Google's IPO: Buyer, Beware

For the past six months, Silicon Valley has been abuzz with the prospect of the first blockbuster public offering in the tech sector since the dotcom crash: the IPO of search-engine giant Google, expected this month. But Google founders Larry Page and Sergey Brin seem to be doing their darnedest to dampen the hype. The company last week gave an unusually bullish official estimate of its opening share price: $108 to $135 a share, or more than 150 times annual per-share profit. (Most large companies average about one-seventh of that.) Google watchers were split on the reason. Either Page and Brin are trying to scare away those in search of a one-day profit by snapping up shares in the IPO at a low price and selling them as soon as the price jumps or they want the company to be valued as highly as longtime rival Yahoo (which currently beats Google in total profits, as well as quarterly growth). "Either way," says Mark Mahaney, San Francisco analyst for American Technology Research, "this is a real case of Buyer, beware."

Traditionally, tech IPOs start at low prices, which are then quickly forced up by market demand. But Google is using a complex online Dutch auction system, in which the share price will be determined by the highest bidder. Google's SEC filing warns of a possible "winner's curse," in which the price drops at the start of actual trading. Still, some investors will be winners in any event. Google employees stand to make an average of $2.8 million at the estimated share price. Page and Brin themselves are set to make a one-day profit of $130 million each. Another big winner: Yahoo, which invested early in its rival and now has $67 million worth of options.