SAN JOSE, Calif. - In a debut vaguely reminiscent of the dot-com boom, shares of Internet search giant Google Inc. surged in their first day of public trading Thursday as investors who avoided the company's auction-based offering readily jumped into the familiar territory of the stock market.
Though the 18 percent jump boosted the paper worth of Google shareholders and insiders, it was also a sign of failure for the unorthodox auction designed to gauge true demand and set a rational price that wouldn't be subject to big swings.
"It seemed like the whole purpose of the auction was to prevent that kind of big move from happening," said Barry Randall, portfolio manager for the First American Technology Fund. "If it's not a failure, it clearly didn't work the way Google's management intended it."
Google shares finished the day at $100.34 with more than 22 million shares having changed hands, making it among the 10 most active issues on the Nasdaq Stock Market. The closing price was $15.34 higher than the final IPO price set by the auction, but still lower than the $108 bottom of the company's initial range.
The stock's rise isn't likely to generate many complaints at Google, underwriters or anyone else holding the appreciating stock. But it's a letdown for the company, which only profits from the 14 million initial shares it sold at $85 each.
In the end, the IPO raised $1.67 billion. If the stock had priced at the high end of the original estimate, at $135 apiece, the offering would have raised as much as $3.6 billion and given the company a market capitalization as high as $36 billion.
Google declined to comment. Its so-called quiet period extends for another 25 days, said spokeswoman Cindy McCaffrey. Still, in true dot-com fashion, the company was planning an IPO party Friday at its Mountain View headquarters.
The offering made co-founders Sergey Brin and Larry Page billionaires - at least on paper. From share sales in the IPO, Page collected $41.1 million and Brin got $40.9 million, but that pales in comparison to the more than $3 billion each still holds in Google shares.
Employees who bought stock on the cheap or were granted options also stand to profit handsomely. Within the next 180 days, they will be allowed to sell shares and pocket real cash.
"There's going to be a lot of liquidity that hits the street over the next couple of months," said Scott Kessler, an Internet equity analyst at Standard & Poors.
Celebrations, however, are likely to be more muted in the offices of Google's underwriters, who will share just $46.7 million for handling the IPO, according to a filing Thursday. That's just a 2.8 percent commission, a fraction of the typical 7 percent they usually receive.
Google's lead underwriters, Credit Suisse First Boston and Morgan Stanley, refused to comment, citing the quiet period.
Google's IPO price was set Wednesday after the close of an unusual auction in which would-be investors bid how much they thought the search engine to be worth. All winning bidders paid the same price - one that guaranteed the sale of all 19.6 million shares.
Though the so-called Dutch auction was designed to open the IPO beyond large investors who typically get first access to new stock issues, that's not clear what actually happened, said David Garrity, a technology analyst in New York with Caris & Co.
"It was supposed to democratize the process and let people buy in at just a few shares, but it was a miserable failure because the organizers didn't realize the securities regulations that require people who bid to have a certain net worth," he said.
The unusual process could have sidelined many investors who were put off or locked out for any of several reasons. International investors, for instance, were barred from participating.
And many might have been scared by Google's initial per-share price estimate, which was lowered long after registration for the auction ended.
"Even though Google brought down the range, none of those people were allowed to participate," Kessler said.
Now, Google is publicly traded in a familiar forum, the Nasdaq Stock Market.
Still, most analysts expect Google's stock price to be volatile, both because of missteps leading up to the IPO and its executives' statements on how they run the company.
Since Google's first filed to go public in April, it's painted itself in regulatory filings as an untraditional company. Its leading position as a search engine and hot stock prospect quickly led unprecedented attention that both revealed several warts and raised doubts about its executives.
Before any shares were sold, the company announced that it was the subject of regulatory attention for failing to register pre-IPO stock and options as well as its founders' Playboy magazine interview, which appeared during the quiet period.
Now, investors must both digest the implications of those missteps and the company's structure.
Unlike most companies, Google's public shareholders have no control over the company's future. Each share of stock held by Google's founders, executive officers, board members and employees carries 10 votes. The stock traded publicly carries just a single vote.
Authority within the company also is centralized in a triumvirate of founders Brin and Page as well as CEO Eric Schmidt. Together they hold 37.6 percent of the voting power. As a group, the executive management team and directors control 61.4 percent.
Filings list several other idiosyncrasies that investors will find significant. For one, it has no intention of providing future financial guidance. For another, the company says it will make decisions based on long-term potential, not short-term pop.
Still, it's worked for Google as a private company - during which time it's remained profitable and continued to grow even during the tech collapse.
Analysts say it's also a positive sign that Google's early investors did not immediately cash out. Both John Doerr of Kleiner Perkins Caufield & Byers and Michael Moritz of Sequoia Capital had originally planned to sell more than 2 million shares each, but those numbers were reduced to zero early Wednesday.
"That's a sign they believed in the valuation and therefore didn't want to let any stock go - which is a positive," said John Tinker, an analyst at ThinkEquity Partners, which recommended the stock Thursday.
The investment firms won't be able to cash out immediately, however. They must hold onto the stock for 180 days - during which time it may or may not still be above $85 a share.