The central theses
- Google’s decision to go public in 2004 was not originally planned, but was prompted by US securities laws that required the company to make public disclosures if it had more than 500 shareholders.
- The IPO process faced challenges, including negative press, SEC troubles, and backlash from Wall Street. Despite these difficulties, the auction was a success and showed the public’s confidence in Google’s future.
- Since going public, Google’s market capitalization has grown tremendously, from $23 billion in 2004 to over $1 trillion today, demonstrating the company’s significant growth and impact on various aspects of everyday life.
Although Google has software and hardware products in many key consumer and business categories, it is perhaps best known for its Internet search engine. It’s a name that has become synonymous with any terminology related to web searches, even being used as a verb. However, Google wasn’t always that big, a major turning point for the company was the day it decided to go public 19 years ago today. In fact, Google’s initial public offering (IPO) took place on August 19, 2004, making the company the giant it is today.
It may be very interesting for many to know that Google’s decision to go public was not actually Google’s intention in August 2004. Former Google CEO Eric Schmidt revealed that it was actually US securities laws at the time that forced the company to hand it over. The law states that any company with more than 500 shareholders is required to publicly report and file financial statements by the end of the year. However, it would not be required to sell its shares to the public.
This requirement took effect for Google in early 2004, at which point it was forced to consider three options. The first option was to buy back shares from employees to reduce the number of shareholders. The second option was to file financial reports but not sell shares to the public, and the last option was to become a public company in the traditional sense. As executives pondered how to shape the IPO in a way that would benefit both Google and its investors, the company imposed a lockdown on media communications.
With all the negative press surrounding the secrecy of its IPO, Google surprised the world when it suddenly announced its IPO at 11 am on April 29, 2004, three hours before the deadline. Co-founders Larry Page and Sergey Brin also wrote a “Letter from the Founders,” warning potential investors that they were investing money in a company that takes an unconventional approach and likes to experiment with risky projects that might fail.
Google then began working with the US Securities and Exchange Commission (SEC) to resolve issues in the auction process and address concerns about Page and Brin’s letter being included in the prospectus. Perhaps one of the biggest and most unexpected hurdles came when an interview with the two executives appeared in Playboy magazine of all places in September, violating the SEC’s restrictions on a “quiet period” before an IPO. However, Google’s legal department was also able to master this challenge.
After a lot of back and forth, in August 2004 it was finally time to start the IPO. According to its own calculations, Google estimated the value of its shares at between 106 and 135 US dollars. However, when the bidding began, the company received more bids at the lower end of that range due to negative press, Wall Street backlash, ongoing SEC troubles, and more. Schmidt met with the board and inquired if the IPO could be postponed until the storm passed, but eventually it was decided it was time to turn that page once and for all, even if it meant selling shares at a lower price meant. Eventually, they settled on a share price of $85 at a valuation of $23 billion.
When the market opened at $85 per share on Aug. 19, there was a lot of interest in Google stock, closing above the $100 mark. Within a few days, that figure had risen to $110. It was clear that despite all the difficulties leading up to the IPO, Google’s auction was a huge success and demonstrated the public’s confidence in the company’s efforts and its long-term future. It is important to note that while Google was already quite popular on the software side at the time through services like Google Search, Messages, Gmail and Orkut, this was before the introduction of all the other major products we use on a daily basis today, including Maps, Happened, YouTube, Chrome, Android, Drive, Play, AdSense and more. Google eventually expanded into the hardware side with its Nexus and Pixel ranges, as well as the Nest acquisition. Apparently, the values of innovation and risk-taking set out in the founders’ controversial 2004 letter are still very powerful and have largely paid off for investors.
There have been two stock splits since its IPO in 2004, including its reorganization into Alphabet’s parent company a few years ago. As Admiral Markets explains, if you had invested $1,000 in Google at $85 on Aug. 19, you would have received 11.76 shares. After the stock split, these would have been converted into 470.4 shares. As the Google/Alphabet stock price is hovering around the $128 mark at the time of writing, your investment would currently be worth around $64,000, which would represent a significant return on investment without considering other factors such as inflation and currency devaluation.
When it went public, Google was valued at $23 billion. 19 years later, the market cap is well over $1 trillion and approaching $2 trillion. The company has grown significantly over the past few decades and is firmly entrenched in almost every aspect of your life, for better or for worse. It’s particularly interesting that Google’s decision to go public came out of necessity rather than will, and that former CEO Eric Schmidt would have preferred to keep the company private. Based on the company’s current profitability and market capitalization, it is clear that this was the right decision. Only time will tell what new heights Google will reach over the next few years, if things go similarly well.
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