Since its 2004 debut, the search engine giant has soared. Interestingly enough, it was a tough sale. The original range was for the offering was supposed to be between $108 and $135, but the company ultimately priced the deal at $85. Of course, that turned out to be a huge opportunity, as the company is now trading for more than ten times that. So what can investors learn looking back? To see, I took a look at the S-1 filing. Here are five takeaways — things that you can looking for when trying to find the “next Google”:
#1. Global Leader
When Google came public, it was already a global brand and one of the most visited destinations on the Web. Plus, the company had a bold mission, which was to “organize the world’s information and make it universally accessible and useful.” Beyond the mission, the business model was also clear-cut:
“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.” A straightforward plan, along with an established footprint, are two qualities any investor should look for in possible investments.
On top of that, the growth was staggering. In 1999, Google generated a mere $220,000. By 2003, it was $1.5 billion. And for the first six months of 2004, revenues reached $1.4 billion — up from $560 million in the same period a year ago. Plus, it was profitable growth. For the first half of 2004, the net income was a juicy $143 million.
#3: Competitive Advantages
Even if a company is a leader today, it may eventually fade away as competition crowds the market — and that’s why there needs to be strong protections. Luckily, this was the clearly the case with Google, which had an extensive set of intellectual property. At the core was PageRank, which allowed for relevant search results.
Google had another competitive advantage that often got overlooked as well: Google’s back-end technologies. Those technologies made it possible to scale the company’s platform. And since its inception in 1999, Google’s indexed documents went from 30 million to 4 billion by 2004.
#4: Risk Factors
Of course, you have to consider risk as well — sectioned under “Risk Factors.” These are essentially a laundry list of all the problems, or potential problems. For the most part, they are just a legal boilerplate. But investors need to be wary if there are specific details, such as for big lawsuits or customer concentration.
As for Google’s Risk Factors, they were mostly generic. Typical examples: the dangers of global expansion, hiring tons of employees, continuing innovation and managing growth. And of course, there was a mention of the competition, including Microsoft and Yahoo .
There was one risk factor that did stand out: The fact that Google got about 98% of its revenues from advertising. If there was another dot-com implosion, the consequences would have been severe. Still, there are always big-picture problems like this for most industries.
Finally, Google was more than just a search engine. The company demonstrated that it could move effectively into other major categories, which would greatly expand the market opportunity. Some examples included Google News and Gmail (of course, some ultimately failed, like e-commerce site Froogle).
The company also wanted to make sure it was forward-looking. For example, Google was already working on the “mobile web.” This would ultimately prove very prescient as the company would go on to develop the Android operating system.
All in all, these five factors all helped Google be a wildly successful investment over the long haul — and investors looking for the next hot IPO would do well to follow a similar checklist.
Disclosure: This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional investment, legal, tax, or accounting counsel.
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