the company. CEO Eric Schmidt holds a roughly 6% stake. If Google were valued at $25 billion, the founders’ stakes would be worth roughly $4 billion each, and Mr. Schmidt’s stake would be worth about $1.5 billion. In an unusual declaration, Messrs. Page and Brin said in the prospectus that they planned to sell a portion of their holdings as part of the public offering.
Other than the founders, Google’s two biggest shareholders are prominent Silicon Valley venture-capital firms Kleiner Perkins Caufield & Byers and Sequoia Capital, which invested roughly $13 million each in 1999. Each firm now owns slightly more than 10% of the company, meaning their stakes could be valued at $2.5 billion apiece….
PlanetOut filed today also. A founder – Megan Smith – is now at Google. It was a double big day for her!
What does it all mean? Well, to be honest it was nice to be at the game, even if my team lost, while the first wave of coverage broke. I was with a great group of guys, all of whom care about the industry and who have opinions, some of them even informed, on the Google IPO. When I got home, I read through the S 1 . So herewith my first impressions, and they are only that, for I have not had time to really sit with the document, that will take days, if not weeks to really grok.
First the stuff you probably already know. Google filed for a prospective $2.7 billion (Wall St estimates) sale, valuing the company in the $20-25 billion range. Unusual aspects: There will be two classes of stock, one with supervoting rights (ten times those of regular shareholders), which keeps power squarely in the founders’ hands. The symbol was not identified (ie, it’s not “GOO”, yet), nor was the market (NYSE or Nasdaq). There are only two banks, Morgan on the left in the power slot, and Credit Suisse on the right. Hambrecht did not make the cut, but their ideas did. Google will auction all of its shares.
Having seen how the quest for IPO glory can ruin a company, it’s good to remember that an IPO is just the beginning of something, not an end in itself, though sometimes folks caught up in it can forget that. It certainly happened to us at Wired, for a while we thought we were reinventing the entire IPO process – we even redesigned the prospectus to look like our magazine. But high-minded claims of reinventing how the business world will work rarely come to pass, and it’s never in anyone’s interest to make such claims in the first place. I’ve seen it, trust me.
That thought came to mind as I read the five-page, Warren Buffet-inspired letter which opens Google’s S1, entitled “An Owner’s Manual” for Google Shareholders, which was written in the first person by Larry Page (full text in extended entry below). I can only imagine the eyes rolling at Kleiner Perkins, Morgan Stanley, and the rest of the veterans as the founders insisted on this, and I can imagine this letter is what broke the camel’s back last week and engendered the “let’s not get too cute” comment in the New York Times. The letter, which is unusual for an S1, borders on hubris. It’s personal, discursive, and rather defensive in tone, and it attempts to address an investor’s most pressing questions about the company. It claims, several times over, that Google is different, special, and remarkable. It also acts as something of a caveat, a pardon for future sins, claiming that going forward, Google will not act like public companies are supposed to act, because it is unique and long-term focused. “We’re different, and better than others,” is the tone. “Don’t ask why we do things the way we do them. We know best.” To be honest, the letter made me cringe a bit. “Yow,” I said to myself (and now to you…). “Do they really want to set themselves up like this?”
Well, yes they do. The letter states, among other things, that 1. We don’t need to do this for the money; 2. We have no plans to run our business to satisfy Wall Street’s need for smooth earnings predictability; 3. We plan to give no earnings guidance, not at least as it’s understood on Wall St.; 4. Don’t ask us to do so, we’ll simply decline the request; 5. We’ll do odd things that you won’ t understand; 6. We will make big bets on things that may not work out; 7. We run the company as a triumvirate, so there will not be clear leadership from one person like most other companies; 8. We bridge the media and tech industries (interesting), which are in flux, so we’ve chosen a two-class stock structure similar to the NYT, WashPost, and WSJ that helps us avoid being taken over by those forces; 9. We plan using an auction model, as it feels fairer and we understand auctions from AdWords; 10. Don’t invest in us if this scares you at all, or the price feels too high; 11. Don’t even think about asking us to cut expenses with regard to our employees; 12. We believe in the idea of Don’t Be Evil; 13. It’s evil to pay for placement or inclusion (a swipe at Yahoo); 14. We hope to bridge the digital divide through Gmail type free services and a foundation with at least 1% of profits and equity to help make the world a better place; 17. Betting on Google is a bet on Sergey and Larry (this was said multiple times, making me wonder if there wasn’t some odd future blame being assigned here by the VCs or bankers); 18. This letter is our way of answering the questions we can’t answer in the coming months due to the IPO quiet period.
