https://www.ipo.google.com/data/prospectus.html
As filed pursuant to Rule 424(b)(4) under the Securities Act of 1933
Registration No. 333-114984
Prospectus
August 18, 2004
19,605,052 Shares
Class A Common Stock
Google Inc. is offering 14,142,135 shares of Class A common stock and the selling stockholders are offering 5,462,917 shares of Class A common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. This is our initial public offering and no public market currently exists for our shares. The initial public offering price is $85.00 per share.
Following this offering, we will have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible at any time into one share of Class A common stock.
Our Class A common stock will be quoted on The Nasdaq National Market under the symbol “GOOG.”
Investing in our Class A common stock involves risks. See “ Risk Factors” beginning on page 4.
Price $85.00 A Share
| Price to Public |
Underwriting Discounts and Commissions |
Proceeds to |
Proceeds to Selling Stockholders | |||||||||
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Per Share |
$ | 85.00 | $ | 2.3839 | $ | 82.6161 | $ | 82.6161 | ||||
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Total |
$ | 1,666,429,420 | $ | 46,736,483 | $ | 1,168,368,039 | $ | 451,324,897 | ||||
The selling stockholders have granted the underwriters the right to purchase up to an additional 2,940,757 shares to cover over-allotments.
The price to the public and allocation of shares were determined by an auction process. The minimum size for a bid in the auction was five shares of our Class A common stock. The method for submitting bids and a more detailed description of this auction process are included in “Auction Process” beginning on page 34. As part of this auction process, we attempted to assess the market demand for our Class A common stock and to set the size and price to the public of this offering to meet that demand. As a result, buyers should not expect to be able to sell their shares for a profit shortly after our Class A common stock begins trading. We determined the method for allocating shares to bidders who submitted successful bids following the closing of the auction.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
It is expected that the shares will be delivered to purchasers on or about August 24, 2004.
| Morgan Stanley | Credit Suisse First Boston | |
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| Goldman, Sachs & Co. | Citigroup | |
| Lehman Brothers | Allen & Company LLC | |
| JPMorgan | UBS Investment Bank | |
| WR Hambrecht+Co | Thomas Weisel Partners LLC | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Material United States Federal Tax Considerations for Non-U.S. Holders of Common Stock |
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Index to Condensed Financial Statements of Applied Semantics Inc. |
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You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is complete and accurate only as of the date of the front cover regardless of the time of delivery of this prospectus or of any sale of shares. Except where the context requires otherwise, in this prospectus, the “Company,” “Google,” “we,” “us” and “our” refer to Google Inc., a Delaware corporation, and, where appropriate, its subsidiaries.
We have not undertaken any efforts to qualify this offering for offers to individual investors in any jurisdiction outside the U.S.; therefore, individual investors located outside the U.S. should not expect to be eligible to participate in this offering.
Until September 12, 2004, all dealers that effect transactions in our shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. You should read this summary together with the more detailed information, including our financial statements and the related notes, elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in “Risk Factors.”
Google Inc.
Google is a global technology leader focused on improving the ways people connect with information. Our innovations in web search and advertising have made our web site a top Internet destination and our brand one of the most recognized in the world. We maintain the world’s largest online index of web sites and other content, and we make this information freely available to anyone with an Internet connection. Our automated search technology helps people obtain nearly instant access to relevant information from our vast online index.
We generate revenue by delivering relevant, cost-effective online advertising. Businesses use our AdWords program to promote their products and services with targeted advertising. In addition, the thousands of third-party web sites that comprise our Google Network use our Google AdSense program to deliver relevant ads that generate revenue and enhance the user experience. Advertisers in our AdWords program pay us a fee each time a user clicks on one of their ads displayed either on our web sites or on the web sites of Google Network members that participate in our AdSense program. When a user clicks on an ad displayed on a web site of a Google Network member, we retain only a small portion of the advertiser fee, while most of the fee is paid to the Google Network member.
