As the Google IPO countdown winds to a close, it seems clear that time hasn't been on the company's side.
After months of hype, Wall Street expects the search-engine phenomenon to get on with its initial public offering this week. For many reasons, no one is certain what price the stock will fetch. But it's a good bet the number would have been higher had the IPO taken place a month or two ago, according to professional buy-siders who are mulling over possible bids.
In part that's because of the secrecy surrounding Google. But equally noteworthy has been the reversal in the market for Internet stocks. After a robust first half of the year, these companies have seen their shares hit hard amid growing worries about valuations and competition. Investors have grown particularly skeptical in the wake of Yahoo's less-than-scintillating second-quarter earnings report two weeks ago.
That's not to say the Google IPO will flop. There is still plenty of demand for the stock. But there's not as much excitement as there may have been a few months back, when the Net sector resurgence story was intact.
Landmark IPO
To be sure, Google's unique circumstances -- its growth and profitability, its secretive nature, its popularity among the Internet populace and its idiosyncratic efforts at changing business practices on Wall Street -- are combining to build excitement behind what looks to be a landmark IPO.
But for all the hype, professional investors still have to figure out what price they're willing to pay for Google's shares. And because Google is setting the offering price via an auction, the job this time around will be even trickier than is usually the case.
Rather than assuming that, as in the case of past IPOs, underwriters will price Google's stock to improve the chances of a heartening first-day pop, buy-siders who might have dreamed in the past they would get an allotment of shares are at the mercy of a less fettered interaction of supply and demand -- one affected by such factors as remarkably large retail investor interest, a relatively limited float and no easy comparisons to be made to companies already trading.
And, in that context, investors are sorting out the pros and cons of a Google investment -- limited by, among other factors, some major blanks remaining in the company's offering documents, starting with how many shares the company and selling shareholders will be offering to the public.
"In general, I like to own the big names, even if it's small portions," says Darren Chervitz, research director of the Jacob Internet fund. "I would be inclined to add a company like Google," he adds, "but I certainly have my concerns."
Among the chief concerns, according to an investor who spoke on condition of anonymity, is growth in the pay-per-click search business that is the core of Google's revenue.
Surprising investors earlier this month, Google rival Yahoo! indicated that its paid search business was sequentially flat in the second quarter, after enjoying quarters of impressive sequential growth.
That sent shares lower not only for Yahoo!, but also for smaller players in the search category, namely Ask Jeeves (ASKJ:Nasdaq - news - research), FindWhat.com (FWHT:Nasdaq - news - research) and LookSmart (LOOK:Nasdaq - news - research).
And, says the buy-sider, it has likely been a negative for potential investors in Google, which has yet to disclose results for the second quarter ended June 30.
"If Google was public already, there'd be some serious concerns being raised," says the investor. Given Yahoo!'s numbers, it's more likely that Google will show 5%-10% sequential growth in the second quarter, says the investor, not the 15%-20% growth people might have expected, following the 27% sequential revenue growth in the first quarter.
Saying that Google is likely to put second-quarter numbers in the next amendment it files for its S-1 offering document, the investor observes, "Clearly, those numbers would be much more important than they might have been two weeks ago" -- that is, before Yahoo! announced its second-quarter results.
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