Google IPO: No longer a sure thing?

Fresh concerns about shares issued improperly to insiders and signs of weaker-than-expected demand are creating last-minute reservations about the deal--an oddball offering that's nevertheless expected to be among the largest and highest-priced in recent history, if it proceeds as planned.

Having once heralded the Google IPO as a surefire success that would bring an important boost to the investment-banking industry, some on Wall Street are now changing their tune.

At least two equity banks have speculated that Google would postpone its IPO, based on both the SEC problem and what they believe is lukewarm interest from investors.

"There is unconfirmed speculation that Google is considering pulling its IPO, due both to a poor reception for the offering and the issue reported yesterday with shares issued to employees and consultants that it failed to register," read an internal memo circulated this week at one bank that was seen by CNET News.com.

Mountain View, Calif.-based Google is preparing to raise as much as $3.3 billion in an offering that could happen as soon as next week, according to bankers familiar with it. But as the launch closes in, the search company is being inundated with negative publicity that paints the IPO as overpriced and undesirable.

That's a sharp reversal of fortunes for a company that only months ago was seen as powerful enough to essentially rewrite the book on how technology IPOs are done.

Google has been full of surprises for Wall Street and investors from the moment it filed plans for the offering with the U.S. Securities and Exchange Commission.

The company has angered some people in the investment community for what they call its hubris and its unorthodox approach to the IPO process, which covers everything from its dual-stock plan to the "Do No Evil" mandates laid out in its prospectus.

"Institutional and retail investors are taking a wait-and-see approach. There is no real advantage to owning the stock before the IPO," said one investment banker, whose firm is participating in the offering and who asked not to be identified.

Unlike traditional IPOs, Google's stock launch will feature a Dutch-style auction format that aims to democratize the sale process and give individual investors a better crack at buying into the company. But that has alienated institutional investors, which typically have the option of setting the initial share price and of buying in early so that they can get a "pop" from the shares on the first day of trading.

Google recently set a range for the IPO sale price of between $108 and $135 a share. Even at the low end, that would put it among the highest-priced public offerings in recent memory.

But now that Google has written its own ticket, it seems that many people don't want to buy it, despite the company's popularity and influence. Some investors have complained the price is too high--something that is largely scaring off retail investors.

"Google stock is not worth the investment at all?I was getting excited a few months back, planning to invest $100,000 to the IPO. But at that price, I might just buy other stocks that have room to move," one investor wrote on the Google IPO Central discussion forum. "Basically, at that price, I would make more money if I collect the interest from the bank."

Amid these growing signs of backlash, Google on Wednesday released an amendment to its SEC filings disclosing that it had issued shares to employees and consultants in violation of securities laws. The company is offering to buy back 25.6 million of the tainted shares, but it is uncertain whether shareholders will agree to do so, and how the slip-up might affect its IPO.

Google's proposed IPO is not the only high-profile offering to hit a stumbling block with the SEC.

Salesforce.com, which develops customer relationship management software, was forced to delay its offering twice--once when it needed to reconfigure its historical accounting for its sales commissions and again for a "cooling off" period after its chief executive was profiled in a New York Times article. Ultimately, the company made a successful debut in its IPO.

One equity manager, who asked to remain anonymous, said Google had three possible options open to it. It could take the relatively minor step of postponing its IPO until the fall. (Companies, including eBay and Goldman Sachs, have postponed their IPOs.) Secondly, it could lower the initial share price to between $90 and $110, which would likely be more advantageous to investors. Thirdly, it could float a smaller number of shares, dropping from the 25 million currently planned to around 22 million.

Representatives from Morgan Stanley, Google's lead underwriter, said that no date has been set for the IPO.

What may be playing into weak demand on the part of institutional investors is that access to Google's road show for prospective buyers has been limited, baffling some fund managers.

Paul Cook, portfolio manager of The Munder NetNet Fund, Munder Future Technology Fund and Munder @Vantage Fund, said he has requested a conference call with Google's management team.

"I haven't been given access to them as I had hoped," Cook said, adding, "I'm surprised, given I have a good relationship with the banks involved."

Although Cook declined to say whether or not he plans to invest in Google or to what degree if any the lack of meeting with the company's management will affect his investment decision in the company, he did outline his general investment philosophy.

"Financial performance is important to me and is 90 to 95 percent of how I value a company," Cook said. "Management does work its way into the equation, but it's a small part of it."