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Google's IPO Trading Defies Dutch Auction Logic?
Posted by
CowboyNeal
on Thu Aug 19, 2004 10:07 PM
from the opening-day-hijinks dept.
from the opening-day-hijinks dept.
TopShelf writes "Today's first-day trading gains for Google may not have just been the result of ambitious day-traders. This story from CBS Marketwatch alleges that Google deliberately set the $85 IPO price well below the true clearing price of their Dutch Auction, and issued fewer shares than expected, perhaps with the intent of limiting supply and assuring themselves a nice runup during the first trading day. In the story's informal survey, winning bidders only received 75% of the shares they should have."
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A good idea? (Score:5, Interesting)
I think the strategy could actually backfire on Google - since decent short-term gains are now attainable, many bidders will cash out early (a scenario they were hoping to limit via the Dutch Auction process).
Just MHO, but it'll be very interesting to see where the stock heads in the coming weeks.
Re:A good idea? (Score:5, Interesting)
Also, with this technique, Google gets a _lot_ more money--to their credit (well, actually it is also in their best interest), they did leave enough money on the table so that people would want to bid for the auction.
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Re:A good idea? (Score:5, Insightful)
I think the story has another explanation: Institutional investors stayed out of the auction, hoping that the IPO would fail for "ideological" reasons* and betting that the price would drop drastically when trading opened. Seeing that the price wasn't dropping, they began to pick up shares here and there, further boosting the price on the first day.
*Google's dutch auction IPO is a slap in the face of the investment banks and the institutional players, since neither is able to get their usual unfair advantage.
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Well for now (Score:5, Insightful)
I don't know what Google could have done to please people here. If they set the price too high they're overpriced and foolish. If they set the price too low they're "causing a pop" and greedy. At this point, I'm just going to shrug and get on with my life.
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and how is that different.... Re:A good idea? (Score:3, Interesting)
this way, everybody with a winning bid got stock, and had a chance to quick turn it around for a hot gain if they so desired.
backfire, hell, they did good and didn't lose hundreds of millions
Re:A good idea? (Score:3, Interesting)
I'm just beginning to study these things. So, given that they're just making their IPO, does it really matter if there are big fluxuations in their share price now?
I mean, suppose there are a bunch of people who try to reap the profits by selling their shares. It's not as if Google has to buy them back, so they're not out any money.
Now sure, this dumping will push the price down, and therefore the book
Google ad (Score:4, Funny)
Poor Google (Score:3, Insightful)
Re:Poor Google (Score:5, Insightful)
Welcome to America, where it is popular to bash capitalism while you practice it. Its odd that so many people equate success with "selling out", or see being profitable as evil. The irony is, no matter how great the technology of Google is, it would be irrelevent if they couldn't pay the bills with it. As long as Google doesn't get big headed, it will pass.
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Re:Poor Google (Score:5, Interesting)
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Re:Poor Google (Score:4, Funny)
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Re:Poor Google (Score:3, Insightful)
Defend them from whom? which countries are lining up to invade Canada, dare I ask.
Re:Poor Google (Score:4, Funny)
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Re:Poor Google (Score:5, Insightful)
The only country who would ever be even marginally likely to do so has a military so powerful that we could never defend against it regardless of what we spent.
Canada needs a military like a fish needs a bicycle.
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Note to self: (Score:5, Funny)
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Re:Note to self: (Score:5, Funny)
You tried twice already. Both time we kicked your ass despite supurior forces. Try it again and we'll burn down your white house again. Our um... super lumber jacks and err.. war mooses will ravage your punny national gaurd.
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Re:93% of canadians prefer their healthcare to our (Score:3, Insightful)
Re:Poor Google (Score:3, Insightful)
The problem with this is that it is more than motivation, it is necessity. Health care isn't something someone can just give up. This means employers have a huge amount of power over their employees. This power gap makes abuses more likely. Unions can help this to an extent but its not a perfect solution.
Who cares? (Score:4, Interesting)
Re:Who cares? (Score:5, Insightful)
Maybe it won't happen right away, but I see Google turning into a useless advertising poisoned portal someday which takes an hour to load on a DSL connection and doesn't work on anything but MSIE.
