Google IPO Unlikely to Produce Spending Sprees

REDWOOD CITY, Calif. — When the millionaires-to-be at Google Inc. decide to go luxury-car shopping, the Carlsen Porsche sign beside Silicon Valley’s Highway 101 may catch their eye.

Salesmen on the showroom floor here have been buzzing about Google’s recently announced plan to hold the biggest initial public offering of stock for a high-tech company since the Nasdaq meltdown four years ago. The dealership already counts Google employees among its customers, and a few have said they planned to upgrade from their entry-level Boxster convertibles after the IPO.

But this wave of Internet mania won’t be like the last one, sales manager Tom Yamamoto figures, and he’s keeping his expectations in check. The Google IPO “will start things rolling,” he said last week, “but it’s going to be a slow start.”

From the headlines in the media and the chatter around water coolers, you might think Google was Silicon Valley’s savior: an Internet search company that will single-handedly restore the world’s high-tech mecca to glory.

Economists and analysts, however, are skeptical that Google’s IPO, which could raise as much as $2.7 billion, will rejuvenate the local economy. Few people who follow the Mountain View, Calif., company expect gaudy displays of wealth. After all, its young founders live in rented apartments and drive sensible Toyota Prius hybrid cars, despite paper wealth in the 10-figure range.

Even as sales and profits rise at many technology companies, high unemployment, outsourcing of work overseas and fear of a return to the excesses of the late 1990s may be too much for Google alone to overcome.

“The notion that it heralds a triumphant return of the valley is just shy of completely silly,” said Jim Koch, director of the Center for Science, Technology and Society at Santa Clara University.

Of course, if the region were to pin its hopes on a single company, Google would be a good bet. The closely held concern that has turned its brand name into a verb has been profitable since 2001, building a cash hoard of $455 million. It reported nearly $1 billion in sales of search-related advertisements in 2003, and its revenue is on pace to soar 50% this year.

When Google does go public this summer or fall, some analysts expect that the stock market will value it at $25 billion to $50 billion, roughly on par with Internet heavyweights EBay Inc. and Yahoo Inc.

The biggest beneficiaries by far will be co-founders Sergey Brin and Larry Page, who left a Stanford University doctorate program to start Google in 1998 and together own 29% of the company’s shares.

Just don’t expect them to go on a spending spree. Brin, 30, and Page, 31, are well-known in high-tech circles for disdaining the trappings of wealth and celebrity that come with running such a popular company. They drive the gasoline-conserving Prius to underscore Google’s corporate motto, “Don’t be evil.” When they have to fly, Google leases time for them on an aging corporate jet.

Three other Google executives stand to cash in big, according to the company’s IPO filing with the Securities and Exchange Commission.

Chief Executive Eric Schmidt, a Silicon Valley business veteran brought in to run the company with Brin and Page, owns 5.6% of the shares. It’s impossible to know how high the stock will rise, but if it hits, say, $40, Schmidt’s holdings will be worth $590 million, according to an analysis of the Google filing by Salary.com, a compensation consulting firm in Needham, Mass. Omid Kordestani, senior vice president of sales, would be worth $192 million on paper, and Wayne Rosing, vice president of engineering, would be worth $59 million.

The payoff for the remaining 1,900 employees will be much smaller. Only Google knows how it has allocated its stock within the employee ranks. But Salary.com Senior Vice President Bill Coleman estimates that at a $40 share price, about half the Google employees would clear at least $500,000, with 300 to 500 of them becoming millionaires.

“The trickle-down isn’t as strong and deep as one might think,” Coleman said.

A half-million dollars is nothing to scoff at. But the employees would hardly stand out along the tony San Francisco Peninsula, where the median resale home price in March reached an all-time high of $564,000 in Santa Clara County and $643,000 in neighboring San Mateo County.

Besides, Googlers are immersed in a corporate culture that frowns upon displays of conspicuous consumption. When Apple Computer Inc. and Netscape Communications Corp. went public, their parking lots quickly filled with fancy cars; Google employees are expected to show more restraint.

“The financial impact is going to be smaller than people expect,” said Paul Saffo, research director of the Institute for the Future, a think tank in Menlo Park, Calif. “These are not flashy guys.”

Catherine Marcus, who sells multimillion-dollar homes on the peninsula, said she consulted with venture capitalists and business executives about the Google IPO. Her back-of-the-envelope calculation is that it may generate 100 people who can afford the homes she sells.

The thought of Google going public makes Marcus, a broker with Cashin Co. Realtors, smile. But, she added, “this is not going to be the crowd that goes and blows money. It’s a new philosophy, not like the old days where they had cash in hand and would go blow it on a $20-million house.”

Real estate agents and economists said they expected Google employees to spend their money on more sensible homes, cars and even toys. One place they may go is the Costco just down the street from company headquarters. Googlers have yet to clear out the most expensive gear at the retailer: $1,100 global positioning systems, $5,000 big-screen plasma TVs and $8,600 2-carat diamond stud earrings still fill the warehouse.

Ken Wootten, a Costco manager, wouldn’t say whether he had noticed an uptick in Google employees in the store making lists of how to spend their dough. But asked if he expected the IPO to boost sales, Wootten said Silicon Valley seemed to be recovering on its own.

“Did the dot-com boom raise spending? Sure, there was a big surge,” he said. “But I think people have learned some things.”

The biggest financial effect may not be a short-term boost at the cash register.

Like so many high-tech companies before it, Google will almost certainly give birth to start-ups as IPO wealth produces engineers who can afford to work without a paycheck while they launch businesses based on their own wild ideas.

“We’re more likely to see small start-ups coming from Google than we are Ferraris,” Saffo said.

Despite its rapid growth, Google won’t make much of a dent in replacing the 200,000 jobs that disappeared after the dot-com crash, said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. But he said the good vibes surrounding the IPO may prompt venture capitalists to invest more and employers to hire more.

“It gives the signal that there can be success in Silicon Valley,” he said. “We just have to hope that there are a lot more Googles to follow.”