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Last Updated: Thursday, 29 April, 2004, 20:09 GMT 21:09 UK
Google plans $2.7bn share auction
Google founders Larry Page and Sergey Brin
Google's founders are set to become very wealthy
Internet search powerhouse Google has confirmed it is to float on the US stock market.

The firm has filed papers proposing to issue stock via an online auction, rather than the traditional allocation by big banks.

The move, experts predict, could raise an estimated $2.7bn (1.62bn) and value Google at as much as $20bn.

Founders Sergey Brin and Larry Page are set to become billionaires, while many workers hope for million-dollar riches.

The initial public offering (IPO) will be led by Morgan Stanley and Credit Suisse First Boston.

Unorthodox choice

In an unusual move, the group confirmed it would sell its shares through an auction - which will determine the final price of the offering.

Graphic showing penetration of Google search engine technology
Share of searches
1. Google: 49.7%
2. Yahoo: 45.4%
3. Mix: 2.3%
4. Ask: 1.9%
5. Other: 0.7%
The unorthodox process is designed to give the general public a better chance to buy its stock before the shares begin trading.

IPOs are traditionally run by investment banks, who make their own decisions about who should end up with the shares.

The banks say this allows them to build a base of solid long-term investors.

But many have been accused of taking advantage of the system to get hot shares at low prices into the hands of favoured customers.

Shares in the firm are expected to begin trading either on the Nasdaq or the New York Stock Exchange in the late summer or early autumn.

Fund manager Ed Warner said the auction was likely to result in a "grossly overblown" share price.

"You have to play the long game because (shareholders) will probably end up owning (Google) well below the price they paid for it some time down the road," he told the BBC's World Business Report.

Profits double

Details of the widely-anticipated flotation emerged in papers filed with the US Securities and Exchange Commission (SEC).

Those documents also revealed key financial details about the firm, which is notorious for remaining tight-lipped about its cash situation.

Google revealed it made a net profit of $105.6m in 2003, on revenues of $961.9m - much of which comes from selling advertising space linked to keywords.

This change will bring important benefits for our employees, for our present and future shareholders, for our customers, and most of all for Google users
The web group added it had seen a sharp rise in net profits in the first three months of 2004 to $63.9m - more than double the figure for the same period last year.

The documents also showed Google had cash on hand of $454m at the end of March.


But they also showed Google taking care to stress that going public would not turn its Silicon Valley culture into a buttoned-up one.

Countries where it is known to be the most-used search-engine:
Source: Nielsen/NetRatings (March 2004)
"Google is not a conventional company," said a letter included with the SEC filing.

"We do not intend to become one."

Anyone expecting a focus on smoothing performance to satisfy quarterly expectations at the expense of long-term investment and risk-taking would be disappointed, the "owner's manual" for prospective investors said.

"Now the time has come to move the company to public ownership. This change will bring important benefits for our employees, for our present and future shareholders, for our customers, and most of all for Google users."

One big change will be that the group's financial backers and stock-holding employees could be in line for huge windfalls - at least on paper.

Silicon Valley-based Google was set up in 1996 by Stanford University students Sergey Brin and Larry Page, who had met a year earlier during a research project.

Google's underlying technology is still owned by the university and leased back to the firm.

Competition heats up

Google's position in the market place has been cemented through its search technology, based on highly sophisticated algorithms.

Over the past five years this helped it to become the search engine of choice for a majority of internet users.

However, the company's rivals are working hard to displace it from its dominant position.

Internet portal Yahoo recently dumped Google as its search technology provider, replacing it with its own technology after buying a string of search companies - Inktomi, Altavista and Overture.

Microsoft, whose founder Bill Gates has publicly acknowledged the superiority of Google's technology, says that it will overtake its Californian rival after about two years.

To counter its rivals, Google in recent months launched or announced a string of services, among them the free webmail service G-Mail and Froogle, an online shop price comparison service.

The BBC's Tanya Beckett
"Google is profitable and growing fast"

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