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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.
I find it ironic that the Google context-sensitive ad for this article is about making your website a "revenue generator"...
perl -e 'print $i=pack(c5, (41*2), sqrt(7056), (unpack(c,H)-2), oct(115), 10);'
Google rocks, I hope they become really rich.
Of course they wanted to see green next to GOOG at the end of the day, and not red. Imagine where they would go in the days to come, had they ended in red! Google definitely plays their business, financial, and engineering games with human psychology in mind, and they play it so well, they are always taken as 'the good guys'.
Simpy
My its sad to see all the people switch sides on Google since they finally decided to become public.
Welcome to America, where it is popular to bash capitalism while you practice it. Its odd that so many people equate success with "selling out", or see being profitable as evil. The irony is, no matter how great the technology of Google is, it would be irrelevent if they couldn't pay the bills with it. As long as Google doesn't get big headed, it will pass.
print "Oink!\n" if ( $tail =~ "pull" );
105 was the bottom of the expected range, until the day before when the lowered the price by $20, and the number of shares by a few million.
So then it went up $15 the first day, instead of dropping $5.
So it's still funny business as usual. Had they not changed all the numbers the day before, it would have been completely different, and very likely would not have moved much.
- Adam L. Beberg - The Cosm Project - http://www.mithral.com/
Another interesting point is that some venture capitalist firms pulled the stock they were going to sell. Did they know something the public doesn't?
D -GOOGLE.html:
From http://www.nytimes.com/2004/08/18/technology/18CN
Two of Google's big early investors, the storied Silicon Valley venture capital firms Kleiner Perkins Caufield & Byers and Sequoia Capital, decided to withdraw their combined 4.5 million shares from the auction early yesterday, betting they can get a better price at some point in the future.
The surprise isn't how often we make bad choices; the surprise is how seldom they defeat us.
The news article I saw said held the opinion Google lowered the number of shares in the offering in order to increase the initial offering price-- since the "dutch auction" system had the direct effect that the fewer shares involved in the auction, the higher the final price of the auction would be set. This made a bit more sense to me than this "limiting supply" theory.
I think about the only thing to take away here is "no one fucking understands the stock market, and anyone who claims otherwise is selling something".
Irritable, left-wing and possibly humorous bumper stickers and t-shirts
IANADT, but it seems that an upward movement was almost inevitable, given the pre-set condition that the price would be set such that fewer shares would be received than "won".
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.
The stock seems to have stabilized at $100, $13 away from where it started. If producing a stable stock price close to the IPO price from was Google's intent, at least as far as today is concerned they suceeded.
I don't know what Google could have done to please people here. If they set the price too high they're overpriced and foolish. If they set the price too low they're "causing a pop" and greedy. At this point, I'm just going to shrug and get on with my life.
Seriously, wtf?
So a company made an IPO. Wow.
Not to sound like a troll, but people are clamoring about this and I just don't get why. I use google as much as the next person and they're a good company, but what does it have to do with the stock market?
Do people think this is a magic pot of money? Just because it's google doesn't mean it will constantly increase in value. 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.
So really now, what is the big deal all about?
There's lots of complaining from the established brokerages about how Google did it. They are churning the media on this one. Google pulled a fast one on the street and they don't like it. The way it was done would have meant brokers could pass out cheap shares to their buddies. Google's Ductch auction meant that the market got to bid a price. This "first day run up" can be purely ascribed to wild day trading. There's nothing Google could do about it. They were wise to get a good price beforehand.
Google's valuation is pretty rich :
CBS says it's 23 billion. General Motors is 23 billion. Is google worth GM? I don't think so. The current $100 price should shrink quite a bit as the the entusiasm wears off.
Google is sitting pretty for the moment, I hope their employees and early investors can pull a little bit out while the price is still high.
Screw Wall Street, they were denied insider's cut and kudos to Google for being patient and suceedding in doing it a different way.
19.8 million shares * $85 = 1.666 billion. Yep that's right: 666. What happened to 'Don't be evil'?
If it wasn't for the dutch auction, you know what would've happened: the stock price would've been set at $15-20, insiders and bankers would've bought at or below that range, and then when it popped at $100, they would pocket the difference.
With the auction the pop was smaller and the company got more cash.
I think they did all right.
You're going to hear a *lot* of noise about this from those bankers and wall street types that would've preferred the $15 to $100 pop. They will float all kinds of rumours about google just to make sure nobody else tries to price their IPOs more fairly in the future.
Follow the money, as usual...
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.
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?
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
In the Google prospectus, they state that they can set the ipo price such that successful bidders recieve approximately 80% of stock.
https://www.ipo.google.com/data/prospectus.html
In the event that the number of shares represented by successful bids exceeds the number of shares we and the selling stockholders are offering, the offered shares will need to be allocated across the successful bidder group. We, in consultation with our underwriters, expect to use one of two methods to do so--pro rata allocation or maximum share allocation. With either method, our objective is to set an initial public offering price where successful bidders receive at least 80% of the shares they successfully bid for in the auction. We do not intend to publicly disclose the allocation method that we ultimately employ. Once we choose an allocation method, we will not change it.
Defend our borders against whom? Who's gonna invade us?
The only country who would ever be even marginally likely to do so has a military so powerful that we could never defend against it regardless of what we spent.
Canada needs a military like a fish needs a bicycle.
www.kitchengeek.com -- Nosh for
There was an error this morning in which one of the brokerage houses let two trades go through early which resulted in the briefly reported $140 price. The NASDAQ announced that trading had not yet begun and it began trading at the opening price of $85 a little bit later in the morning. Since Yahoo's chart likely just grabs the data as it's seen and plots it, fixing this may be a manual thing. You can read about the error here.
Invade Canada.
paintball
Ok, I'm joking. My questions: did Google do something dishonest, or illegal? I don't know enough about IPO's to know.
No, nothing dishonest, not even unethical. In fact, you could go so far as to say they had the single most "honest" IPO in history.
Rather than the norm of paying a group of "experts" to decide a good starting price for their shares (which invariably results in those experts setting the price WAY too low so their buddies can all make a killing when the price goes up), Google basically asked the actual public what price they would pay to get a good estimate. Thus, Google made far more than they would have otherwise, while starting their stock at a realistic price. This annoyed the experts, their buddies, and all the middlemen who would have gotten a cut (by "a cut", read "the lion's share of the IPO").
The "controversial" drop in starting price you can consider an incredibly saavy move - It guaranteed that the price would go up a bit, but not so much as to get the same sort of unrealistic bubbles that killed so many dot-coms. Sort of a built-in reward for those who jumped in on the IPO, but not so much as to look unsustainable.
I don't quite understand the details of this part, but they somehow also managed to make sure that real people (rather than only Wall Street scum) could buy shares. Naturally, this caused a great deal of annoyance to the Wall Street scum who would normally profit from such an IPO.
Overall, they joined The System while telling The System to piss off.
As an aside, even for those who would fault them for bucking the system, I would point out that they only joined kicking and screaming. Because they had gotten so big, even if they had stayed private, SEC rules would have kicked in that provide all the hassle of public trading but none of the benefits. Almost like telling someone "You make the best widgets around, so we'll take them. We'll pay you if you want, but we take them either way".