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Why Wall Street Wants Google to Fail
Sam writes "The most anticipated initial public offering in years threatens to derail a cherished gravy train, where underpriced shares are handed out to favored investors and grateful CEOs."
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Wall Street is in the power circle and want to keep it closed. Radicals, such as the people who operate Google, are to be kept out. Greedy individuals interested in human interests and making real products have no business on Wall Street (according to Wall Street).
One rare thing about Google is their "Don't Be Evil." mantra, which somewhat translates to the company turning down the chance to make quick bucks today in the expectation that they'll get that money back in the long run through their near-flawless reputation.
That's how Linus made millions.
Here's an article in Business Week on the google IPO.
Commentary: Google This: Investor Beware
The Web search outfit's business is terrific, but its long-term outlook is cloudy
When Google Inc. predicted a wallet-cleaning price range of $108 to $135 for its shares on July 26, few on Wall Street flinched. And why should they? Despite a valuation as high as $36 billion for its offering expected in August, the search kingpin's business continues to dazzle. Growth in sales and profits have rocketed over 100% so far this year. And analysts project Google will generate more than $350 million in 2004 net profits. Even with stepped-up competition, Google's share of the U.S. search market has grown five points in the past year, to 37%, giving it a comfortable 10-point lead over Yahoo! Inc. (YHOO ), according to researcher comScore.
Sure, IPOs are inherently risky, but Google stock may be especially unwise at this nosebleed price range. At the midpoint price, Google's would-be $33 billion valuation is a step down from its closest competitor, Yahoo, a seasoned Internet giant with a diverse revenue stream and a market value of $40 billion. Compare projected 2005 earnings against these valuations, however, and Google's multiple is just a speck below Yahoo's. That's troubling, since Google is largely a one-trick pony, with no easy means to diversify its business and hefty management challenges. "It's priced for ultimate perfection," says a skeptical Google investor who plans on selling after the IPO.
Long-term investors should be very wary of Google's single-barrel business model. Selling ads that appear next to search results, or paid search, contributes over 80% of Google's sales. According to Forrester Research Inc (FORR )., the U.S. search ad market grew 94% in 2003 to $1.9 billion, but growth is expected to slow from 45% in 2004 to 16% in 2007. As long as Google remains so heavily dependent on a single search market, it should trade at a discount to Yahoo, says American Technology Research Inc. analyst Mark S. Mahaney. Citing its quiet period, Google won't comment.
Google co-founders Sergey Brin and Larry Page aim to expand into new businesses, but that won't be so easy. The most obvious foray would be into so-called branded marketing, the multimedia ads that adorn most Web sites. Unlike the text-only ads that accompany Google's search results, these snazzier ads entice large advertisers that are as concerned with building brand as they are with driving traffic to their sites. It's big business, worth about $4.5 billion in the U.S. this year, according to Forrester, vs. $2.8 billion for search ads.
Google, however, is a long way from proving itself a player in branded marketing. Sure, the six-year-old company is tinkering with a trial program that delivers targeted image ads from its roster of 150,000 advertising customers to other online content providers. But Google has not hinted at near-term plans to open up its own prime real estate for branded ads. Such a risky move would run contrary to Google's long-established mission of providing a sleek, simple page that favors speed over sizzle.
Even if Google does pull the trigger, it would desperately trail such rivals as Yahoo, Microsoft's (MSFT ) MSN, and AOL (TWX ), which have spent years building their salesforces and relationships with traditional marketers. Although Google points to its 150,000-plus advertisers, buyers of search ads often aren't the same people who buy branded ads. "The people who control these budgets are very different," says Wenda H. Millard, chief sales officer at Yahoo.
Google's management structure could also be a concern. The company prides itself on an organization that is nearly devoid of middle management and values freedom for engineers and their work. But Google's headcount is growing faster today than at any other time in its young life -- adding 3.
Another 'big guys wanna screw us' article.
Who cares, the current task is to raise as much money for google as possible. Success will be raising more this way then a similar typical IPO.
