The Value Equation

Chapter 11A Look at Public Companies

On August 19, 2004, approximately nine years after its founding, Google launched its initial public offering (IPO), selling 22.5 million shares (about 7% of diluted equity), netting the company over $1.9 billion. The company hardly needed the money. Google had long transformed its idea for a superior internet search engine into a potent business model, and at the time of its IPO was sitting on nearly $550 million in cash and no debt.

By the end of that year, the company's cash hoard had grown to $2.1 billion. A year later, the company would have over $8 billion in cash and the cash balances would grow uninterrupted from there. By the end of 2019, the company was sitting on a pile of nearly $120 billion in cash and was debt-free.

If you are wondering why Google felt the need to go public, it wasn't for the money. It was for the enhanced corporate valuation and for the liquidity offered to employees and founding shareholders, including Larry Page, Sergey Brin, and various sophisticated private and institutional early investors. Between the company's IPO and the end of 2019, the two original founders would each divest more than $10 billion in shares and yet still retain stock valued at more than $25 billion each. Given that they hold class B shares that provide them with 10 share votes for every share of stock they hold, at the end of 2019, Larry and Sergey controlled over 51% of the voting power of the company. By that time, the company they ...