-Zorin the Pessimist
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Re:Who cares? (Score:5, Insightful)
Not to mention, that the 'Google Guys', and the board, still retain absolute control over the company. At no time since they got big, has Google not been out there to make money. They aren't evil, but they aren't a charity either.. So it seems a bit premature to go all chicken little and run around crying 'Google is turning into Yahoo!'.
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Re:Who cares? (Score:5, Insightful)
In a private company, it's enough to pay the bills, pay your employees, have happy and loyal customers and make yourself a nice chunk of cash in the process. You're happy to pocket $5mil every year for yourself, but wallstreet wants $5m this year, $10m next, $15m the net and $50 the one after that, until the only way to continually see huge profit margins and increases is to resort to some shady business - or watch your company turn to shit and crumble (Sun Microsystems).
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Ummm .... (Score:4, Informative)
That is largely affected by how many shares the company retains for itsself.
If the founders still control a majority of the shares and don't plan on dispersing them, then all they've really done is allow others to join them on the magical carpet ride, and to raise a lot of money for financing operations.
Wall Street doesn't actually get to say a damned thing about the operation of your business. They can expect things, and the analysts can say what they expect to see happen. Those expectations might affect buy and sell orders. [Which you correctly point out could cause a floundering company to do stupid things.]
As a matter of fact, since no large institutional investors were really involved in this, there isn't some big megacorp who can now say "OK, time to start being evil like everyone else is -- begin the baby-grinding operations".
If you had the scratch you could buy shares in Warren Buffet's company [berkshirehathaway.com]. You sure as hell can't tell him how to run his business because he retains a controlling share.
Now, if they keep dispersing shares and a large controlling stake ends up in the hands of someone who is all about corporate greed, what you say could happen.
But in general, going public to a degree isn't an automatic trip into corporate evils.
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Re:Who cares? (Score:5, Insightful)
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Re:Who cares? (Score:5, Informative)
Actually, the shares they are selling are NON_VOTING shares, so the pressure is not as great as you think.
Factually, you're completely wrong. But you're basically right.
The shares being sold are class A common stock, with one vote per share, just like the common stock of just about every other company. However, the founders and certain insiders are holding class B common stock, which has 10 votes per share. The net result is that the public shareholders have a very weak voice. In fact, if the Google insiders maintain a united front, the public shareholders are massively outvoted. That was arranged on purpose, because people at Google were concerned about the effect going public might have on them.
They thought about this danger, and took steps to prevent it, at least until the holders of class B common shares either sell or die (in which case the B shares automatically convert to A shares, one-to-one, meaning that what was 10 votes becomes one vote).
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Of course, green is good karma (Score:5, Insightful)
Almost right.... (Score:5, Insightful)
So then it went up $15 the first day, instead of dropping $5.
So it's still funny business as usual. Had they not changed all the numbers the day before, it would have been completely different, and very likely would not have moved much.
Wacky (Score:5, Insightful)
From http://www.nytimes.com/2004/08/18/technology/18CN
Two of Google's big early investors, the storied Silicon Valley venture capital firms Kleiner Perkins Caufield & Byers and Sequoia Capital, decided to withdraw their combined 4.5 million shares from the auction early yesterday, betting they can get a better price at some point in the future.
Re:Wacky (Score:5, Insightful)
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Um. (Score:5, Insightful)
I think about the only thing to take away here is "no one fucking understands the stock market, and anyone who claims otherwise is selling something".
Actions in line with original statement (Score:5, Insightful)
IANADT, but it seems that an upward movement was almost inevitable, given the pre-set condition that the price would be set such that fewer shares would be received than "won".
What is the big deal about this anyway? (Score:5, Insightful)
So a company made an IPO. Wow.
Not to sound like a troll, but people are clamoring about this and I just don't get why. I use google as much as the next person and they're a good company, but what does it have to do with the stock market?
Do people think this is a magic pot of money? Just because it's google doesn't mean it will constantly increase in value. Just because it's google doesn't even remotely guarantee that the stock will perform well. That's all at the hands of the traders.
