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Google's IPO Trading Defies Dutch Auction Logic?
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."
Glad I'm not the only one who suspected this.
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.
Google rocks, I hope they become really rich.
so does "don't be evil" still apply as their motto?
?SYNTAX ERROR IN LINE 42
This is true. We demand the benefits of an open market, and yet we complain when taxes are high enough to support the social programs that other countries have. Someday people will realize that we can't have our cake and eat it too. I personally think the risk of going broke and living without healthcare is worth the ability to make yourself rich by your own accopmplishments and ambition.
Speak for yourself.
google provides a great service. personally, if and when the price drops to 90.00, I plan to buy a couple shares and hold on to it. the value I get from google and gmail is well worth a show of appreciation. If nothing else, supporting them is a personal statement that they have done a good job so far.
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.
:)
No, that's nonsense. Traders buy and sell because a) they have clients that dictate their activity b) they work on a prop desk and take a view on a stock.
Google will perform well if they show, year on year, they can make good profits on revenues. Simple as that.
Stop thinking Wall Street makes money because of the old boys network, etc. Efficient markets, dude. Any inefficiency will be arbitraged until it's efficient.
Hugs
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.
from wail street weasels restricting IPO grants to buddies, setting the price at a high point from which they get rich, and the schlubs who didn't get initial grants of IPO stock when were sold side-by-side with the public offerings to provide a bonus on top of wonderful gifts from finance-world heaven get the shaft.
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 to the investment banks. go GOOG!
if this is supposed to be a new economy, how come they still want my old fashioned money?
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?
With people selling their shares only for a premium in ANY ipo, it's a mathematical certainty that a runup on the first day is completely inevitable regardless of the process used to doll them out. This is because those who sell shares will not do so on the first day unless a nice premium is paid, and there were many investors out there that wanted a piece of the ipo. Google was successful in that the IPO did not product catastrophic price raises (50%+) that others have seen. Mike Sklut www.vafrous.com
mix_master_mike
vafrous
Lowballing your IPO to ensure a 1st-day pop is OK. It provides a reward for those who bid, rather than "sit out" the IPO as many institutional investors did.
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.
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
Whoever wrote this crap is a financial n00b. Google issued as many shares as they felt is best for their interest. The initial price of 105-135 was a pure speculation, it does not mean that IPO could bring in that price. This is not a lost opportunity cost. And finally, regardless the method of the IPO the price within a few trading days will settle to a fair market value.
This is true. We demand the benefits of an open market, and yet we complain when taxes are high enough to support the social programs that other countries have. Someday people will realize that we can't have our cake and eat it too. I personally think the risk of going broke and living without healthcare is worth the ability to make yourself rich by your own accopmplishments and ambition.
Or you can live in Canada, and still prosper or sink by your own devices. But never be left without healthcare and soem support. Canada does capatalism very well. We have 84% of your per capita GNP but have a much much much better social system. We misse dthat last recession you had, and our economy is almost exactly 1/10 yours( the relative population idfference). We're just like you but happier.
"There are more things in heaven and earth, Horatio, than are dreamt of in your philosophy."
Google is sitting on a pile of cash and rapidly growing earnings...
:)
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
Actually, I WOULD pay a cent per search. Google saves me a lot of time and money... instead of buying books and hiring professionals, or spending my time stumbling around libraries, I type a simple search and get (generally good) results fast.
Not that I think Google will go this way, or that it would be a good business move, but I would honestly be willing to pay up about 10 cents per search... expecially if the search got even better (say, categorization of results). Above 10 cents, I'd probably wander away and try to find a cheaper engine... but I'd be back if nothing better were available.
Just my two cents... as it were,
Marcin
Canadians have sort of the best of both worlds: they have socialized medicine at home, and are right next door to a capitalist medicine system if they want to use that. If socialized medicine was the only choice, and people couldn't go over the to US for treatment if they chose to, that might make at least some people less happy with the arrangement.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
Do you even know the meaning of the word?
Do you insist on treating snakebites with treacle?
Would you agree if I told you bread was a kind of meat?
No?
Then you must concede that the meaning of a word is determined by how it is used today, not by what it once meant. And by today's definition, the effect your parent identified does indeed count as "ironic". You may not like that the meaning of the word has changed in recent years, but that it has is indisputable - given which, it cannot but be valid to use it with its new meaning.
Google's prospectus reads, in part:
"The initial public offering price will be determined by us and our underwriters after the auction closes. We intend to use the auction clearing price to determine the initial public offering price and, therefore, to set an initial public offering price that is equal to the clearing price. However, we and our underwriters have discretion to set the initial public offering price below the auction clearing price. We may do this in an effort to achieve a broader distribution of our Class A common stock or to potentially reduce the downward price volatility in the trading price of our shares in the period shortly following our offering relative to what would be experienced if the initial public offering price were set at the auction clearing price."
(p. 38-39) By "broader distribution", I suppose they mean to avoid concentrating stock (control) in the hands of a single investor. The "reduce the downward price volatility" bit is a red herring--auctions by definition choose a clearing price that's equal to what the market is willing to pay. Furthermore, because of all the FUD surrounding this auction, the auction clearing price was likely to be lower than the market price (reflecting uncertainty about the auction that would quickly evaporate if it turned out the auction was conducted fairly).
So it looks like Google just wanted to produce a "pop" and set the price accordingly. If so, this bait-and-switch was a bad thing for the market. IPOs by auction are a good thing, and these shenanigans only give the investment banks ammunition for their efforts to defame the practice. Google should have bit the bullet and set the offering price at the auction's clearing price. They should also have revealed the distribution of bids they received. It would have gone a long way toward establishing Dutch auctions as the way IPOs are done in the future, which would have (aside from clearing extra money for Google) been a great gift from Google to capitalism.
There is another explanation, though: the clearing price of the auction was exactly $85, and the number of people who bid exactly $85 was so large that Google didn't have enough stock to give them all what they wanted. They faced a choice: either price the stock at $85 and give each buyer a fraction of the stock they bid; or price it at $85.01 and be left with a large number of unsold shares.