Google Inc. has filed an application to issue stock to the public with the US Securities and Exchange Commission, today. In a typically idiosyncratic break with tradition, the S1 application starts with a plea from the company fathers to make the world a better place.
"We'd like to build the world a home," write co-founders Sergey Brin and Larry Page. "And furnish it with love. Grow apple trees and honey bees, and snow-white turtle doves." The unconventional sentiments will puzzle Wall Street analysts, but delight Google's teenage fans - and children of all ages who make up its most ardent users.
"We'd like to teach the world to sing," they plead. "In perfect harmony."
We made that up, of course. But the real "Letter from the Founders" that introduces today's 26-page filing borrows as much from The New Seekers as it does from Warren Buffet.
"Google is not a conventional company. We do not intend to become one," the Letter From The Founders begins. Under the title "MAKING THE WORLD A BETTER PLACE" the founders write: "With our products, Google connects people and information all around the world for free. We are adding other powerful services such as Gmail that provides an efficient one gigabyte Gmail account for free. By releasing services for free, we hope to help bridge the digital divide."
Spyware as liberation? Yes, this can only mean the Return of the Hippy Capitalists, so wake up, please Richard Branson - you may be owed a royalty. We'll spare you very much more, because the remainder of the filing is much more interesting. Although such sappy sentiments have been enough to please webloggers and other cybernetic utopians, Google's IPO requires at least nominal scrutiny from grown-ups, and the S1 contains the world's first look at the company's financials.
We're in the money
The filing states that Google will make $2.7bn worth of stock available to the public. The disclosure paints the picture of a profitable company on a dramatic growth ramp. Google doesn't expect to grow at quite the phenomenal rate it has in recent months, however, and expects that expenses may grow faster than income in 2004, with downward pressure on its operating margin.
In the quarter that ended in March, Google grossed $389.6m and reported a profit of $63.9m. In 2003, Google had a net income of $105.6m on earnings of $962m. Google has close to two thousand employees, of which half, or 961, are in sales. And it's recruiting at a clip: Google added 284 staff in the last quarter alone.
Ninety-six per cent of income is generated from advertising, and of this, 78 per cent comes from advertisements on Google's own properties and 22 per cent from its role as a brokerage, placing advertisements on third-party sites through the company's Adwords and Adsense programs. The trend reflects the increasing importance of the latter, while the split last year was 91 to 9. Three years ago licensing deals accounted for 22 per cent of income. Now, they're almost an afterthought; the company confidently explains that the Yahoo! deal netted less than three per cent of Google's revenues. International revenues make up a healthy 30 per cent of the company's revenue, and are increasing steadily.
Ironically, the company which did more than any other to end Portalitis - Google's fast, focused and ad-spare design contrasted with sprawling, slow and unfocussed portal rivals at the time - now finds itself explaining its approach as a liability:
"Microsoft and Yahoo also may have a greater ability to attract and retain users than we do because they operate Internet portals with a broad range of products and services. If Microsoft or Yahoo are successful in providing similar or better web search results compared to ours or leverage their platforms to make their web search services easier to access than ours, we could experience a significant decline in user traffic."
In other points to note, Google says that it has a perpetual license to the PageRank™ patent from Stanford University although this becomes non-exclusive in 2011. That's already largely moot, as the algorithm has been so heavily augmented by other techniques to foil gamers that it's largely a marketing tool.
And not that experts think it ever was. Former Infoseek technologist Matt Wells, who now runs Gigablast, calls PageRank™ "marketing hype" and attributes Google's success to its "cached Web pages, index size, and search speed" - areas in which is still maintains a lead.
Google will as expected follow the auction route to market. "New investors will fully share in Google’s long term growth but will have less influence over its strategic decisions than they would at most public companies," Google explains.
We've warned against making too many dotcom comparisons between the Google flotation and earlier dotcom IPOs. The rhetoric surrounding Google owes much more to the cybernetic visions promised by Artifical Intelligence - the technology industry's longest and most unsuccessful program - than to the Internet bubble.
Put simply, Google finally joins eBay, Yahoo! and Amazon.com as a publicly traded company that's a world-renowned Internet business with a sound balance sheet. Very few companies that went public during the Internet gold-rush could make such a claim, of course. Those three are capitalized at $82bn, $57bn and $49bn, respectively, with eBay and Yahoo! trading at price-to-book ratios of 15 and 16 times respectively. If Google's valuation sends it higher, for a prolonged period, you'll know that irrational exuberance has returned. What Google's own turtle doves make of it is anyone's guess. ®