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Google IPO Swami
The Google IPO Swami writes: "I'm running an experiment and Slashdot readers would be good contributors. As you may know, Google recently announced that they will be using a unique dutch auction structure to price shares of their IPO. Instead of having the underwriters determine the opening price, the price will be set by the demand of investors that register to participate. I'm interested in how well the public can estimate this demand and the price of the shares to be offered. I'm giving away free shares in Google to find out. The person that comes closest to estimating the opening and closing price of the stock on the IPO date will win shares in the company."
One thing that this data will almost certainly show is that data entered today will we totally wild guesses and be totally disconnected from the real factors that determine the IPO price.
Macro-economic factors such as interest rates, price of oil, unemployment, and who the US President will be on the date of the IPO are still unknown. Hey, even the date of the IPO is still an unknown!
Bookmark the site and revisit it as Google gets further along the road to IPO. That's the only way to win at this game unless you're an extremely good guesser.
Martha Stewart has some "special" information she passed in to me.
NO GMAIL FOR YOU!
The person that comes closest to estimating the opening and closing
You mean the person that guess the first buying bid of the day and the price of the last buying bid of the day... I bet the first one will be higher than the last one. I like the 20 - 80 from the first poster but has it backwards. I bet its 80 and 20.
The contest entry form has some interesting subtexts to them...
3. Do you intend to place a bid for shares in the Google IPO? (Yes/No)
4. What price will you bid for Google shares? Enter 0 if you do not intend to bid. The value must be between 0 and 999, inclusive.
5. How many shares do you intend to bid for at this price?
Enter 0 if you do not intend to bid
There's the true motivation for this exercise. The person running this contest clearly states on his site that he's going to try to sell the results of the survey to people who want to have some way of peering into a crystal ball and determining what people would be willing to pay for Google before the dutch auction price is determined.
The day-trader investors who ususually love IPOs hate this Dutch Auction system because it gives them less room to try to buy up the early shares and then sell them the same day to people who wished they had gotten in on the IPO and are now willing to pay more to get their shares at market prices. (Smarter investors would place a limit order rather than a market order and just wait for the day-one spike to wear off and the price to be more in line with reality.)
11. Would you like to be contacted by someone to help you bid for shares in the Google IPO? You will receive one email if you say Yes. (Yes/No)
Talk about "highly targetted e-mail marketing list." That's sure to go to the highest bidder too...
This guy most certainly has a right to make a buck... we just should be smart enough consumers to realize that he's doing so by running this, and possibly withhold our information if we deem it too valuable to hand over.
It looks to me like the only piece of info needed to register is an e-mail address. With people here capable of supplying thousands of e-mail addresses each, I think you're looking for abuse.
I guess the price will be somewhere near $250 per share on the day of the IPO and down around $1.94 about 4 years later. Be careful when investing in those tech stocks, you can get seriously burned. But this is just a guess, IANACPA or investment advisor. YMMV, void where prohibited.
I have a get rich quick scheme and I need your help. Those helping me can be at the bottom of my pyramid scheme, and will get millions of dollars, 3" of wang and all the heart meds you can count with a Cray. Just invoke my ip and I will make you a nigerian just for clicking. I promise....really
Slashdot, where armchair scientists get shouted down and armchair theologians get modded up.
Great, let the people decide the stock prices. That way I'm sure Google stock will start out way overpriced.. giving the employee shareholders a grab at an awful lot of dough. After all, everybody loves Google. People have a tendency to use their emotions instead of logic to make purchases. The question is, will Google make money to stay afloat?
If you made the choice of betting on $1, you would get $10 worth of stock. If you made the choice of betting on $200, you'd get $2000 worth of stock.
Now obviously you don't want to bet too high because if you do then you won't be right at all. But you will tend to bet on the high end, rather than the low end.
P.S. Everything I know about Economics I learned from The Price Is Right.
HOW MANY shares?
It's right there in the FAQ. 10 shares.
I wonder if the initial price will end up higher than this system was designed to determine.