Our mission is to organize the world’s information and make it universally accessible and useful. We believe that the most effective, and ultimately the most profitable, way to accomplish our mission is to put the needs of our users first. We have found that offering a high-quality user experience leads to increased traffic and strong word-of-mouth promotion. Our dedication to putting users first is reflected in three key commitments we have made to our users:
| • | We will do our best to provide the most relevant and useful search results possible, independent of financial incentives. Our search results will be objective and we will not accept payment for inclusion or ranking in them. |
| • | We will do our best to provide the most relevant and useful advertising. Whenever someone pays for something, we will make it clear to our users. Advertisements should not be an annoying interruption. |
| • | We will never stop working to improve our user experience, our search technology and other important areas of information organization. |
We believe that our user focus is the foundation of our success to date. We also believe that this focus is critical for the creation of long-term value. We do not intend to compromise our user focus for short-term economic gain.
Corporate Information
We were incorporated in California in September 1998. In August 2003, we reincorporated in Delaware. Our principal executive offices are located at 1600 Amphitheatre Parkway, Mountain View, California 94043, and our telephone number is (650) 623-4000. We maintain a number of web sites including www.google.com. The information on our web sites is not part of this prospectus.
Google® is a registered trademark in the U.S. and several other countries. Our unregistered trademarks include: AdSense, AdWords, Blogger, Froogle, Gmail, I’m Feeling Lucky and PageRank. All other trademarks, trade names and service marks appearing in this prospectus are the property of their respective holders.
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Class A common stock offered: |
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By Google |
14,142,135 Shares | |
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By the selling stockholders |
5,462,917 Shares | |
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Total |
19,605,052 Shares | |
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Class A common stock to be outstanding after this offering |
33,603,386 Shares | |
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Class B common stock to be outstanding after this offering |
237,616,257 Shares | |
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Total common stock to be outstanding after this offering |
271,219,643 Shares | |
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Use of proceeds |
We intend to use the net proceeds from this offering for general corporate purposes, including working capital, and possible acquisitions of complementary businesses, technologies or other assets. We will not receive any of the proceeds from the sale of shares by the selling stockholders. See “Use of Proceeds” for additional information. | |
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Nasdaq symbol |
GOOG | |
The number of shares of Class A and Class B common stock that will be outstanding after this offering is based on the number of shares outstanding at June 30, 2004 and includes (i) 2,700,000 shares of Class A common stock issued to Yahoo! Inc. in connection with a settlement arrangement, (ii) 62,187 shares of Class A common stock that will be sold in the offering by one of our selling stockholders following exercise of a warrant to purchase Class B common stock and (iii) the conversion of the shares of Class B common stock into Class A common stock in connection with this sale, and excludes:
| • | 1,933,953 shares of Class B common stock issuable upon the exercise of warrants outstanding at June 30, 2004, at a weighted average exercise price of $0.62 per share. |
| • | 6,276,573 shares of Class A common stock issuable upon the exercise of options outstanding at June 30, 2004, at a weighted average exercise price of $9.42 per share. |
| • | 10,456,084 shares of Class B common stock issuable upon the exercise of options outstanding at June 30, 2004, at a weighted average exercise price of $2.68 per share. |
| • | 3,891,192 shares of common stock available for future issuance under our stock option plans at June 30, 2004. |
Unless otherwise indicated, all information in this prospectus assumes that the underwriters do not exercise the over-allotment option to purchase 2,940,757 additional shares of Class A common stock in this offering and that all shares of our preferred stock are converted into Class B common stock prior to this offering.
The Auction Process
The auction process being used for our initial public offering differs from methods that have been traditionally used in most other underwritten initial public offerings in the U.S. In particular, the initial public offering price and the allocation of shares were determined by an auction process conducted by us and our underwriters. You should be aware that we have selected an underwriting group that serves a broad range of the investing public, and each member of the underwriting group makes different suitability determinations with respect to investors participating in the auction process. We encourage you to discuss any questions you have regarding underwriter requirements with the underwriter through which you bid because these requirements could affect your ability to submit a bid. For more information about the auction process, see “Auction Process.”
2
Summary Consolidated Financial Data
The following table summarizes financial data regarding our business and should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.
