Google IPO Could Net $3.3B, Ask Jeeves Deal Extended

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Google set the terms for its highly anticipated public stock offering yesterday, anticipating it will yield as much as $3.3 billion in one of the largest stock debuts in history.


The search company also said its second-quarter profit more than doubled from last year.


Google generated $700.2 million in sales for the three months ended June 30, up from $311.2 million in the year-ago period. Net income totaled $79 million, up from $32.2 million in last year's second quarter.


Google said it would offer 24.6 million shares that it expects will fetch $108 to $135 per share. Those prices would net Google $2.7 billion to $3.3 billion, giving it a market capitalization as high as $36 billion. It will trade on the Nasdaq market under the ticker symbol "GOOG."


The Mountain View, CA, company did not set a date for its stock offering -- which will be conducted through an online auction -- though the company said it would occur in August.


Google provided the details of its stock sale in a filing with the Securities and Exchange Commission. It included results for the first half of the year with comparable numbers from the first half of 2003. Google's sales are up 140 percent in the first half of the year, with net income leaping 35 percent.


In another development, Google and Ask Jeeves extended their paid listings distribution agreement through 2007. The renewed deal covers Ask Jeeves' main domestic search site, Ask.com, and its site in the United Kingdom. Terms of the deal were not disclosed.


Google's AdWords paid search listings accounted for 69 percent of Ask Jeeves' revenue in the first quarter.


Ask Jeeves has become a more attractive search partner thanks to its acquisition in May of Interactive Search Holdings, which added search brands iWon, My Way, My Search and My Web Search. The Google distribution deal, originally signed in 2002, was to expire in September 2005, but it allowed either party to terminate it this September or October.


Google's new regulatory filing underscores the importance of distribution partners such as Ask Jeeves, EarthLink and AOL. Of the company's $1.3 billion in ad sales during the first half of the year, more than half came from the Google Network.


Google also changed the way it reports revenue. Previously it reported net sales, excluding revenue that was returned to distribution partners. Google's latest filing records all the money generated through these arrangements, subtracting the amount it pays out as cost of revenues.


Google revised its cost of revenues for 2002 and 2003. Cost of revenues in 2002 is now put at $131.5 million, up from the $39.9 million previously stated. Cost of revenues for 2003 was revised upward from $121.8 million to $625.9 million. Google said its largest search partner, AOL, accounted for 13 percent of its revenue in the first half of 2004.


The accounting change drastically alters Google's sales figures. Revenues for 2003 are now $1.47 billion, compared with $961.9 million previously stated.


"While in April everyone was lauding their conservatism, here we have a situation where they're becoming more like other companies," said Scott Kessler, an equity analyst with Standard & Poor's.


Google's cost of revenues made up 47.5 percent of revenues in the first half of 2004, up from 36.5 percent in the year-ago period. Google's traffic-acquisition costs rose $381.3 million in the first six months of the year. The company said it expected traffic-acquisition costs would continue to rise in 2004, both in terms of dollars and as a percentage of revenues.


The IPO will add $1.6 billion to Google's already considerable cash reserves. The company reported $2.2 billion in cash and cash equivalents on its balance sheet as of June 30.


Google's new filing also included the slideshow and script for its "meet the management" presentation for potential investors, complete with voiceovers by its top executives, including founders Larry Page and Sergey Brin.


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