So really now, what is the big deal all about?
Re:What is the big deal about this anyway? (Score:3, Insightful)
Google did the right thing. (Score:5, Insightful)
Google's valuation is pretty rich :
CBS says it's 23 billion. General Motors is 23 billion. Is google worth GM? I don't think so. The current $100 price should shrink quite a bit as the the entusiasm wears off.
Google is sitting pretty for the moment, I hope their employees and early investors can pull a little bit out while the price is still high.
Screw Wall Street, they were denied insider's cut and kudos to Google for being patient and suceedding in doing it a different way.
Google may be worth more... (Score:5, Interesting)
GM is sitting in a saturated market, getting smacked around by foreign competition and high oil prices, and has an unfunded pension liability in the billions...
The REAL underfunding of the pension, if pension math wasn't SO rediculously warped as to make it look like it isn't a problem, GM is probably rightly valued at the price of Google... Remember, Assets = Liability + Owners (Shareholder's) Equity, OR, Shareholder Equity = Assets - Liabilities...
Sure GM has a LOT of assets, but they have a LOT of liabilities, some of which are hidden from the balance sheet by the insanity of pension math...
BTW: I think that Google and the Internet companies are RICHLY valued and priced for perfection... However, if they can MASSIVELY grow earnings over the next few years, they may grow into those valuations... i.e. grow earnings at 100% this year, and halve your P/E ratio, and the stock price is flat... Don't lose hype/momentum/confidence, and your P/E will shrink slower than that. By the time Google's P/E drops to "market averages" (when they aren't high-tech growth anymore, 15-30 years), they should have plenty of time to increase earnings to make up for it.
Alex
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Sign of the devil (Score:5, Funny)
seems okay to me (Score:5, Insightful)
With the auction the pop was smaller and the company got more cash.
I think they did all right.
You're going to hear a *lot* of noise about this from those bankers and wall street types that would've preferred the $15 to $100 pop. They will float all kinds of rumours about google just to make sure nobody else tries to price their IPOs more fairly in the future.
Follow the money, as usual...
GOOG for the masses (Score:5, Interesting)
It is very uncommon in an IPO to get even half of the bidded shares.
CBS marketwatch is just going along with the unhappy crokers / brokers that are not receiving their $1/share commissions because the Google guys decided to let you and I have a fair shot at investing in GOOG via a true public auction.
Conspiracy against Google? (Score:5, Interesting)
So reading that I thought, I wonder if there will be a bunch of negative press about Google now? Since then, sure enough, nothing but negative press, rumors, bad mouthing. It's enough to make me wonder if the Wall Street crowd worked hard to make Google look bad so that other companies wouldn't do something similar. But I have no idea if this is accurate, or just coincidental. Anyone heard anything?
Re:Conspiracy against Google? (Score:3, Interesting)
Re:Conspiracy against Google? (Score:3, Informative)
May be a 50-50 sort of thing: Short term, they are hoping for a good pop to help the market. Long term, they don't want to give up their good thin
Life is like a box of chocolates.... (Score:4, Insightful)
The fact that Google were able to bypass so much of the existing IPO infrastructure upset the investment banks. Normally, the banks work on a principle that they can always unload the nut centres on the promise that the customer will get a couple of juicy soft centres next time round. There are many companies that would find an IPO much more difficult so the idea of having some 'sweeteners' around is always useful for them.
If the best looking issuers bypass this mechanism then the banks will have less of a possibility for unloading other shares.
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dutch, going to go up regardless (Score:3, Interesting)
lowballing ok, non-transparency bad (Score:3, Interesting)
NOT being up front about it is not.
For example, they could've said (and I've simplified the #s) something like "we will sell 5 million shares and existing stakeholders up to 2 million. We will price our IPO at the bid of the 8 millionth share and allocate a 100% allocation to the bids for the top 5 million shares and a porportional allocation to the next 3 million shares."
If stakeholders sell only 1 million shares then the lowest-3-million shares will receive only a 33% allocation.
This would be nice and transparent, and would give an incentive to bid high.