| Year Ended December 31, |
Six Months Ended June 30, |
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| 1999 |
2000 |
2001 |
2002 |
2003 |
2003 |
2004 |
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| (unaudited) | ||||||||||||||||||||||||||
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Consolidated Statements of Operations Data: |
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Revenues |
$ | 220 | $ | 19,108 | $ | 86,426 | $ | 439,508 | $ | 1,465,934 | $ | 559,817 | $ | 1,351,835 | ||||||||||||
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Costs and expenses: |
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Cost of revenues |
908 | 6,081 | 14,228 | 131,510 | 625,854 | 204,596 | 641,775 | |||||||||||||||||||
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Research and development |
2,930 | 10,516 | 16,500 | 31,748 | 91,228 | 29,997 | 80,781 | |||||||||||||||||||
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Sales and marketing |
1,677 | 10,385 | 20,076 | 43,849 | 120,328 | 42,589 | 104,681 | |||||||||||||||||||
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General and administrative |
1,221 | 4,357 | 12,275 | 24,300 | 56,699 | 22,562 | 47,083 | |||||||||||||||||||
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Stock-based compensation |
— | 2,506 | 12,383 | 21,635 | 229,361 | 70,583 | 151,234 | |||||||||||||||||||
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Total costs and expenses |
6,736 | 33,845 | 75,462 | 253,042 | 1,123,470 | 370,327 | 1,025,554 | |||||||||||||||||||
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Income (loss) from operations |
(6,516 | ) | (14,737 | ) | 10,964 | 186,466 | 342,464 | 189,490 | 326,281 | |||||||||||||||||
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Interest income (expense) and other, net |
440 | 47 | (896 | ) | (1,551 | ) | 4,190 | 719 | (1,198 | ) | ||||||||||||||||
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Income (loss) before income taxes |
(6,076 | ) | (14,690 | ) | 10,068 | 184,915 | 346,654 | 190,209 | 325,083 | |||||||||||||||||
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Provision for income taxes |
— | — | 3,083 | 85,259 | 241,006 | 132,241 | 182,047 | |||||||||||||||||||
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Net income (loss) |
$ | (6,076 | ) | $ | (14,690 | ) | $ | 6,985 | $ | 99,656 | $ | 105,648 | $ | 57,968 | $ | 143,036 | ||||||||||
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Net income (loss) per share: |
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Basic |
$ | (0.14 | ) | $ | (0.22 | ) | $ | 0.07 | $ | 0.86 | $ | 0.77 | $ | 0.44 | $ | 0.93 | ||||||||||
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Diluted |
$ | (0.14 | ) | $ | (0.22 | ) | $ | 0.04 | $ | 0.45 | $ | 0.41 | $ | 0.23 | $ | 0.54 | ||||||||||
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Number of shares used in per share calculations: |
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Basic |
42,445 | 67,032 | 94,523 | 115,242 | 137,697 | 131,525 | 153,263 | |||||||||||||||||||
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Diluted |
42,445 | 67,032 | 186,776 | 220,633 | 256,638 | 253,024 | 265,223 | |||||||||||||||||||
The following table presents a summary of our balance sheet data at June 30, 2004:
| • | On an actual basis. |
| • | On a pro forma as adjusted basis to give effect to the conversion of all outstanding shares of our preferred stock into shares of Class B common stock prior to the closing of this offering and to further give effect to the sale by us of shares of our Class A common stock at our initial public offering price of $ 85.00 per share, and the receipt of the net proceeds from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as set forth under “Use of Proceeds” and “Cash and Capitalization.” |
| At June 30, 2004 |
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| Actual |
Pro Forma as Adjusted |
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Consolidated Balance Sheet Data: |
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Cash, cash equivalents and short-term investments |
$ | 548,687 | $ | 1,712,255 | ||||
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Total assets |
1,328,022 | 2,491,590 | ||||||
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Total long-term liabilities |
58,766 | 58,766 | ||||||
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Deferred stock-based compensation |
(352,815 | ) | (352,815 | ) | ||||
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Total stockholders’ equity |
1,016,999 | 2,180,567 | ||||||
3
An investment in Google involves significant risks. You should read these risk factors carefully before deciding whether to invest in our company. The following is a description of what we consider our key challenges and risks.
Risks Related to Our Business and Industry
We face significant competition from Microsoft and Yahoo.
We face formidable competition in every aspect of our business, and particularly from other companies that seek to connect people with information on the web and provide them with relevant advertising. Currently, we consider our primary competitors to be Microsoft and Yahoo. Microsoft has announced plans to develop a new web search technology that may make web search a more integrated part of the Windows operating system. We expect that Microsoft will increasingly use its financial and engineering resources to compete with us. Yahoo has become an increasingly significant competitor, having acquired Overture Services, which offers Internet advertising solutions that compete with our AdWords and AdSense programs, as well as the Inktomi, AltaVista and AllTheWeb search engines. Since June 2000, Yahoo has used, to varying degrees, our web search technology on its web site to provide web search services to its users. We have notified Yahoo of our election to terminate our agreement effective July 2004. This agreement with Yahoo accounted for less than 3% of our revenues for the year ended December 31, 2003 and less than 2% of our revenues for the six months ended June 30, 2004.
