Looking Back at the 2004 Google IPO

When it comes to search engines, we’ve had a lot of experience. Having implemented online optimization and marketing campaigns for our clients for a decade now, we’ve been around since the early days of the industry. And it was clear from the beginning that Google was — and is — ahead of the field.

That’s why it is hard to look back and realize we didn’t follow our gut instincts and buy into the Google IPO nearly six years ago. Here’s a look at what GOOG has done in that time:

So what brings this up now? In a recent Harvard Business Review article, Google CEO Eric Schmidt offered his first-person account of the “quirky IPO,” from the Founders letter by Larry Page and Sergey Brin to the Google Guys interview in Playboy (we hate to link it; just Google it!) that almost derailed the process to the unique Dutch auction concept that aimed to help allow the little guy to get in on initial shares.

And we were in on every step of the auction bidding process. Until we were out.

So we thought it might be a little fun to take our own look back at that process, which started in January 2003 when we first contacted our Morgan Stanley broker to inquire about Google going public. We followed up in November of that year when we heard the company was getting closer to going public and that Morgan Stanley had been tapped to lead the way. Keep us in the loop, we said, as we’ll be buying shares.

By January 2004, we were really all over it. News was out that Morgan Stanley and Goldman Sachs would indeed be managing the Google IPO. We’re in. Our only concern was: How many shares would we be allotted? We knew we couldn’t afford much, but it would be fun to participate.

In April 2004, Google filed for the offering. By July, things were moving along and Google had outlined a “Dutch auction” process that prospective investors would have to navigate to purchase shares of the company. First, we had to go online to the Google site and register to get a bidder number for the IPO. We did. Number 0126-6035-3855-2803-4600. That gave us the right to participate in the auction process, in which each investor could tell Google how much he or she was willing to pay per share and how many shares he was willing to buy at that price.

Mr. Schmidt said this process would allow his company to “do a better job than the traditional approach of setting a price for our shares – and would allow our share price to remain stable after we went public.” In other words, the large institutions couldn’t hoard all the shares, then flip them at a huge profit at the opening bell as the stock started trading and the small investors got their first chance to buy. Theoretically, the little guy would have as much of a chance as the big boys, and Google would not leave any money on the table at the offering.

So now that we had our bidder number, it was time to bid. The company initially came out with a suggested bid range that went up to about $140. The Dutch auction process is complicated, but the general concept is that the company takes bids on what investors are willing to pay and the amount of shares they would buy at that price. Each bidder can even offer a range of prices they will pay and shares they will buy. Mr. Schmidt says the company could then “move down from the top bid until it reached the highest price at which it could sell all the shares it wanted to offer.” So if it had enough orders, it could sell all shares at $140. If not, it would move down the list until it reached a price where all the shares would be purchased. Everyone who bid that price or higher would get the shares at that price.

So here was the chance we had waited for. We’d already been working in Search Engine Optimization for some time and had dabbled in the AdWords bidding process for our clients, an online auction if you well that somewhat resembled the Dutch auction. As a result, we (like so many others) were convinced that Google was the best positioned search engine in the market place. We wanted to have a little bit of equity in the company. Make no mistake, we didn’t have a lot of money, and what we did have for retirement and our young children’s college funds we didn’t usually “gamble” on stocks. Instead, we mainly invested in mutual funds and hoped to watch those investments grow slowly over time.

But in this case, we decided to make up to a – gulp — $10,000 investment. So we bid on 25 shares if the price at which Google went public was $140. If it ranged down to $125, we’d buy 25 more shares (50 total). At $110, we’d buy 25 more (75 total). And if it went to the low end of the estimate at $100, we’d go with a round lot (100 shares) and invest the full $10,000.

We put in our bid and waited to see what happened. Which was nothing. Instead, the range for the offering was lowered to a top end of $135. That’s okay, we’re still in. But clearly Google had to lower the bids because not enough folks bid high enough to cover all 20 million or so shares being offered in the initial range. What did the savvy investors know that we didn’t?

Anyway, we put in our bid again in the lowered range. Starting with 25 shares at $135, down to 100 shares at the lowest end. And once again, they didn’t end the auction. Meaning that, even at the lowered price, Google and its investment bankers couldn’t get enough bidders. So, the range was lowered. We were still in – we love Google, remember? – but we were getting very jittery. Why were we willing to pay up to $140, but not enough folks were even willing to pay the previous low end of $108 to buy up all the shares? We put in our bids again, down to $90, but we weren’t near as confident in our decision.

Then it happened. They lowered the pricing again. To a range of $85-$95 per share, or 60% of the initial price we were willing to pay. So if we liked the company at $140, we must really love it at $85, correct? What we should do now is double down, put in $20,000 and enjoy a good investment over the coming years. Sure, the stock price might go down initially. But Google is such a good company, the investment will pay off in the long run. And we’re long-term investors, so let’s go for it, right?


We called our broker and dripped out of the auction. We’re not in for any shares of Google. Not 25 shares at $140, nor 50 shares at $115 or 75 shares at $100 … not even 100 shares at $90, which had been our final offering on the low end. Nope, we don’t want any shares at $85. Though in our gut we just knew that Google was the major player in the ever-expanding field of search, we worried that all the smart money folks had driven the price down, so there must be a reason. Surely the stock was going to go down, not up, when it started trading.

The rest, of course, is history. Initial investors received their shares at $85 in the IPO. The first public trade of GOOG on that first day (August 19, 2004) was $100, which is about where the stock closed that day. So a 100-share investment at $85 ($8,500) was already worth over $10,000, a gain of 18%. As you know, it gets worse from there (worse, that is, if you didn’t buy any shares). At its highest point in late 2007, the stock reached $714.87 per share, meaning that initial $8,500 investment would have been worth $71,487, about 8.5 times the original investment.

Of course, we probably would have sold long before the $700+ peak. But you get the point. We really wanted to be a part of the unique IPO. We were willing to invest at $140 per share. But we couldn’t pull the trigger at $85 per.

We often wonder how many small investors there were who, like us, wanted to be involved but got skittish and backed out as the big money drove the price down. Did Google accomplish its stated goal of letting everyone participate? In the end, the answer is probably yes, at least to a degree, though the company didn’t accomplish its goal of not leaving money on the table. With the IPO priced at $85, remember, but the first bids coming in at $100, Google could have made 18% more for the company. Just like we look back with a little regret, we guess Mr. Schmidt and Company may as well. But with the stock currently hovering around $500 per share, that regret likely passes pretty quickly. Ours lingers.