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Google Tries To Silence IPO Rumours
egoff writes "Google has put off an IPO for now, saying "Thus far, laziness has always won out. There are so many better things to do." The New York Post suggests that Google's focus on R&D doesn't really mesh with the financial accountability of a publicly traded company. However, many analysts believe a successfully Google IPO could rejuvenate Internet-company investments."
IPO's are simply a way for the company to raise money, in exchange for (partial) public ownership of the company. The fact that insiders usually get rich in the process is incidental, but Silicon Valley has now been operating for years on the idea that this is how you get paid when you're a rank-n-file employee at a startup.
Microsoft's IPO in 1986 is an interesting case - they were dragged to the IPO kicking & screaming. Think about it - Apple started in 1976 and IPO'ed in 1981 (at the time, one of the most successful IPOs in history). Microsoft started in 1975, and still hadn't IPO'ed by 1986. So what made them do it? Their employees had been using their vested options in lieu of cash when buying houses, cars, etc. For a privately held company, that's completely illegal, and as a result, the SEC forced them to go public. Even at that point, Microsoft didn't need to raise capital publically, BillG and company wanted to retain complete control of the company.
'ARRGH! Pirate Designers of the Internet, we be!'
It is too late for Google to be "free" - they are already beholden to the masters of greed - the Bay Area venture capital industry. Rest assured that Kleiner and Sequoia will put this baby on the market when its ripe. This is what they do. They do not feed the poor or care about your search results. They care about making a lot of cash. They need a Google IPO to rebuild the gutted venture market. They are not waiting out of goodwill - they are waiting until the pig is ready to be slaughtered.
Q: Do companies ever go "we dont care what the investors want. We will do what pleases us, not them."
All the time.
"Going Public" basically means that you, the owner, are offering a percentage ownership to the public in exchange for the public's money. On the plus side, you get a fresh infusion of money to do research, increase inventories, hire more employees, etc. On the flip side, you are now responsible to the investors to keep the company profitable, and every now and then kick back a slice of your earnings to your investors as dividends.
Shareholder rights are managed like a pure democracy -- majority rules. This is why you usually see that "Pres So-and-so" owns 51% of the stock in the company... so their vote can always override whatever the public decides, providing that they disagree with the public. This is where stock options have an effect; directors giving themselves gobs of company stock in place of salary.
Now, it's not a good idea to piss off your investors, because they'll just turn and sell your stock, and you have to pay that capital back. That's why there are quarterly reports (you know, those big books you throw away every 3 months) that tell the public the state of the company, and whether your staff is doing a good job making money (price to earnings ratio). And, like most of the IPOs of the late 90s, your up the creek if that investment capital is your operations budget, and people want their money back, because then *poof* you're bankrupt.
Whether Google goes public or not is less a question of whether it makes sense for them to stay private--clearly staying private has many many benefits strategically (treat employees better, don't have to disclose financials, not beholden to quarterly results), and such a private company could produce enough cash for the founders to live very comfortable lives. The real driver of a push to go public will be the venture capitalists that invested in Google. They have to get their investments liquid so that they can return money to their limited partners. These VCs likely have the voting power and/or legal clauses in their investment documents to force Google to go public, whether the management wants to or not.
--Spooky Action At A Distance
Having worked for both, I agre. Privately held companies are driven by one thing: Generating Profit. Publicly traded companies are driven by something else: Stock Price.
Publicly traded companies change thier focus from development of newer/better/cheaper product or service, to generating press releases showing partnerships with other publicly traded companies that may or may not actually have a worthwhile product/service. Publicly traded companies are just fine with skipping a partnership and announcing layoffs to achieve the same goal.
This seems to be a relatively new function for business, but one that has been true in my experiences. Hats off to Google for fighting the urge to IPO.
Squash
Squash
It's entirely possible that the founders might take on debt and go private. Interest rates are so low right now that's a very real option.
As for "rejuvenating the market", Google just isn't very big. After all, it's almost fully automated.
Any story that quotes a "financial analyst" as an anonymous source is probably bogus. They're not insiders here; they can speak publicly. The ones who like being on Squawk Box are best ignored, of course.
We have years of depression ahead. Years. The market is still way overvalued. P/E ratios are still far too high. See the chart I put on Downside. for July 22, 2002. The bubble still hasn't fully deflated. Stocks have another 40% or so to fall to get back to normal P/E levels.
Look at Japan, where the stock market has been in the tank for a decade now. That's happening to the US. The peak was three years ago, after all.
And, like most of the IPOs of the late 90s, your up the creek if that investment capital is your operations budget, and people want their money back, because then *poof* you're bankrupt.
What the heck is this? No company is ever obliged to redeem their shares for cash. People who want to sell their shares sell them on the public market, to other people, not back to the company itself. That's what the stock market is about.
People "wanting their money back" from stocks has no effect on a company's bottom line. Your suggestion otherwise is completely mistaken.
Of course, since the company was funded by Kleiner Perkins and Sequioa (ultra-establishment venture capital firms), the pressure to make the equity liquid comes from more than just the employees. With firms like KPCB involved, the decision on when to go public will be made on purely financial grounds... nothing to do with how soft and fuzzy it makes the employees feel.
Milo
Actually, apparently they have a really nice cafeteria that cooks gourmet food every day for lunch.
Google Food
Head down, go to sleep to the rhythm of the war drums...
Check out Amazon, AOL, and who can forget Dr. Koop.com for examples on why this could be a bad thing.
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