Re:lowballing ok, non-transparency bad (Score:3, Informative)
Shares Allocation (Score:4, Informative)
https://www.ipo.google.com/data/prospectus.html
In the event that the number of shares represented by successful bids exceeds the number of shares we and the selling stockholders are offering, the offered shares will need to be allocated across the successful bidder group. We, in consultation with our underwriters, expect to use one of two methods to do so--pro rata allocation or maximum share allocation. With either method, our objective is to set an initial public offering price where successful bidders receive at least 80% of the shares they successfully bid for in the auction. We do not intend to publicly disclose the allocation method that we ultimately employ. Once we choose an allocation method, we will not change it.
Check your mutual funds... (Score:4, Insightful)
The IPO shares had a pop of about $13 on day one, which clearly indicates that there were a lot of people who wanted in on GOOG stock but didn't get it out of the Dutch Auction process so they were willing to offer a premium to the first Dutch Auction winners who were willing to sell and bank an instant profit.
I suspect that there were many "institutional investors" who boycotted the Dutch Auction simply because they didn't like it, as it takes the ability to bank instant profits away from them and instead gives it to the average investor. However, mutual fund managers represent a whole bunch of average investors at once... when they lose money, they're losing their customer's money.
If any of your mutual funds turned out to have paid more than the IPO price for GOOG stock yesterday, sell the fund today. Your manager spent some of your money trying to make the Dutch Aution process look bad. If he was willing to pay $95 per share for GOOG in the afternoon, he should have been willing to bid $95 per share in the Dutch Auction, which would have resulted in the same shares for less money.
The Dutch Auction is just a different way of doing an IPO, one that upsets the big boys because everybody gets to come out of the gate at the same time with no advantage for them anymore. This instant-pop seems to indicate that some people were waiting for GOOG to hit the NASDAQ system and not playing in the Dutch Auction, and if somebody was doing that in your name I don't think you want them controling your money any more.
Re:It's all fucked up (Score:4, Insightful)
Just because Google is "cool" doesnt mean that it is a great place to invest your money. Seems to be way too many people on here who talk aobut how great a buy Google is, without backing up that claim with fact.
The Google market share is not going to grow much further, and with Microsoft about to launch a big search engine of its own to try to take on Google, Google's market share can only really go downhill from here. Unless they start coming out with some very innovative ideas, I cant see how the stock prices will increase much further.
And here I thought we had all learned our lesson about buying over-hyped tech stocks with cool sounding names.
I am genuinely curious, why would any of you buy GOOG shares at their current prices? Besides day trading I wouldnt touch GOOG.
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It was a mistake (Score:5, Informative)
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Re:yeah! (Score:5, Insightful)
No, nothing dishonest, not even unethical. In fact, you could go so far as to say they had the single most "honest" IPO in history.
Rather than the norm of paying a group of "experts" to decide a good starting price for their shares (which invariably results in those experts setting the price WAY too low so their buddies can all make a killing when the price goes up), Google basically asked the actual public what price they would pay to get a good estimate. Thus, Google made far more than they would have otherwise, while starting their stock at a realistic price. This annoyed the experts, their buddies, and all the middlemen who would have gotten a cut (by "a cut", read "the lion's share of the IPO").
The "controversial" drop in starting price you can consider an incredibly saavy move - It guaranteed that the price would go up a bit, but not so much as to get the same sort of unrealistic bubbles that killed so many dot-coms. Sort of a built-in reward for those who jumped in on the IPO, but not so much as to look unsustainable.
I don't quite understand the details of this part, but they somehow also managed to make sure that real people (rather than only Wall Street scum) could buy shares. Naturally, this caused a great deal of annoyance to the Wall Street scum who would normally profit from such an IPO.
Overall, they joined The System while telling The System to piss off.
As an aside, even for those who would fault them for bucking the system, I would point out that they only joined kicking and screaming. Because they had gotten so big, even if they had stayed private, SEC rules would have kicked in that provide all the hassle of public trading but none of the benefits. Almost like telling someone "You make the best widgets around, so we'll take them. We'll pay you if you want, but we take them either way".
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