Almost two decades ago, Google was practically forced into an IPO at a valuation of $23 billion. The firm is worth well over a trillion dollars now.
- Google’s decision to go public in 2004 was not initially planned, but was due to U.S. securities laws that required the company to publicly report if it had more than 500 shareholders.
- The IPO process faced challenges, including negative press, SEC problems, and backlash from Wall Street. Despite these difficulties, the auction was a success and demonstrated public confidence in Google’s future.
- Since its IPO, Google’s market cap has grown tremendously, from $23 billion in 2004 to over a trillion dollars today, showcasing the company’s significant growth and impact on various aspects of daily life.
Despite having software and hardware products in a lot of major consumer and enterprise categories, Google is perhaps best known for its internet search engine. It’s a name that has become synonymous with any terminology relating to searching the web, to the point that it’s used as a verb. However, Google wasn’t always this big, a major turning point for the company was the day it decided to go public 19 years ago today. Indeed, Google’s initial public offering (IPO) happened on August 19, 2004, putting the company to become the behemoth it is today.
It might be very interesting for many to know that Google’s decision to go public wasn’t really something it had intended to do in August 2004. Former Google CEO Eric Schmidt revealed that it was actually the U.S. securities laws at the time that forced the company’s hand. The law said that if any company has more than 500 shareholders, it is required to publicly report itself and file financial statements by the end of the year. However, it would be under no obligation to sell its stock to the public.
This requirement kicked in for Google during early 2004, at which time it was forced to weigh three options. The first was to buy back shares from its employees to reduce the number of shareholders, the second involved filing financial statements but not selling stock to the public, and the final option was to become a publicly traded company in the traditional sense. As executives began to brainstorm over how they could structure the IPO such that it is beneficial both to Google and its investors, the company implemented a blackout on media communication.
With all the negative press around the secrecy of its IPO, Google took the world by surprise when it suddenly announced on 11AM, April 29, 2004, that it was going public, three hours ahead of the deadline. Co-founders Larry Page and Sergey Brin also penned a “Letter from the Founders” where they warned potential investors that they would be investing money in a firm that is unconventional in its approach and likes to experiment in risky projects that could fail.
Google then began to work with the United States Securities and Exchange Commission (SEC) to work out the kinks in its auctioning process and alleviate concerns regarding the inclusion of Page and Brin’s letter in the IPO’s prospectus. Perhaps one of the biggest and unexpected hurdles arrived when an interview from the two executives appeared in the Playboy magazine (of all places) in September, violating the SEC’s restrictions regarding a “quiet period” ahead of the IPO. However, Google’s legal team was able to navigate this challenge too.
After lots of back and forth, it was finally time for the IPO process to begin in August 2004. Based on its own calculations, Google estimated that its shares were worth between $106 and $135. However, when bidding began, it was receiving bids at the lower end of this range due to all the negative press, backlash from Wall Street, the ongoing SEC problems, and more. Schmidt met with the board and inquired if the IPO could be delayed until the storm had blown over, but eventually, it was decided that it was time to turn this page once and for all, even if it meant selling shares at a lower price. Finally, a share price of $85 was agreed upon, at a valuation of $23 billion.
When the market opened on August 19 at $85 a share, there was a lot of interest in Google stock with the close price hovering above the $100-mark. Within a few days, this had risen to $110. It was clear that despite all the difficulties surrounding the process leading up to the IPO, Google’s auction was a huge success and demonstrated public confidence in the company’s endeavors and its long-term future. It’s important to note that while Google was already quite popular in the software side through services like Google Search, News, Gmail, Orkut at that time, this was still before the inception of all the other major products that we use everyday now, including Maps, YouTube, Chrome, Android, Drive, Play, AdSense, and more. Google eventually branched out into the hardware side with its Nexus and Pixel lineups, and the Nest acquisition too. Clearly, the values of innovation and risk-taking that were outlined in the controversial Letter from the Founders in 2004 are still very much in effect and have been largely paying off for investors.
There have been two stock splits since the IPO in 2004, including the restructuring to the Alphabet parent company a few years ago. As Admiral Markets explains, if you invested $1,000 in Google on August 19 at $85, you would have received 11.76 shares. After the stock splits, these would have been converted into 470.4 shares. With Google/Alphabet’s stock price floating around the $128-mark at the time of writing, your investment would be worth about $64,000 right now, which would be a significant return on investment, not accounting for other factors like inflation and currency devaluation.
When it went public, Google was valued at $23 billion. 19 years later, it is well over the trillion dollar market cap and is closing in on the two trillion dollar-mark. The company has grown substantially over the past couple of decades and is well entrenched into pretty much every aspect of your life, for better or for worse. It’s particularly interesting that Google’s decision to go public was borne out of necessity rather than choice and that former CEO Eric Schmidt would rather have had the company remain private, it’s clear based on profitability and market cap of the firm right now that this was the right decision. Only time will tell what new heights Google will reach over the next few years, provided everything goes similarly well.