Googling Future With Ghost of IPOs Past

Editor's Note: This marks the debut column of Aaron Pressman, senior market columnist. He most recently wrote about mutual funds, including the latest scandals, for Bloomberg News in Boston. Before that, he worked at publications ranging from The Bond Buyer to The Industry Standard. His past beats include IPOs, bond trading, derivatives and banking regulation. We welcome your feedback.

Google's much-anticipated IPO guidance announcement Monday sparked a heated debate over the Internet search engine's valuation. Predictably, Google is being compared with current Internet bellwethers but the hyperbole also recalls the 1990 initial public offering of another California technology company started by a pair of Stanford University alumni: Cisco Systems (CSCO Quote).

The brain-child of Stanford University grad students Larry Page and Sergey Brin, Mountain View, Calif. Google said it expected to raise as much as $3.3 billion, or $135 a share, at the IPO before paying underwriting fees. That would give the company a stock market value of over $36 billion.

The value approaches Yahoo's (YHOO Quote) $38 billion market capitalization and, as many pundits noted, is slightly more than that of McDonald's (MCD Quote). Unmentioned in such facile comparisons is McDonald's $9.1 billion in long-term debt, as of March 31, compared to Google's all-equity balance sheet.

Many observers were quick to heap scorn on Google's projected pricing range. One pundit said the stock could fall 50% within days of the IPO and a fund manager cited by Reuters said Google was priced for perfection -- setting investors up to get hammered. Pessimists think Google is in a commodity business about to be overtaken by Microsoft (MSFT Quote).

Bill Miller, manager of the (LMVTX Quote)Legg Mason Value Trust fund, disagrees. The man who has beaten the S&P 500 for an unprecedented 13 years in a row has said he'll be a bidder at the IPO's unusual Dutch auction, but hasn't disclosed his price.

"Google's a much different business than just a search business," Miller told reporters during a briefing at Legg Mason's Baltimore headquarters on May 26. "And even if it is, I can see what their cash flow is doing right now," he said pointing an arm towards the ceiling.

Google hasn't included a cash flow statement in its Securities and Exchange Commission filings yet, but cash and short-term investments on its balance sheet increased by more than $200 million to $549 million in the first half of this year -- about 15% of revenue and almost 50% more than total net income for the six months.