so you want to invest in google

so don’t we all. or do we?

since i’m a freelance angel investor i figured i could give some quality advice to the people not in the know.

no but honestly, i’m not an expert by any means, though feel i can get a pretty good idea about a company and where they might be headed after doing some research - so here is what i do know: i’ve never ever ever been so completely unsure and so completely confused about the future of a company than i am with google right now.

while most companies will come out blasting warnings about earnings due to such and such in the future and potential long term effects of bla bla, never have i seen anything like this:

(selected pieces from prospectus & not in any specific order)

Google is not a conventional company.

If opportunities arise that might cause us to sacrifice short term results but are in the best long term interest of our shareholders, we will take those opportunities. We will have the fortitude to do this. We would request that our shareholders take the long term view.

Many companies are under pressure to keep their earnings in line with analysts’ forecasts. Therefore, they often accept smaller, predictable earnings rather than larger and less predictable returns. Sergey and I feel this is harmful, and we intend to steer in the opposite direction.

Our business environment changes rapidly and needs long term investment. We will not hesitate to place major bets on promising new opportunities.

We will not shy away from high-risk, high-reward projects because of short term earnings pressure. Some of our past bets have gone extraordinarily well, and others have not. Because we recognize the pursuit of such projects as the key to our long term success, we will continue to seek them out. For example, we would fund projects that have a 10% chance of earning a billion dollars over the long term. Do not be surprised if we place smaller bets in areas that seem very speculative or even strange when compared to our current businesses. Although we cannot quantify the specific level of risk we will undertake, as the ratio of reward to risk increases, we will accept projects further outside our current businesses, especially when the initial investment is small relative to the level of investment in our current businesses.

In the transition to public ownership, we have set up a corporate structure that will make it harder for outside parties to take over or influence Google. This structure will also make it easier for our management team to follow the long term, innovative approach emphasized earlier. This structure, called a dual class voting structure, is described elsewhere in this prospectus. The Class A common stock we are offering has one vote per share, while the Class B common stock held by many current shareholders has 10 votes per share. New investors will fully share in Google’s long term economic future but will have little ability to influence its strategic decisions through their voting rights.

use of proceeds:
We currently have no specific plans for the use of the net proceeds of this offering. We anticipate that we will use the net proceeds received by us from this offering for general corporate purposes, including working capital. In addition, we may use a portion of the proceeds of this offering for acquisitions of complementary businesses, technologies or other assets. We have no current agreements or commitments with respect to any material acquisitions. Pending such uses, we plan to invest the net proceeds in highly liquid, investment grade securities.

risk factors, a few of the many included in their report:
We face significant competition from Microsoft and Yahoo.

We expect our growth rates to decline and anticipate downward pressure on our operating margin in the future.

Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.

We generate our revenue almost entirely from advertising, and the reduction in spending by or loss of advertisers could seriously harm our business. – (About 98%)

and if you didn’t know the following already you may find this interesting:
We encourage our employees, in addition to their regular projects, to spend 20% of their time working on what they think will most benefit Google. This empowers them to be more creative and innovative. Many of our significant advances have happened in this manner. For example, AdSense for content and Google News were both prototyped in “20% time.” Most risky projects fizzle, often teaching us something. Others succeed and become attractive businesses.

financially speaking:
generally a good thing when revenue increases 86 fold, then 5 fold, 5 fold, 5 fold, and most likely 3 fold at the end of fy’04.

generally a good thing when net income goes from (in thousands): ($14,690) to $300,000+ in just 4 years.

but if you broke this down by quarter then you could almost cry because the numbers fluctuate so much, which will speak trouble in years to come because investors live and die by the release of quarterly results.

cost of revenues is floating around 40-48% of total revenues. for normal companies this would be great, the product has a high mark-up. for an abnormal company like google this is bad, what exactly is their cost of this revenue? remember, the only thing they make money on is ads. understandably, part of the cost would be expenses associated with operating their data centers (which might include depreciation, energy and some bandwidth costs), and the costs associated with processing customer transactions for the ads. but these costs are insignificant compared to what the real costs of revenue are - the real costs associated with revenue are the traffic acquisition costs, or, payments made to their google network members. while i can’t get a good enough answer from google about what these costs actually are, i am incredibly curious, because at the end of fy’04 this may cost them as much as a billion dollars, and i feel like a fool not knowing what the christ these are!

net income:
insane fluctuation, once again. 8% of total revenues, up to 22%, down to 7% and now at about 10% over the past 4 years. what would cause this? the inability to manage growth, or, inability to manage the costs and expenses related to doing business. r&d, sales and marketing, general and administrative costs, interest income or loss, these all will fluctuate rapidly as a company grows, and being able to manage them while on the way up is a hard thing to do. steady and predictable growth leads to predictable net income. google does not or will not have steady growth and as a result they will have an incredibly hard time managing costs and expenses associated with their business constantly doing well then poorly then well and so on.

generally speaking:
i like how honest and straightforward google is about where they think the company will be going. they don’t have the faintest idea. they don’t have a clue what will become of them 3-5 years from now. they don’t have a clue as to how they’ll spend the billions from this ipo. they don’t have a clue as to how exactly microsoft and yahoo! will effect their business in the near future. they don’t care about managing growth and smoothing out quarterly results and end of year numbers. they don’t want the public to come anywhere near close enough to actually own a significant share of the company. they sell one product and one product only and have no plans whatsoever of changing this anytime soon (at least they didn’t disclose any information about this, which probably would have been an excellent idea). none of these things are typical, or even close to typical for your normal public company or normal company going public. not even close. very close to what every other internet stock was.

is there anything more interesting than researching a company like this? no. no. simply no.

we have a company that the majority of people will be scarred and terrified of investing in.

or do we?

we have a company that people will grab a hold of and ride for a few years, believing that good things will come in time, that the high-risk/high-reward promise will pay off.

i don’t know, i simply don’t have a clue. i think that after the ipo this stock could see some of the most drastic swings we’ve ever seen in a stock before – history would tell us that its in for some wild times, especially the first year or two. the problem, or maybe the good thing is that this company will have money. they’ll be profitable this year, maybe next year, and they’ll have plenty of cash on hand to invest in whatever they want to after the ipo. we’re not talking about a company that’s been around for 4 years and is looking for an ipo to get out of debt, much the case with every other internet stock ipo.

i do know that i’m completely excited about this company, and excited to watch what it does. i’m excited for the release, i’m excited to see what they do with the money, and i’m excited to see their numbers at the end of the year.

we have 3 months till the release, 3 weeks, 3 days, who knows?!