Both Microsoft and Yahoo have more employees than we do (in Microsoft’s case, currently more than 20 times as many). Microsoft also has significantly more cash resources than we do. Both of these companies also have longer operating histories and more established relationships with customers. They can use their experience and resources against us in a variety of competitive ways, including by making acquisitions, investing more aggressively in research and development and competing more aggressively for advertisers and web sites. Microsoft and Yahoo also may have a greater ability to attract and retain users than we do because they operate Internet portals with a broad range of products and services. If Microsoft or Yahoo are successful in providing similar or better web search results compared to ours or leverage their platforms to make their web search services easier to access than ours, we could experience a significant decline in user traffic. Any such decline in traffic could negatively affect our revenues.
We face competition from other Internet companies, including web search providers, Internet advertising companies and destination web sites that may also bundle their services with Internet access.
In addition to Microsoft and Yahoo, we face competition from other web search providers, including companies that are not yet known to us. We compete with Internet advertising companies, particularly in the areas of pay-for-performance and keyword-targeted Internet advertising. Also, we may compete with companies that sell products and services online because these companies, like us, are trying to attract users to their web sites to search for information about products and services.
We also compete with destination web sites that seek to increase their search-related traffic. These destination web sites may include those operated by Internet access providers, such as cable and DSL service providers. Because our users need to access our services through Internet access providers, they have direct relationships with these providers. If an access provider or a computer or computing device manufacturer offers online services that compete with ours, the user may find it more convenient to use the services of the access provider or manufacturer. In addition, the access provider or manufacturer may make it hard to access our services by not listing them in the access provider’s or manufacturer’s own menu of offerings. Also, because the access provider gathers information from the user in connection with the establishment of a billing relationship, the access provider may be more effective than we are in tailoring services and advertisements to the specific tastes of the user.
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There has been a trend toward industry consolidation among our competitors, and so smaller competitors today may become larger competitors in the future. If our competitors are more successful than we are at generating traffic, our revenues may decline.
We face competition from traditional media companies, and we may not be included in the advertising budgets of large advertisers, which could harm our operating results.
In addition to Internet companies, we face competition from companies that offer traditional media advertising opportunities. Most large advertisers have set advertising budgets, a very small portion of which is allocated to Internet advertising. We expect that large advertisers will continue to focus most of their advertising efforts on traditional media. If we fail to convince these companies to spend a portion of their advertising budgets with us, or if our existing advertisers reduce the amount they spend on our programs, our operating results would be harmed.
We expect our growth rates to decline and anticipate downward pressure on our operating margin in the future.
We expect that in the future our revenue growth rate will decline and anticipate that there will be downward pressure on our operating margin. We believe our revenue growth rate will decline as a result of increasing competition and the inevitable decline in growth rates as our revenues increase to higher levels. We believe our operating margin will decline as a result of increasing competition and increased expenditures for all aspects of our business as a percentage of our revenues, including product development and sales and marketing expenses. Our operating margin may decline to the extent the proportion of our revenues generated from our Google Network members increases. The margin on revenue we generate from our Google Network members is generally significantly less than the margin on revenue we generate from advertising on our web sites. Additionally, the margin we earn on revenue generated from our Google Network could decrease in the future if our Google Network members require a greater portion of the advertising fees.
Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.
Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our quarterly and annual expenses as a percentage of our revenues may be significantly different from our historical or projected rates. Our operating results in future quarters may fall below expectations. Any of these events could cause our stock price to fall. Each of the risk factors listed in this “Risk Factors” section, and the following factors, may affect our operating results:
| • | Our ability to continue to attract users to our web sites. |
| • | Our ability to attract advertisers to our AdWords program. |
| • | Our ability to attract web sites to our AdSense program. |
| • | The mix in our revenues between those generated on our web sites and those generated through our Google Network. |
| • | The amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our businesses, operations and infrastructure. |
| • | Our focus on long term goals over short term results. |
| • | The results of our investments in risky projects. |
| • | General economic conditions and those economic conditions specific to the Internet and Internet advertising. |
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| • | Our ability |