While my summary of the letter may sound negative, it’s my honest and initial response: to me, the letter comes off pretty strong, and likely will anger many on Wall Street. But I have to commend the founders for sticking to their beliefs, and using the IPO as something of a megaphone/soapbox. It is brave, unique, and rather commendable to very publicly state that the founders are controlling the company, and the founders will decide what is best for Google, not Wall Street. They’ve set themselves a very high long-term bar, claiming they will best the system, in essence. I think it will be very interesting to see how Wall Street responds. There is a chance, in the end, that the Street will feel slighted, and turn its back on the company.
However, as something of a present proof, the financials are quite impressive, though not as impressive as some had claimed. Profits are on track to break $250 million or so this year, they hit more than $100 million last year. The company has been profitable since 2001 (scroll down).
Three directors, all impressive, have been added to make the board looks robust and public facing: John Hennessy, President of Stanford, Paul Otellini, President of Intel, and Arthur Levinson, CEO of Genentech. More grist for the chip in brain conspiracy theorists, no doubt.
Also interesting: Google has an exclusive license to the PageRank patent from Stanford, but only through 2011. Then it becomes non-exclusive. And, as of March 31, Google had 1,907 employees. If you added in contractors, my guess is that’d go well past 2500. The articles of incorporation and bylaws have anti-takeover clauses, among other things. More on these details later.
As with all S1s, there is a very lengthy section on risks, with the first and foremost one labeled Microsoft and Yahoo. The risk sector reads like a response to all the criticisms of Google we’ve heard over the past year, from the Gmail privacy storm to index spamming.
There are tidbits throughout that will give all sorts of insights to competitors, the percent of revenues that are in the Google Network (ie not on the site itself, like AdSense), for example (18% last year, rising to past 20% this year). There are details on how they structure some deals with partners, on some accounting/regulation issues with stock options, on legal issues, and many other things. In reading through the entire thing, I realize it’d take me all night to report it all. I won’t try. More as time goes by. For now, it’s nice to know, the other damn shoe has dropped. Now, on with business.
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Taking off the rest of the day for meetings and…a ball game. Posting to resume Friday. By then, perhaps, we’ll have news on the IPO whose name I dare not speak.
Just a thought, but when Google starts shutting down a t-shirt company’s right to advertise its politically charged wares, something feels rotten in the state of paid search. (The company is Y-Que, the controversy was first reported by boing boing).
This reminds me of the cruise line issue, but for some reason, it feels worse. This is no conspiracy, lord knows I’m not claiming Google is playing politics (I’d feel the same way if the t-shirts made fun of Democrats, and in fact they do have an “anti-Kerry” shirt), but I suggest that Google review their policy w/r/t “advocacy” and “anti-” sites, and drop the whole damn thing, leaving it up to the market and the FCC nannies to figure out what is and what is not appropriate. After all, Google essentially punted in trademarks. Why not here?
The email below comes to me via Dave Farber’s IP list. I quote it in full with permission of the author, I think the story he tells is quite interesting as it relates to our communications and intentions moving from the ephemeral to the eternal (the title of a chapter in my book). This email was written by JA Terranson, who is on Dave’s IP list, in response to this article by Declan McCullagh on issues of privacy and GMail.
Subject: Opposing view of Gmail issues (Cypherpunk tie in)
Good Afternoon Declan,
As with much of the online community, I have been discussing this
topic since it was announced by Google, and until recently, I was also of
the opinion that this was a simple contractual choice between the user of
Gmail and Google.
