Tech Cash Slashed? Learn From Google

Google's IPO is much smaller than planned, and you can learn from this

August 19, 2004

3 Min Read
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Ever get that sinking feeling after the bean counter has come into your office to tell you about the slash in your IT capex budget?

Google's having that kind of day. The company's feeling the IPO pinch after filing SEC forms today, revealing its newly lowered IPO expectation to sell a total of about 21 million shares at a price range of $85 to $95 each. (Google's latest filing is here.)

That puts a serious dent in the size of the IPO. As now proposed, the IPO would raise as much as $1.9 billion at the top end of the proposed price range, down from $3.5 billion if the shares had priced at the previous range of $108 to $135 per share.

The reduction in shares comes mostly from insiders, including CEO Eric Schmidt and co-founders Larry Page and Sergey Brin, who cut the number of shares they plan to sell in half, from 11.6 million to 5.5 million. Google itself still plans to sell about 14 million shares.

But here's the question, as raised by some of our topnotch Wall Street sources: Now that those insiders have scaled back their selling plans for the IPO, doesn't that just leave more of them to dump after the issue starts trading? Many of these shares will be locked up against selling for some time, but Google's lockup expiration is laxer than most IPOs, with the first lockup period expiring a mere 15 days after the IPO starts trading. The most skeptical sources we spoke with are raising eyebrows at this, wondering how this reduced IPO will perform in the aftermarket with a insider overhang such as this.But wait, there's more! There still the matter of an informal SEC inquiry into why some 23 million pre-IPO shares went unregistered (see Google IPO in Doubt). And then there's the question of whether the Mountain View, Calif. company got a sexier spin since getting a splashy spread in Playboy, where the recent interview with Google's founders is contributing to the reluctance of the SEC to sign off on the deal.

What's all this mean? In the best case, the kinks get worked out, the SEC gets a warm and fuzzy feeling, and the Google deal is cleared for trading on Thursday or Friday. The worst case? Well, there's always a chance the whole deal gets yanked.

Whether all this will curtail Google's data center spending plan is another issue (see Tracking Google's IT Booty). Companies need to buy smart and plan ahead when figuring out big-ticket IT spending, especially for something as core to doing business as data centers. Google surely, probably, hopefully considered this ahead of time. For starters, with the new IPO terms they can now buy only 2.8 billion U.S. 37-cent stamps, 825,000 1.25-ounce Cokes, 45,000 Honda Accords, and a mere four clones of A-Rod, compared to our original figures.

"Right now if they go IPO, I don't think their IT budget goes up or down [but] they're going to have less cash to make peripheral business advancements that could increase their IT needs," says industry analyst Brian Babineau, of Milford, Mass.-based Enterprise Strategy Group.

He offers good advice for dealing with spending cuts. "You need to look at where you tactically must spend and then look at strategic initiatives as the business needs them." Security is an example of required spending, while a more elegant CRM system is an example of a luxury that can probably wait, he explains.Put simply, the lesson is "Don't count your chickens before they hatch."

Google officials declined to comment.

[Editor's note: for an even more skeptical look at Google, check out]

— Evan Koblentz, Senior Editor, Next-Gen Data Center Forum

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