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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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Okay, let's look at what Google has:
1. Lots of public information (stock charts, news and webpages primarily)
2. Lots of private information (what users are search/researching)
3. Lots of computer scientists and programmers good at working with lots of data
4. Tons of computer power
You combine these elements, and you have a group of people that might be able to make sense of some of the chaos in the financial markets. They could get RICH! Fear the Google.
Really, the IPO process is something that'll make a few people happy and a few people not so happy, and then will just plain be forgotten about. The differences between the dutch auction and the typical IPO process will matter in the days immediately after the stock comes out, but then will just fade into the background as the market determines the actual value of the stock through day-to-day trading activities.
.com's that ulitimately crashed and burned, but I don't think it'll have any effect on Google's stock in the long term. Most of us normal people invest in the stock market for the long term, and should in general wait for the post-IPO price to become stable before deciding on if we want in on a particular stock.
It's an "in your face" shot to the IPO industry that profited on the
Of course, if the reason is because then then Wall Street will ignore the stock and no institutions will recommend it, well, maybe that's a great reason not to do this. After all, it's not uncommon in other contexts to pay a 7% commission to someone who can get you a good price. I guess we'll have to wait and see whether not giving the Wall Street folk their usual vigorish is worth the risk.
Disclaimer: I work for a company, but I don't speak for them.
There was a recent slashdot article about predicting financial patterns. Google has the tools and personnel needed to pursue this if they wanted to....
I hardly consider Google a "one trick pony" given that they are hardly just a search engine.
As for branded graphics ads, every computer I touch gets a copy of Firefox, adblock (with my own block recipe), pop-up blocking and flashblock. Text ads still come through, which is fine with me, since they aren't annoying, gawdy or out of place.
"Investment bankers fear the "Dutch auction" IPO, if successful, could severely diminish their power and influence, and that has a lot of people on Wall Street worried and more than a little angry. In just about every interview they give, Wall Street sources are actively campaigning to undercut the IPO, warning the public that the stock will be overpriced, and instead of appreciating in value after the offering, will actually retreat."
Yeah, if there's anyone on the planet that i feel sorry for it's the investment bankers and their pissy little attitude b/c they aren't "in the loop" and google isn't bringing them into the "good ol' boys circle". Damn shame i tell you.
Note: not a chance in hell, i'll pay that much for google stock though. Not a chance.
Don't be stupid. "Don't Be Evil" doesn't instantly mean "Don't Be Smart". They know what they're capable of, and earning lots of cash is a pretty obvious thing.
With google's ubiquity in almost everyone's daily internet life, the potential for misconduct is staggering. The fact that they haven't abused their position yet makes me proud of the fact that i can afford exactly 1 share of their stock right now.
No..I think Linus made money on an overpriced stock. Most investors got burnt. Buying an overvalued stock just because we love google here on /. will result in the founders of google getting rich and you ending up with worthless stock. I personally don't have anything against the auction system or Linus making money from the VA linux IPO. Question is: would I buy google? No..And the fact that evil vested interests from Wall street are saying the same thing about google's valuation won't change my decision.
Speaking as a trader specializing in shorting stock, I would never short google. It might be overpriced but so was Ebay, yet stock kept rising. You just dont short companies which are monopolies or dont have strong competiton. It might be overpriced when, it opens, but with time it will do fine. As long as people continue to search and click those ads.
And they will.
That's why I don't think you can trust anything Wall Street says about the Google IPO: The investment banking establishment has too much at stake and too many institutional conflicts of interest to make them credible on this offering.
I've been saying this since day one. The great thing about the Google IPO is that it puts the market back into balance - remember, shares are *supposed* to be valued based on direct investor demand, not insider deals and analyst payoffs. The Street will do what is in *it's* best interest, which means controlling the market (ahem, not a free market then eh?)
Not only is Google doing the auction to avoid insider deals (and keep that cash in the family), but it's spreading the offering among many, many different brokers, even progressive discount brokers [/shamelessplug]!
Definitely *not* evil
"Whoever would overthrow the liberty of a nation must begin by subduing the freeness of speech."--Benjamin Franklin
I can believe "do no evil" of Larry and Sergey, they are smart geeks who will make some well deserved wealthy without doing evil and still have some of their ideals in tact.
But, since it became clear Google was the last big pot of gold from the dot com boom I'm pretty confident Google has filled up with plenty of other people, mostly business people, who will do any evil, in a heart beat, to maximize the money they make out of the IPO. Maybe Larry and Sergey can fend them off or dilute them, but I imagine it depends on what percentage of shares they still hold and how much power they've given up in the march to Wall Street.
As soon as Google is on Wall Street and on the "make the quarterly numbers" tread mill I assure you they will probably also do just about any evil necessary, just look at Red Hat and VA.
