August 2, 2004

Google will become public sometime in August, offering its shares for as much as $135 each.

That would give the company a maximum market capitalization of $36 billion — more than twice the value of Amazon.com and almost three times larger than that of Apple Computer.

Already, the deal — which is expected to raise $3.3 billion — has drawn comparisons to bubble-era IPOs.

"Back then, companies overestimated the Internet industry," said Irv DeGraw, an IPO analyst and finance professor at Washington College in Maryland. "Google may be doing the same thing."

In 1998, shares of theglobe.com opened for trading with a market capitalization of nearly $2.5 billion. At the time, the company had high hopes for its online community business.

"Community sites [are] a solution to the challenges posed by the Internet's growth and complexity," the company said in its prospectus.

Theglobe.com said it expected revenue from advertising and noted that the Internet ad market was expected to grow to $7.7 billion in 2002.

But by 2001, theglobe had lost virtually all of its value, was delisted from the Nasdaq, and traded on the pink sheets for less than 10 cents a share.

Nobody is saying that Google will be a flameout. But even proven brands, like Yahoo!, have been pushed off their peaks. Its shares are more than two-thirds below their all-time high.

And while Google is more financially solid than theglobe.com and other companies that debuted in the late 1990s, the company still has challenges.

"My question is whether or not the search engine business is sufficient enough to warrant this kind of valuation," said DeGraw. "I don't think it is."

"Google has been successful with one product," added Andy Beal, vice president of WebSourced, a search engine marketing company. "They need to diversify."

According to a recent survey by Standard & Poors, six out of 10 Google users said that they would go elsewhere if a better search engine came along.

"They shouldn't rest on their laurels and think, like Netscape did in the 1990s, that they are going to be the market leader forever," Beal said.

The company is attempted to address concerns by aggressively rolling out new features and technologies, such as Gmail, a free e-mail service that includes an unprecedented gigabyte of free storage space.

But according to S&P;'s survey, less than 25 percent of those polled would readily switch e-mail addresses to get even unlimited free storage.

"Google is not a sure thing," Beal said, adding that among things to watch are search-engine announcements from Yahoo! and Microsoft, as well as the six-month anniversary of the offering, when employees will be able to sell stock.

Source: NY Post

        

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