My opinion was altered by a gentleman in England, who used the
following story to illustrate his point:
When Google released their toolbar, he, like most of us, installed
it. What was different was that he installed it with all of the advanced
features (including the tracking options, which Google goes out of their
way to make crystal clear *is* tracking software). He reasoning was
similar to the thoughts you expressed below: he had nothing to hide, he
believed Google really was stripping identity data from their observations
of his browsing habits, and he did not mind having them “watch”.
One day he had a firewall issue when trying to retrieve a file,
and the person who was hosting it offered to put it on a “private” (i.e.,
unlinked) page for him to grab over HTTP. He accepted, downloaded the
document, and promptly forgot about it – until this document, which had
extremely personal information on it (personal to the person *hosting* it,
not the person retrieving it) showed up on Google a short time later. You
see, the toolbar had seen him go to a web page that Google did not have,
and so they indexed it right away.
Without meaning to, the user of the toolbar had helped Google to
violate the privacy of the person who went out of his way to keep this
document private. This person knew nothing of the toolbar, and had no
agreement with Google, yet he became the unwilling participant in Google’s
The senders of email to users of Gmail are in the very same
position as our friend above: they know nothing of the agreement, they are
not participants in the Gmail program – they have never agreed to allow a
third party to access *their* private thoughts and utterances, yet they
too are caught in the middle.
As much as it goes against my gut reaction, I must admit that
Gmail has some very serious privacy implications, some of which almost
definitely fall under EU privacy laws.
The ultimate solution to the problem is close to what was
suggested in the essay below: encryption. But not by Google. Encryption
by the senders. The Cypherpunk cries of “Encryption Everywhere” lands
smack dab in the middle of the plate here – email stays private,
regardless of Google indexing, government snooping, or end user
negligence. Pity that people will spend thousands of hours, and millions
of dollars arguing over the best way to protect us from ourselves, but
that we won’t spend five minutes learning to use a simple encryption
system that could completely erase these very issues.
I met with Craig Newmark , founder of craigslist, a while back, but I don’t think I posted about it. But this crossed my desk recently, and I wanted to share it with you. Can’t say how I got it, but damn, it’s powerful stuff.
Top Web Entities (English-language traffic), with employee data
Rank # Employees Company
1. 3600 Yahoo
2. 55000 MSFT
3. 1500 Google
4. 91000 AOL/TW
5. 4000 eBay
6. 2650000 US Government
7. 7500 Amazon
Etc….(removed 8-23 so as not to bore you)
24. 5100 Earthlink
25. 14 craigslist
Of course the #s will change in the top 25 (everyone always argues about who’s #1-10), but….to crack the top 25 with just 14 employees! The next smallest sized company is adultfriendfinder, #17, with 150.
For some time I’ve been meaning to hook up with Pierre Omidyar, the founder and Chair of eBay. We finally got together at lunch earlier this week in Redwood City, where his foundation is based. I’d heard Pierre is just about the most down-to-earth, “normal” fellow one might want to meet, it in fact it turned out to be true. He kicked out of Valley life in 1999 and moved to the desert outside Las Vegas (he also spends a lot of time in France). He comes back every so often for eBay meetings and to meet with his foundation staff, and it’s this foundation that really gets him up in the morning these days. He’s made news recently by announcing a new strategy for the organization, one which blends a bent for social change with capitalism – in other words, he’s expanding from philanthropy into the investment game, but he plans to focus on businesses that connect people to each other to create the kind of wholesale change that eBay did. Omidyar repeated to me a very repeatable observation: that eBay has been the vehicle for millions of strangers to establish relationships of trust with each other.
Pierre and I had a good lunch, talking over many issues for the book. But really, our conversation always came back to community, the core driver of value at eBay. We discussed Tim’s concept of the “architecture of participation” and how critical it is in the Web 2.0 world, and how much of the media world has yet to grok it. You can’t outsource participation to the ghettos of discussion threads, in other words. The online media world is still looking for its Pong, as Martin says, but I think we’re getting close. Publications are essentially reflections of communities. And I believe the best blogs are publications, in a very classical sense.
In any case, those were the kind of tangents we took during lunch. We did talk search and SFO and such, but I’ve gotta save that for the book.