@de_machina
I think you're right, but I don't think it'll work out like the big boys might want. The Dutch auction method changes the dynamics of an IPO. Traditionally IPO shares are bought to get in on the initial bounce. With that dynamic things would work exactly as you describe. But the initial bounce has already been priced into Google's shares by the auction method. The people looking for that initial rise aren't going to be buying Google shares at IPO. The ones buying will be the ones who figure Google shares will be valuable for things other than their price, eg. dividends, splits and other return over the long term. Those people won't sell just because of a 6-month downturn in the price, the price isn't the reason they're holding the stock. If Google's revenue or cash reserves go down then they might sell, because those affect why they bought the stock, but price bobbles won't have a major effect. If this is the case, then an attempt to force Google's price down will be a disaster for the ones trying it and won't, in the end, affect Google much at all.
But can "They" hang together enough to pull it off? It is a prisoner's dilemma. If all the bigwigs work together and keep the price down, the old boy's network survives and all of "Them" benefit. But if a significant fraction scoops up undervalued stock, the deserters win at the others' expense.
The classic solution to a prisoner's dilemma is to have some way for the group to enforce behavior on the individuals (this is why we have governments). How can "They" punish deserters or reward participants?
Damn!
Than what have I been studying for the last 4 years?
Seriouslly: Economics *IS* a science. The only problem lies in the fact, that it is more of a social science (like sociology, philosophy) than a fact-based science (mathemathics, physics...). Saying economics is not a science is like saying pyhiatry is not a science.
Economics is a science that tries to determine how people will act based on the previous emphirical data. That's why you'll get 7 different answers if you ask 7 different economists for a forcast.
boky
This article shows how the press only has a one-month attention span. In 1999 people were writing nearly identical articles about Salon's auction IPO.
Once a company is public its no longer quite the personal fiefdom of the founders/insiders that were running it. Yes a traditional IPO leaves the company a little devalued but as a side effect it buys the management wiggle room. Investors , that their shares in the toilet from where they bought them are much more susceptible to a buyout offer or just changing the management than those that have a tidy profit.
The real villian here is not the "Underpricing of IPO's", its the process of awarding the shares to the priviledged few as a perk. These people will hold the shares for as little as a few days and take a quick profit. They contribute little to the long term and just serve to get in the way of the investors that have a belief in what the company is doing.
Giving IPO's as a perk to insiders also serves to shove the fact the system is biased against small investors right in their face. This undermines investor confidence in financial institutions and weakens the overall financial system.
No, but the fact they use the scientific method does in fact make it a science. That should be the cornerstone defeinition of a science; does it use the scientific method.
Perhaps the problem in realizing it's a science for some people is how it's taught in high school and undergraduate classes. Just think back to your major/PhD/whatever. People just generally aren't sophisticated enough, or have the correct tools, or whatever to deal with learning the whole theory in HS or even undergrad. Thus, simplifications are made, and those theories are just put forward almost as axioms. Once you get to the fore, you see that it is indeed a science.
I know; I'm starting research in Economics as a PhD student now, and leaving out the details, I am looking at data, formulating a theory for how people behave, seeing if it fits the data I'm looking at, then looking at other data/situations to see if my theory predicts that data correctly. If that isn't science, I don't know what is (and I have spent time in Physics. Sure, the math is more complicated, but the process is no different).
Now, I'm talking about Economics, not all the other social sciences. I have a feeling it may be true there as well. But to continue to call Economics not a science is either ignorant or egotistical. But of course, there aren't big egos in the IT/Science community.
Oh, well, I do see the comments attacking the fact Economics is a science get +5, but the comments pointing out the fallacy are still stuck low. So, guess there is a little ego out there. One line attack gets +5 Informative, and a thought out rebuttal is stuck at 1 or 2. You should really try to be unbiased...
1) Ok, so you need $550 to invest. If you can't put that much down on Google stock, then you probably shouln'd be gambling in the high-risk IPO market anyway.
But wait, this is a Dutch auction. Currect me if I'm wrong, but while $100+ may be a suggested price, but you can bid at whatever you want.
2) If you don't think the company management will be sufficiently accountable, then bid low. It's an auction, and the shares are only worth $100 each if enough people want to pay that much.
You don't want the short term investor interests to run the company anyway. My dad gave me the following advice on investments and influencing management: "When deciding how to vote, I look at the board recommendation. If I agree with the board, I vote their way. If I disagree with the board, I sell the stock."
3) The Dutch auction assures that everyone pays the same price. Regardless of any inefficiencies brought about by small investors, it's no likely to have much of an influence considering how big this IPO is.
4) If Google is overvalued, then both the little guys and the big guys will get screwed, as we're all paying the same price for the shares initially. Traditionally, the big players got the allocations at the lowball IPO price, and the little guys (y'know, the ones who don't have as much information and aren't the best at evaluating the stock in #3) drove the price up on the opening day.
The little guy is never going to have the same chance as the big guy because the big guy has far more money and time to spend evaluating the opportunity. You're competing against experts. But at least with the auction the little players and the big players are all competing on the same field.
In a previous Google discussion, someone pointed out that the goal in this auction isn't just to own Google stock, but to profit from it. If Google's overhyped, then you sit back and let the chumps absorb the loss and buy in when the share price comes down to sane levels.
