Former ML analyst Henry Blodget, the high flyer who fell from grace, is finding his voice over at Slate. He’s got a barn burner up right now on the Google IPO:
If we were acting rationally, we would just decide to invest in Google (or not) after the stock started trading, when we knew what we could buy it for, rather than now, when we have to guess. Because one goal of the auction is to reduce or eliminate the first-day pop, “winning” the auction won’t likely lead to the instant bonanza that usually makes people salivate about getting IPO shares. But, then again, other forms of entertainment—dinner and a show, say, or a visit to the circus—also waste money and time, and they’re wildly popular….
…There are multiple ways we can lose the Google game, and only one way we can win. We can lose—money, time, and/or potential profits—by:
1) bidding within the “winner” range, getting shares, and having the stock drop (likely);
2) bidding so high that our bid is dismissed as “speculative,” not getting shares, and having the stock rise (less likely); or,
3) underbidding, not getting shares, and having the stock rise (less likely)
The only way we can win, meanwhile, is if we bid in the “winner” range but below the price at which the stock trades in the aftermarket (highly unlikely). One reason IPO auctions have essentially been abandoned worldwide is that these odds stink. (Good thing we’re not acting rationally.)
…As for what other bidders will do, I suspect that many will play the Google auction game for the same reasons I plan to: out of curiosity and fun and/or the remote possibility of getting shares at a reasonable price. Some others, unfortunately, will probably participate because they “like the company” or “want to make money” or some other idiotic reason, and regardless of the outcome, some percentage of this group will probably sue.
My favorite quote? Plays off the “Don’t touch the Google IPO” meme we’ve all seen in the press lately:
For the sake of balance, it bears noting that we will have the best odds of winning (making money, not just getting shares) if most potential bidders are so terrified of losing that they don’t bid: This will allow us to aim low, get stock, and then benefit when the great prudent majority—which refrained from bidding on the auction—piles on in the aftermarket. To maximize our chances, therefore, we should preach (preferably on national television) that participating in the auction is a terrible idea. In the months since Google announced the auction, scores of experts have done this. Many of them are probably now formulating bids.
Tip o’ the hat to JH….
3 thoughts on “Henry Blodget (!) on the Google IPO”
No disrespect intended, but I think Blodget is a little off the mark this time.
His three ways to lose money on Google – overbidding, underbidding, and being priced out of the market – aren’t special to Google. You can (and do) make these mistakes whenever you buy *any* asset.
Conversely, his one way to make money – ‘bid in the winner range but below the price the stock trades in the aftermarket’ – also applies to *every* asset you (and I) have ever bought – not just Google.
Finally, HB says ‘we’d decide to invest in Google after we knew what it was worth, not now, when we have to guess’. In fact, we can make a pretty good guess about what Google’s worth: Google’s (limited) financials are available with a couple of mouse clicks.
But that’s besides the point – goog’s said it won’t release much more data anyways, aka quarterly guidance, etc. So how much better will our info get? Enough to radically alter the valuations we can construct from current data? I think it’s kinda dubious…
But what if Google screws up royally, through failure to register stock? Potential fly in the dot-ointment: http://news.yahoo.com/news?tmpl=story&u=/ap/20040805/ap_on_hi_te/google_buyback_1
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