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Google IPO fails to find results it sought

Page 2 of 2 -- ''The clear message from today's market activity is that Google had been overpriced," Mahaney said. ''This says very little about the financial fundamentals of Google as a company. It says a lot about how the market and retail investors value those fundamentals."

Google earns most of its money through advertisements related to its search results and by providing such contextual ads for other websites. The company posted net income of $79.1 million on revenue of $700.2 million for the second quarter, up from income of $64 million on revenue of $651.6 million in the previous quarter. Its operating income was $171 million for the second quarter.

In the end, market watchers said the lower valuation on Google's shares will leave the company with a more rational share price as it begins trading.

''Now they're in the range where they could be positioned for a modest gain," said Richard de Silva, senior associate at Highland Capital Partners, a Waltham venture capital firm. ''It would have been a bad thing for the market if the stock had gone down 25 percent on the first day. This is a great company with a strong brand."

The company's auction, intended to draw a class of retail investors left out of traditional Wall Street-run IPOs, wound up turning off many would-be shareholders because of the high target price, the paucity of financial information provided by Google's management, and the high minimum account balances required by many participating brokerage firms for individual investors seeking to place bids.

''The 'Dutch auction' was an unnecessarily complex process," de Silva said. ''And the complexity was one of the reasons Google had problems with the IPO, rather than the fundamentals of the company."

Aside from the timing and their management of the auction, Google founders Sergey Brin and Larry Page stumbled in granting unregulated stock options to employees and consultants in the years before the IPO -- a disclosure that has prompted inquiries by the SEC and California and Connecticut regulators -- and by granting an interview to Playboy magazine that may have violated SEC rules imposing a ''quiet period" on executives between the time they file for their IPO and the time shares begin trading. To placate SEC staffers, Google submitted the Playboy interview as an appendix to its prospectus.

More than anything, the disappointing valuation for Google was a matter of missing expectations.

''Across the board, everyone was just a little too excited," said Michael A. Goldstein, finance professor at Babson College in Wellesley and a member of Nasdaq's economic advisory board. ''Given that a tech boom didn't materialize this summer, it's probably good for the market to have a more realistic price."

And the Google offering price, even after it was scaled down yesterday, remains substantial, Goldstein added.

''This is still a great price," he said. ''But it's like getting the silver medal in the Olympics when you were expecting to get the gold."

Robert Weisman can be reached at 

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