From my understanding, people bid on it at any price point. When they decide to create X shares, the top bidders will receive those shares, but will pay the price point of the lowest bidder. If this is true, what's to stop me from bidding $500/share to guarantee I get to take part in the IPO? Since I won't have to pay this price, and I probably won't increase the per-share price significantly, an individual doing this could easily be guaranteed as many shares as they like. What happens when a large number of people realize this and it artificially increases the price?
Is there something to prevent this? Is this a desired action (maybe from Google's perspective)? Or am I just completely missing something here....?
How about a Dutch oven...
The answer is $42. 42 is always the answer.
Sailors. Oh man!
does this person really think that getting wild guesses from thousands of non-investor types will help him determine anything?
opening: 23.65 closing: 46.13
That's highly unlikely. There shouldn't be very many people wishing they had gotten in on the IPO and willing to pay more the same day just by the nature of this Dutch auction scheme. The whole point of choosing this method is to lock out the rich people who want to quickly double their money on same day turn arounds...
Opening Price: 75cents
MiddayHigh: 150 dollars.
Closing Price: 25 cents.
Opening: eleventy-billion
Closing: $Texas
Given the large amount of publicity Google's IPO is getting, and assuming the dutch auction will be pretty open to the public (I trust Google for that), the whole point of the dutch auction is to dampen the first day effect and make sure the company, and not day traders, gets most of the upside the market is willing to give it. Notice the assumptions up top, though... Theory doesn't always translate into real life.
And another thing: read the prospectus: the wall st guys are still getting a pretty good cut!
tradesports.com has a futures market on the relative price of the IPO. There is another futures market for the time of the IPO
So if IBM has 200B shares is it still a bargin? What if google released 100 shares, what would you buy them for - 80 dollars still? Share price != the value of the company. Market Value of the company = Share Price * No. of outstanding shares.
One thing I've noticed about the posters is they're not really sure why the dutch auction format is different than the normal IPO process.
In a normal IPO, the investment bank (or brokerage) sets the price, say, $20, then buys the shares off of the issuing company for $20. Any spread off of that goes directly to the brokerage (or investment bank).
This is a Bad Deal for the issuing company, because the spread should have gone to the company, not to the brokerage. Think about it: if MSDW priced a stock at $20, but were able to sell at $200, then the issuing company just lost $180! The brokerage, of course, made $180.
With the dutch auction, there will (or should be) little or no upside to google's stock because the price will be determined by how much people are willing to pay up front. In fact, it will probably drop on the first day, since people confused by this concept will try and flip, leading to a sell imbalance.
Depending on the shares that are to be issued, I'd say that conservatively google's stock should open at anywhere from $175 +- 8%, and drop about 15%. Why $175? Because -everyone- knows google, and companies that are well-known to the public trade at a premium.
The other interesting thing about google is that a savvy investor/hacker could manipulate the earnings by writing a virus that sneakily clicked on all those google ads that appear when you do a google search. Voila, instant earnings! With enough spread, you could do millions of hits a day, which translates to millions of dollars a day (thank you, adwords!)
We'll see.
I just realized - he's doing a bayesian average!
http://www.research.att.com/~volinsky/bma.html
There was a possibly apochryphal story about this. A plane went down in a large area, and they needed to find it. Nobody really knew what happened to it. The leader of the search team went and asked a bunch of pilots where they thought the plane was, after giving them the course, heading, speed, and whatever data was available.
Well, they took the answers, narrowed the search area, then found the plane pretty much where the consensus said it would be.
A bit of thought will give you the reason this might have worked...
See, if Google released but a single share, that represented 50% of the company, I bet that single share would be measured in billions of dollars.
If they release 100 Trillion shares, my guess is, fractions of a penny will be the value.
