The Investment U E-Letter: #332
Monday, April 26, 2004

Don’t Buy Google
By Dr. Steve Sjuggerud
President, Investment U

With up to $100 million in investment banking fees on the line, you can bet you’ll hear a lot about Google’s upcoming IPO. You’ll even get a chance to buy it. But please, for your own good, don’t buy

Morgan Stanley and CSFB, the two firms in line for the huge payout in investment banking fees, will likely shove this deal down our throats when it’s finally available. It will sound irresistible. It will be one of the largest initial public offerings ever. And the hype around it will be similar to Netscape’s IPO in the late 1990s, which kicked off the Internet boom.

You remember Netscape, right? Netscape was an Internet browser. I say was, because according to current statistics, Netscape has less than 1% of the browser market today. While Netscape may have led the way, Microsoft now dominates, with its Internet Explorer browser.

We all know that Microsoft lets someone else figure the business out, then Microsoft powers in and takes over. In the search-engine world, where Google operates, Microsoft is gearing up to compete. And the competition is already tight, with Yahoo!, Google and Microsoft in the top three spots. AOL is not far behind. (And then there’s Ask Jeeves.)

Here are a few critical questions to ask yourself about the upcoming IPO – questions that could save you from falling prey to the hype

The Questions We Need Answered

Can Google win the search engine wars? Maybe. With Yahoo! and Microsoft, the competition will be tough.

Can Google make an extraordinary profit? Most likely no, with such exceptional competition and a relatively homogenous product.

Can investors make any money in Google? No. The shares will most likely be priced richly. The shares will be valued with the most optimistic of targets. Any disappointment will lead to a big fall in share price.

Even worse, the founders of Google haven’t shown themselves to be interested in maximizing shareholder value

Google’s Goofy Founders

Google is expected to have a market value of up to $25 billion, making this little Internet search engine a larger business than Nike or Sears. While most businesses are run to generate a profit, Google, it seems, hasn’t been run this way

Bloomberg news reported today that “Google Inc.’s hesitancy to undertake a public stock offering may be the result of a long-running battle for control between its two founders and the financiers who first backed the Internet search engine. The two founders, Larry Page and Sergey Brin, who own perhaps 40 percent of the company, could become billionaires several times over if they take it public, the Times said. Yet they are less interested in cashing out than in maintaining their ability to direct Google’s strategy and style.”

While one can respect the founders’ wishes, this is business. They are competing with Microsoft and Yahoo!

Again, will Google be successful? Maybe. Will it make extraordinary profits? Probably not. Will it be a great stock to own? Most likely, no

Use Google as a search engine if you like. But when shares are offered to you amidst a ton of hype during the IPO, don’t get suckered

Today’s IU Cribsheet

• Above I quote from Bloomberg news I highly recommend you check out the web site (www.Bloomberg.com). You can read the article in its entirety there, plus check out the site’s other features.

Good investing,

Steve

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