When they sell underpriced shares, the company doesn't make as much as it should. This hurts the company as it doesn't get as much money as it should, and the existing shareholders, as they don't get the maximum value for the new shares they issue.
Who cares what "Wall Street" wants, it is the owners who matter.
These market makers have just as much contempt for the individual investors. Wall Street is all about the control structure and every level of it getting its own piece independent of whether anyone else is making money. You will see these fights as attempts to use technology to get real free and fair markets steal more and more power from "Wall Street." They're like the RIAA protecting their financial distribution networks from outsiders who seek to streamline all the crap between the buyer and seller.
I for one as a day trader, will not be purchasing GOOG for a long time.
It figures. Day traders do no good to the companies they invest, other then to demand immediate profits at the expense of long term solubility. Good riddance.
If Google had done that, then the stock would have started high and then crased as time moved forward to today. From Google's present owner's point of view that wouldn't be that bad a thing, but it'd be a disaster for everybody who bid what turned out to be an overpriced value to get their shares.
The whole point of the dutch auction setup is to assure that if anybody makes a quick buck out of a market malfunction, it's the people are selling their shares in the first place. Having a stock double or triple on IPO day is a sign that the IPO price setters blew it... they could have charged double or triple in the first place and found people who would have paid it. The quick profits in that situation go to the "IPO Insiders" who bought the shares at the original IPO price and were able to make quick turnaround sales... since the average investor has little chance of getting in on an IPO that way, it's not really fair to the little guys.
The people with most of the money in the world don't like this idea, because it threatens their power, and they are likely to do more than just spread rumors to derail any such thing.
There are a multitude of ways to depress a stock price. As Warren Buffett has said, in the short term, the stock market is a voting machine, and in the long term, it's a weighing machine. The Guys with the Money have a LOT of "voting" power.
Over the long haul, this won't work -- you can't artificially hold a stock worth X amount of money very far below X forever. But they don't NEED forever. If they sell short, bigtime, and can hold the price down for a year or so, then they win... everyone thinks Dutch Auctions are a losing proposition.
The guys doing this could very well take a serious bath (short sales and derivatives are dangerous), but they may figure this as a cost of doing business.... if this idea takes hold, it could cost them a lot more than the few hundred million dollars they might lose on this manipulation.
Because of this, I fully expect that the Google IPO shares will drop fairly dramatically once they go on public sale. Personally, I'll be looking to buy in the aftermarket.
Google's "Do No Evil" mantra is almost certainly another reason why Wall Street wants them to fail. A sense of morality is practically anathema in today's Fortune 500 world. They don't want a company that is not easily tempted by money at the cost of (employees' livelihood|third-world workers' lives|anything else worth protecting that isn't money) to ascend to their misty eyrie.
Honey, I shrunk the Cygwin
Practices like Enron's do get rewarded for a while. The problem is the house of cards tends to collapse, especially during economic downturns. I'd like to see the executive stock options have some kind of clause that forces the buyers to hold onto the stock for a long time (as in 5-10 years). That might discourage executives from finding ways to artificially drive the price up and then leaving the company and dumping the stock before it goes down.
When you buy shares of Google, you'd really like Google to get that capital. When you purchase shares of google, you are now an owner in google. It's now in your best interest to be sure that google win's the tug of war between who gets the money. Because it'll maximize google's value.
This isn't so true if you're a speculative buyer who things that Google's price is going to jump up, and if you can just get your hands on it, to turn it over days later while it's on the way up. Then your on the wall street side, and you'd like to see them win.
So yes, depending on the type of investor you are, you have a vested interest in seeing one of the two of them win.
Hopefully, the price won't be the result of playing the games with supply and demand, and the psychology game that happens on Wall Street. There shouldn't be a sky-rocketing value, that if you can get your hands on it, in the first 3 days, and sell hours later a huge profit can be turned.
Liquid markets with stable pricing is good for everyone in the long term. Wall Street's problem is that if your plan isn't going to make money for Wall Street in the short term, they aren't interested. Short sightedness will be the financial ruin of this country if we continue to do things to maximize value in the short run to the detriminte of the value in the long run.
Kirby