Search Engine Defies Critics

Google defied its critics yesterday when the company's shares raced to a 21% premium on their Nasdaq debut.

The shares had reached more than $103.25 (£56.36) a piece in early afternoon trade on Wall Street, providing the search engine firm with a welcome fillip after weeks of negative publicity and lukewarm demand for stock in its initial public offering.

In the early hours of yesterday morning, Google set its offer price at $85 a share, the low end of a range that had already been revised downward.

The jump in the price in the first few hours of trading suggested many investors wanting a piece of Google had decided to wait out the unusual auction process used by the company to allocate shares in its IPO.

Google alienated many on Wall Street by using the auction to open the process to more retail investors and cut the fees to investment banks. The banks involved made 2.8% instead of the usual 7% charged during a conventional book-building process.

By using the auction process it had hoped to set an optimum price that would keep a lid on the shares over the first few days of trading and discourage short-term profit takers. It now appears the auction could have had the opposite effect by deterring many potential investors from taking part ahead of the market debut.

There was some speculation on Wall Street that the company might have deliberately priced the offering low to give it a good opening day.

Google stumbled a number of times on the way to its debut, disquieting potential investors by admitting it had forgotten to register shares awarded to workers and then giving a interview to Playboy magazine which could have broken SEC rules. Typically, there was a final glitch yesterday when some erroneous trades were placed before trading officially began, and the price appeared to reach $136.

The flotation still ranks as one of the largest technology IPOs to date and completed in the teeth of a market that has turned increasingly hostile since the company first announced its plans. The price in early afternoon gave Google a market capitalisation of about $28bn, compared with Amazon.com at $16bn.

The company founders, Sergey Brin and Larry Page, were on hand to ring the opening bell that marks the start of the trading day.

"There were a lot of institutional investors who were spooked by not only the initial auction scenario but also the missteps along the way," said Barry Randall, a portfolio manager for the First American Technology Fund.

"I suspect many of them did regard it as a healthy business model, and now they have the ability to purchase stock from the open market I think they feel more comfortable."

The deal generated almost $1.7bn. The firm made $1.2bn from the sale of 14.1m shares, while Mr Brin banked $40.9m and Mr Page collected $41.1m. Their remaining stakes in the company are worth $3bn each.

Google had set its original price range at between $108 and $135 but was forced to reduce its forecast on Wednesday, appearing to confirm reports of weak demand. The company also pared back the number of shares on offer from 25.7m to 19.6m.