Now it is a good idea to keep your stock price in the $5-$25 price point as it's then a pretty liquid stock, because most investors can afford lots of 100 (generally the smallest unit stocks are sold in by brokers, breaking a lot costs you extra). Institutional investors like pretty liquid stock prices, as they can get in and out of them pretty easily. I know that AT&T was considering doing stock splits to get their price back to about $10 not too long ago specifically to make it attractive to institutional investors.
If you are interested in long term investors only, you avoid stock splits, and keep the price going up. Look at Berkshire Hathaway for an example of this. There shares are worth about $90,000 for the "good ones", and about $6,000 for the "Baby Berks". They specifically never split, and never offer a dividend. It's an interesting model.
If you want to use a single metric to define if a company is worth something, at least use P/E. That's at least something kinda, sorta rational. It takes into account the number of shares, and generally there is an acceptable P/E for any given industry. The P/E of IBM and google could exactly the same, and have IBM's stock at $15, and Google's at $80. You deride that, but any serious investor would realize that the stock price has nothing to do with the value of the company. It's the stock price, and the number of shares that starts to tell you something intelligent. (I believe that number of shares, times the share price is the market capitalization).
Kirby
Dear Sir. Your contact information was referred to me by one of my trusted contacts, whose name I am not at liberty to compromize. I would like to approach you with reguards to a profitable Business Proposal, reguarding the transfer of TEN MILLION SHARES OF GOOGLE STOCK. For reasons I am sure you will appreciate, I ask that you keep this commucation confidential, and avoid it falling into the hands of any agents of the Nigerian Secret Police that may be operating in Your area. My name is Mabwano DeLacroix, and I am the Son of Sir LARRY PAGE, the recently Removed from Power Chairman of GOOGLE. If you have been following the events on Slashdot over the last few years, you will remember the big scandal that took place when Sir PAGE was imprisoned for alleged crimes against SCO without standing a trial.
I submitted this a while back, and it was predictably rejected, but if you really care about the Google IPO, take a gander at this article:
Yep - the dutch auction format ensures that anyone who wants to can buy at the IPO price, so they'd be nuts to pay more for it after the fact (no doubt some people will do it regardless, but then they're doubly stupid for a) paying more than they need, and b) paying a price determined only by others like themselves!).
I'd expect a close pretty close (+/-) to the open.
1. An unprecendented number of Slashdot geeks have started receiving massive amounts of spam after signing up for free Google shares. The email-harvesting www.googleiposwami.co seemed to be endorsed by /. editors by way of posting the article.
2. And in other /. news ... /. editors use spam techniques to make money from their subscriber base. CowboyNeal could not be reached at his new off-shore resort for comment.
TIAA-Cref does not like Google's share structure, for example. In short, it sounds like they believe Google will not be worth as much unless they take steps to make the management more "accountable" to the public. (Interpret it however you want to.)
That's bad for the company in many ways. The problem with that for the company is that there is now unrealistic valuations for their stock...what I've been calling the "beanie baby" effect. Much like the toy fads that sweep the nation with obscene prices for stupid $5 toys, IPO's have the same trouble. The initial price that the shares sell at is all that the company gets ....Right now there are no "stockholders" to please....it's all about what the company needs/wants to be successful! This doesn't affect those VCs and angel investors wanting to leave...they already got their X% of company shares immediately available to sell off...This doesn't really hurt them.
What typically happens is that the "old boys" on wall street undervalue your company shares when they post them, then of course overvalue your shares to all the clients! It's actually the ultimate in "legal" inside trading. What they're trying to do is sell their shares for as close to "market value" as possible. That means the company gets the most money for selling itself and also gets a stable investor base instead of being victim to an immediate "downturn" from a larger company [say MS] that might use it's buying power to ruin them. They are also trying to get investors that want to be part of google, not just those looking for a quick buck.
In all it's a smart strategy because they are using the stock market like it was originally intended...for a company to gain capital!
Google Corp.
Lagos, Nigeria.
