Yahoo! wants more of Google

INTERNET pioneer Yahoo! is reportedly seething over its allocation of just 5.5m shares in the upcoming Google float as controversy over the sky-high price of shares announced on Monday rolls on.

Yahoo!, headed by chairman and chief executive Terry Semel, is demanding more shares from upstart Google in a contract dispute stemming from the partnership that the two companies formed in 2000.

In its filing to the Securities and Exchange Commission, Google said that Yahoo! had been using search technology since June 2000 but nowadays contributed only 3% to Google revenues. Google said it was ending the arrangement this month.

Neither Yahoo! nor Google would comment on the specifics of the dispute but it is understood that Yahoo! is claiming that its contribution a couple of years back merits a larger share allocation.

Google says its share price when it goes public will be between $108 (£58.66) and $135. If Yahoo! sells the 549,888 shares it has been promised for the mid-point price of $121.50 it would net around $67m (£36.4m).

Not only is Yahoo! miffed at its share allocation, it is a party to the only lawsuit of note Google is facing, and which the company admits could hit future profitability. Google is being sued by Overture Services, which in 2002 when the suit was filed was an independent search company. It is now owned by Yahoo!

Overture claims Google's Adwords programme infringes its patent. Google is fighting the case but admits a loss would be damaging.

Google executives, meanwhile, have launched their initail public offering roadshow to 800 analysts at the Waldorf Astoria hotel in New York. The media was not allowed to attend.

The company discussed its latest earnings, which have disappointed some potential investors.

Google reported net income of $143m and revenue of $1.35bn in the first six months of 2004, up from net income of $58m and revenue of $559.8m in the year-ago period.

An analysis of the figures reveals that growth rates and margins came down, particularly during the last three months, as they did with other internet companies, but still not the sort of news that is welcome before a flotation.

One analyst, Connor Browne of Thornburg Investment Management, told reporters he was 'pretty disappointed' with Google's sequential revenue growth of 7% over the first quarter. A year ago that growth figure was 25%.