Google Public Offering Paper

Google Public Offering Paper

Google is the most widely used internet search engine. This internet search engine generates revenue from advertising, office productivity, online mapping, video sharing and web based email. Based in Mountain View, Calif., there are approximately 17,000 employees worldwide. Privately started by two entrepreneurs in 1998, Google had the public initial offering in 2004. The net worth of Google in 2007 was 23 billion. (Reuters, 2005)

An investor from Sun Microsystems made the first initial investment of $100,000. A few months later capital venture firms, Kleiner Perkins Caufield & Byers and Sequoia Capital, invested more money into Google. The initial IPO launched August 2007 with shares offered at $85 dollars a share gave Google a market capitalization of 23 billion. The company is traded on American and European stock markets. (Google, 2007))

Corporations are legal entities and as such, assets can be held in the corporation. Corporations can be self-governing with abilities to sign contracts and at the same time courts can assign duties or obligations to the corporations as well.

U.S. corporations are required to register according to laws and regulations. Other common issues require licensing and ordinance compliances. When filing with U.S. Security and Exchange commission, financial information is required to be disclosed per Securities Act Section 5 and exchange regulations. Rule 701 allows compensation of stock options to employees. In 2005, Google failed to properly register this option and was investigated by SEC. (U.S. Securities and Exchange Commission [USSEC], 2005)

The Registration Process

It is general practice that securities must be registered when sold in the U.S. Published forms common for these transactions require specific facts about the terms and must be in compliance with law. Other information about the company such as business practice and properties, descriptions of securities and relevant information, sale of securities, financial statements and pertinent facts are required throughout the forms. These are organized files kept by record to provide essential facts while minimizing the burden and expense of complying with the law. In general, registration forms call for:

1. Description about company practices

2. Sold securities and the relevant information regarding the sales

3. Information about the management of the company

4. Financial statements certified by independent accountants

In the United States corporate profits are taxed at corporate tax rates, and dividends paid to shareholders are taxed at a separate rate. Unfortunately, any profits distributed to shareholders will eventually be taxed twice. This is double taxation and frustrating for the shareholders.

Financial highlights

Sales* 16.59 Bil

Income* 4.20 Bil

Sales Growth* +56.50%

Income Growth* +17.00%

Net Profit Margin 25.33%

Debt/Equity Ratio NA

* Last 12 months

Funds that own GOOG

Fund Name % Own

American Funds Growth Fund of America 3.6

Fidelity Contrafund 2.7

Fidelity Growth Company Fund 1.5

(MSN money, 2008)

Google used the dividend policy to compensate employees with stock payouts in the earlier years which made many employees millionaires, on paper. Consequently, instead of paying with cash to investors, dividends were paid by stocks. This concept theoretically is based on perfect market conditions. Brokerage costs are kept down and taxes are relieved. The belief is that dividends are less of a risk than cash, investor’s value higher payout with dividends. Capital gains result from retained earnings that are taxed at lower rates than dividends. The rates are also deferred; hence even more money for Google.

Google analysts follow known working practices for dividend policies; keep the retained earnings needed for the budgets, pay out any extra earnings with dividends, this will keep fluctuation and relevant signal costs to minimum. Spikes in the floatation may have unwanted effects. Dividends now are more certain than capital gains later, as dividends are more valuable than capital gains. (Bird in hand theories.) The appropriate comparison should be between dividends today and price appreciation today. (The stock price drops on the ex-dividend day.)

Other common practices corporations use are re-purchases from stockholders as was done during (Google) the initial public offering in 2004. The benefits are the disposal of one time cash values from assets to sales, alternatives of redundancy from distributing cash as dividends, and the ability to make huge capital changes.

Google tried some innovative marketing during the initial IPO which caused temporary problems and delays. Complaints of high priced shares were issues with outside analysts. Scrutinization for the security exchange issues mentioned earlier in the article caused ongoing problems for Google.

IPO expenses are in direct relationship with the offer of and/or sale of securities, common stocks. Underwriting costs are projected through certain percentages of the gross sales. Broker, dealers, and attorneys are included within the expense. The calculations for capital, revenue and dispersements are quite complicated. Simply stated, the configured calculations are worked into the criteria for settlement agreements that concern all stakeholders.

The public interest and hype around Google's Initial Public Offering [IPO] is an interesting for any finance student. The Securities and Exchange Commission [SEC] requires that a company