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Google's IPO Trading Defies Dutch Auction Logic?

Posted by CowboyNeal on from the opening-day-hijinks dept.

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."

11 of 349 comments (clear)

  1. A good idea? by Anonymous Coward · · Score: 5, Interesting

    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.

    1. Re:A good idea? by steve_ellis · · Score: 5, Interesting
      I believe the idea of the Dutch auction process is to allow regular people to participate in the IPO. Normally on an IPO this hot, only 'high-rollers' associated with the offering brokers would get a shot at buying at the IPO price.

      Also, with this technique, Google gets a _lot_ more money--to their credit (well, actually it is also in their best interest), they did leave enough money on the table so that people would want to bid for the auction.

    2. Re:A good idea? by FlutterVertigo(gmail · · Score: 3, Interesting

      Yes. They showed their naivete by some of their actions and probably should have had someone guiding them through the process to prevent them from cutting their throats to the point of cancelling an IPO completely.


      That said, one of the things which really gripes a lot of people in the business is "flipping": "buy low, sell high", but to the point of insanity - a few points one way or the other and flip the other way.

      The reason it's frowned upon is because it causes the stock to bounce; not just pump and dump, but nonstop...imagine dozens (or more) doing the same thing.




      My trunk monkey can beat up your trunk monkey.

  2. Who cares? by Anonymous Coward · · Score: 4, Interesting

    Google rocks, I hope they become really rich.

  3. Re:Poor Google by aldousd666 · · Score: 4, Interesting

    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.
  4. GOOG for the masses by trolman · · Score: 5, Interesting
    In the story's informal survey, winning bidders only received 75% of the shares they should have."


    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.

  5. Conspiracy against Google? by FunWithHeadlines · · Score: 4, Interesting
    I read something a few weeks back that said Wall Street was annoyed that Google had gone to the Dutch auction approach. Reasoning being that Wall Street prefers the regular way whereby the IPO price is artificially lowered so that their best customers can be given the chance to make easy money. They felt if this took off that their easy money racket could be derailed. Wall Street hates that.

    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?

    1. Re:Conspiracy against Google? by Anonymous Coward · · Score: 3, Interesting

      I work at a large financial firm, now I'm not high on the corporate totem pole, but all the people I've spoken with regard this IPO as a history-making event, not neccessarily something to be looked down upon. I didn't hear any deriding of Google, in fact, most of the financial advisors were taking the mindset that they deserve some kudos for doing something different.

  6. dutch, going to go up regardless by mix_master_mike · · Score: 3, Interesting

    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

  7. lowballing ok, non-transparency bad by davidwr · · Score: 3, Interesting

    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.
  8. Google may be worth more... by alexhmit01 · · Score: 4, Interesting

    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