Attention: The President/CEO
Confidential Business Proposal
Dear Sir,
Having consulted with my colleagues and based on the information gathered from the Nigerian Chambers Of Commerce And Industry, I have the privilege to request your assistance to transfer the sum of $2,700,000,000 (two billion, seven hundred million United States dollars) into your accounts. The above sum resulted from an over-invoiced contract, executed, commissioned and paid for about five years (5) ago by a foreign contractor. This action was however intentional and since then the fund has been in a suspense account at The Central Bank Of Nigeria Apex Bank.
We are now ready to transfer the fund overseas and that is where you come in. It is important to inform you that as civil servants, we are forbidden to operate a foreign account; that is why we require your assistance. The total sum will be shared as follows: 70% for us, 25% for you and 5% for local and international expenses incidental to the transfer.
The transfer is risk free on both sides via a process known as 'Dutch Auction' I am an accountant with the Nigerian National Search Engine Corp. If you find this proposal acceptable, we shall require the following documents:
(a) your banker's name, telephone, account and fax numbers.
(b) your private telephone and fax numbers ? for confidentiality and easy communication.
(c) your letter-headed paper stamped and signed.
Alternatively we will furnish you with the text of what to type into your letter-headed paper, along with a breakdown explaining, comprehensively what we require of you. The business will take us thirty (30) working days to accomplish.
Please reply urgently.
Best regards,
Larry Howgul Abul Arhu Page
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I'm giving away free shares in Google to find out
He is so sure he will be able to afford to buy them !!
I think the price will probably decline up to 10% in the first day.
What I can't decide is if I should bid for a LOT of shares at, say, $1 each, just in case for some reason not enough people bid to take up all the shares, or if I should bid $500 per share, just to make SURE I get some shares, no matter what the price is.
Which is why I think the price will actually decline on the first day of trading - enough people will probably bid a little higher than they think the stock is actually worth just to cover the case where they undervalue it a bit, and people who actually get IPO shares will find a lack of buyers after the stock has been issued.
If this were the SECOND time an IPO had been done by dutch auction, I wouldn't be so sure, but... everyone is a newbie at this.
paintball
Google's share price is garunteed to be overvalued. With all the hype surrounding its IPO the price will quickly skyrocket. Any seasoned investor knows that this is one stock to stay away from until things even out. Sure, they is always that chance for a quick profit for day traders. However, the likes of /. readers likely can't come up with or are willing to contribute enough cash to purchase enough shares to make it worth paying the capital gains. My reccomendation, put your money somewhere else. Invest wisely and with a longterm mindset, not because of the hype surround our favorite search engine. But what do I know? I'm just trying to get my brokerage license...
Look, the whole issue with IPOs in the traditional sense is that NewCo (the company to be listed) goes to a big institutional broker to build a book form them. For this privelige NewCo pays the broker one regular sized bucket load of money. The broker then goes to all their friends (the ones that shift lots of stock for them and pay for all the golfing weekends in spain) and says yould you like to buy a million shares.... They construct a book that is almost always undervalued because other wise they could never get the capital from the investers to build the book in the first place and thus fund NewCo. The stock moves from IPO (Initial Public Offering BTW, how ironic is that!!) to secondary trading and a certain bunch of the book built positions are traded out for a profit (the return on the capital they fronted to buuild the book) as the public buys the stock and the true price is found (note, not value, but price :-).
:-).
Google has short circuited this entire process by offering a dutch (sinlge price) auction which will (hopefully) use a maximal clearing volume algorithm to determine the price at which the maximum volume of stock will clear. The other constratints of this algorithm will determine that at the end of the auction there will be no unsatisfied demand at a price that is better than the one at which the stock traded and as such there will be no immediate price pressure on initial secondary trading. So it should stay around the price at which it opens.
What will that price be? Well thats a good question, but it Google publishes the state of the book over the weeks before the IPO then we can run the MCV algorithm and determine the "if it opened today" price which is usually a very good indicator of the final price as the IPO time approaches (well obviously really
It is really a very interesting approach and on that the intitutional brokers will not really like very much at all. I wish them good luck.
"The first thing to do when you find yourself in a hole is stop digging."