Fidelity Investments bought $549 mln of Google's shares

September 14, 2004

Fidelity Investments, the world's largest mutual funds manager, bought $549 million of stock in Internet search engine Google, about 23 percent of the shares sold in the company's IPO in August.

Boston-based Fidelity reported in a filing with the U.S. Securities and Exchange Commission that it holds 5.21 million Google Class A shares. That's about 16 percent of Class A stock and 1.9 percent of Google's total shares outstanding.

Yesterday, CBS MarketWatch reported that Fidelity had originally bought 15.5 percent of Google stock.

Google, owner of the world's most-used Web search engine, and some of its early investors raised $1.92 billion in an initial public offering last month. Fidelity's bet on Mountain View, California-based Google could persuade other investors to buy the stock, analyst David Garrity said.

``Fidelity obviously got to their size by being relatively astute investors,'' said Garrity, an analyst with Caris & Co. in New York. ``You can't ignore that.'' Garrity rates Google shares ``average'' and doesn't own the stock personally.

Google shares today rose $3.02 to $105.33 at 3:59 p.m. New York time in Nasdaq Stock Market composite trading. The stock has risen 24 percent since the IPO.

Fidelity spokesman Adam Banker and Google spokesman David Krane declined to comment.

Google sold 19.6 million Class A shares for $85 each, raising $1.67 billion in the IPO, which was distributed through an Internet-based auction. The process was designed to give individual investors a chance to buy at the same time as institutions like Fidelity. Google then sold another 2.94 million shares to its underwriters, led by Morgan Stanley and Credit Suisse First Boston, bringing the total raised to $1.92 billion.

Google has 33.6 million Class A shares and another 237.6 million Class B shares. The company's 31-year-old co- founders, Sergey Brin and Larry Page, and other early investors hold Class B stock, which carry 10 votes per share in company elections. The Class A shares get one vote each.

The Fidelity Growth Company Fund owns 1.83 million Google shares, the filing stated. They were worth about $192.8 million at today's close. The filing didn't say what funds hold the rest of Fidelity's stake.

The Google stake is a relatively small investment for the $21.7 billion Fidelity Growth Company Fund, said Christopher Traulsen, an analyst with research firm Morningstar Inc. in Chicago. About 0.9 percent of the fund is now invested in Google stock, Traulsen said.

The Fidelity Growth Company Fund, managed by Steven Wymer, tends to place bigger bets on technology companies than most large- cap stock funds.

The fund had 33 percent of its holdings in information technology stocks on June 30, the most recent data released by the company. The Russell 3000 Growth Index had 28 percent in those types of stocks.

The fund's top holdings, as of June 30, included Microsoft Corp., Network Appliance Inc., Qualcomm Inc. and Red Hat Inc.

Wymer, who has managed the fund since January 1997 and has been with Fidelity for 15 years, is ``willing to be aggressive in the pursuit of growth if you look at the technology weighting,'' Traulsen said.

Wymer typically holds some companies like Google ``that are maybe younger and offer more rapid growth potential than some of the big names he owns at the top of the portfolio,'' Traulsen said.

Google earned $143 million, or 54 cents a share, in the first half of this year, more than doubling its net income of $58 million, or 23 cents, in the year-earlier period. Revenue more than doubled to $1.35 billion.

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The Fidelity Growth Company Fund has a 1.9 percent return in the last 12 months, ranking behind 72 percent of similarly managed funds, according to data compiled by Bloomberg. Over five years, it has averaged an annual loss of 2.8 percent, placing it ahead of more than half its peers, the data show.

Fidelity's investment in Google could help boost the stocks of other Internet search companies, including Yahoo! Inc. and Ask Jeeves Inc., Caris's Garrity said.

Google generates most of its revenue by selling small text advertisements that appear above or next to Internet search results.

Fidelity's investment shows that among institutional investors ``there's a lot of confidence in the growth potential of online paid search,'' Garrity said.

Fidelity also owned about 7.9 percent of Sunnyvale, California-based Yahoo's stock as of June, according to Bloomberg data.

The mutual fund company could help support Google's share price over the next five months if it buys more stock that will come on the market, Soleil Securities Corp. analyst Laura Martin said.

Employees and early investors are restricted from selling some stock they received before the IPO for as long as 180 days after the offering. The first so-called lock-up agreement ended Sept. 2, allowing insiders to sell 4.67 million. The next lock-up expires Nov. 16. It will allow another 39.1 million Google shares to be sold.

That could potentially more than double the number of Google shares on the market, causing the price to fall, analysts including Mark Mahaney of American Technology Research in San Francisco have said.

Source: Bloomberg.com

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