1) $550 is peanuts if you're serious about investing. Maybe it's not worth it if you just want a stock certificate to hang on the wall, but whatever. If you think it's going to slide to a "more realistic" valuation, you're free to pick it up after the IPO, whenver it gets to a price you find more reasonable.
2) This is how they intend to keep their "Don't be evil" policy in spite of Wall St. demands. It may seem to devalue the stock in some sense (e.g. what am I buying really?) but frankly, I don't *want* Google to sell out.
3) Again, you don't have to buy it the second it comes out. You don't have to be first. If you expect the market to adjust it downwards, buy it then. OTOH, if enough people expect this, then there may well be more of an upside to it than was expected...
4) All stocks are a gamble. Right now, Google has quite a premium on it's Adwords, but they are, hands down, pretty much the BEST internet advertising there is to be had (save maybe slashvertisements...).
Now there are dangers to Google--the nonsense about trademarks & people using them as Adwords is one worry. Another is that Microsoft will use their monopoly power to force their crappy, slapdash search engine upon us all. Competition is a worry in any market. I don't know what they can do, but I know that Google can compete and I know that they can turn out a superior product.
Frankly, I want some of the stock to put my money where my mouth is--as a vote of confidence in Google--and I'd be the type to hold it long term, rather than cashing out whenever things look bad. None of us have any way of knowing how things will turn out. Microsoft or trademark law may well spell doom for Google. Conversely, they may manage to embed enough Google in windows through programs like the Google toolbar to resist even Microsoft's efforts to eradicate them. I mean, 'google' is already a verb, I don't put standing up to Microsoft past them at all.
So the article here seems to be saying that traditional IPOs invariably choose a structure that purposefully causes the IPO price to be undervalued; and Wall Street is pissy about Google's IPO because they chose a structure that does not purposefully cause undervaluation, and Wall Street benefits from undervaluation. However, what the article neglects is the possibility that Google's IPO structure has accidentally overcompensated and overvalued the IPO price.
So I've been trying to figure out: What happens to the Google stock price after the IPO?
Because $120 seems pretty clearly to be a silly price, at least compared to other stocks. I don't really think many people are going to want to buy at that price.
But, the thing is this. People know this ahead of time. No one is expecting the price to skyrocket immediately after stock launch. This means that, as this guy notes, if someone is buying Google stock at IPO they're probably buying it as a long term investment. At the very least, if you had just spent however much ridiculous amount of money that you have to spend to be one of the initial buyers in the IPO, and it immediately after IPO sinks $20, are you going to respond by going "oh shit, i'd better sell it now!"? No! That would be stupid! You sell at stock peaks, not valleys-- doing otherwise would limit your participation in the IPO to just throwing away the $20 per share you bought.
So the thing is this: demand for the Google stock at IPO time will likely be very low. But supply is also likely going to be very low-- because likely, and especially likely if the stock price sinks immediately after the IPO happens, the people who bought into that IPO won't be interested in selling what they have. So what does this all really mean for the stock price? Will the overvaluation be cancelled out by the fact that the IPO will attract the sort of people who won't want to sell what they just bought for a long time?
Meanwhile someone in the thread I just linked claimed that some people will be signing on to this IPO for the purpose of sabotaging it-- I.E., we'll see a fall in prices immediately after IPO launch because the big investment houses will be manipulating the stock down in order to discredit the dutch auction method. But if this is the case, once this manipulation-based fall is finished-- and it can't go on forever-- won't we immediately see a really large bounce in the other direction? If people are now widely expecting a drop in Google's price to occur immediately after the IPO launches, then doesn't this mean that anyone who wants the stock, but isn't in the IPO, will be operating on the strategy of: Hold off on buying at IPO launch, then wait for the inevitable post-IPO stock price correction to happen, then as soon as the price seems to have stabilized at its lower, corrected price, then buy. In other words, when the minima of Google's stock's first big dip occurs, it seems likely that a small flood of new interested buyers will come into play, possibly even triggering a rally.
Beyond this: the whole "options" thing. How does this work out? As far as I know the way this works is that a bunch of the people who work for Google, as well as Google's original VCs, have the right to buy the IPO stock at a price well below the actual IPO cost. Is this right? If so, then these people will likely be wanting to clear out as much of this stock as possible as soon as possible, right? Does this cancel out my "there won't be many sellers at IPO launch because of long-term investors" theory above, because the investors won't be providing supply for the stock at IPO launch, but the optionholders will be providing lots of supply? How significant of a proportion of shares will the optionholders hold within the greater block of google stock available?
One last thing: Does Google even care what happens to the
Irritable, left-wing and possibly humorous bumper stickers and t-shirts
Well seeing as how something like 20% of stocks are owned by the top 1% of the population, and 90% are owned by the top 20% of the population, you can see how those at the top might want to keep that club pretty exclusive. And that doesn't happen by people like those at Google allowing the public first shot at the IPO. Still, average people, or people in the bottom 80%, aren't going to have a whole lot of money to dump into buying up lots of Google stock from the IPO.
This is left as an exercise for the reader.