The headlines sum it up:
Engine Trouble
How Miscalculations and Hubris
Hobbled Celebrated Google IPO
Euphoria Ebbed, Tech Stocks
Sagged, Till Firm Cut Size,
Priced at a Low $85 a Share
Blow to Dutch-Auction Method
I’d love to link to it, but it’s paid sub. This is on the front cover of the Journal the morning the stock will open on the NASDAQ. Get the sense the banking community is pissed yet?
Highlights:
Google Inc. may have needed Wall Street after all.
The Web-search giant’s quest to reform the Street through an unconventional initial public offering backfired, as Google yesterday sharply cut the size of its stock sale and then set an IPO price far lower than it had anticipated: $85 a share.
A combination of Google’s own hubris, stubborn investors and a deteriorated technology market transformed what was billed as the hottest IPO of this short century into a rather messy affair….
…The price “says that a type of auction going out to the public like this is a failure because it raised uncertainties to such a level that people backed away,” said Matthew Rhodes-Kropf, an auction theorist at Columbia University’s business school in New York. By creating uncertainty, it “got Google a worse price than they could have gotten using a standard mechanism,” he said…
…They managed to tee off the broader constituency of Wall Street, and it’s obviously hurt them,” said Brad Ruderman, head of Beverly Hills, Calif., hedge fund Ruderman Capital Partners, who was sitting out the Google auction. “Wall Street wins again.”…
…In the end, Messrs. Page and Brin may have themselves to blame for setting expectations too high, in regard to both the pricing and their ability to avoid Wall Street’s usual ways. The $85 price was about where many financial experts had pegged the shares’ values early on….
…When Google executives, including Messrs. Brin and Page and CEO Eric Schmidt, met with mutual-fund and hedge-fund investors at New York’s Waldorf-Astoria Hotel the day after the pricing announcement, the presentation was light-hearted, and thin on details. Some investors sitting in the ballroom began speculating with each other whether the executives had spent any time practicing the presentation, or if they were winging it.
Glenn Krevlin, a New York hedge-fund manager who runs Glenhill Capital LLC, said he had no interest in the stock after attending the road show. “They didn’t tell you anything. They came across as high and holy,” he said…
Wow. There’s some harsh stuff there alright.
BTW, I caught you on Marketplace last night. Congrats on the brief radio spot. 🙂
They ‘failed’ and the insiders took home $473 million, the company has $1.2 billion in cash, and they now have currency that, even with poor reviews in the WSJ, many small firms will take in a heartbeat in acquisitions. I’m sure they’re a very sad bunch today…
And the enormously larger amount of stock they still hold is now on its way to being liquid, at a price which will be set by their future performance and not by the investment banks.
In their position it would make little difference to me how high the opening price is. Arguably, starting from a lower number makes it easier to build a track record of stock price growth going forward.
I love how people are so quick to defend Google or the process like Craig did. It’s not about the money, it’s about the management. They may run a private company beautifully, but it the public (read: Wall St.’s) eye, they are failing — if only for now.
Personally, I (as a I-Banker, e.g.) would not want to own a large amount of stock (such as institutions do) in any company in which the management could still control the direction of the company and lead it into the wrong places by simply not preparing. Is the fact they were on stage for their company’s most public moment any indication of how they run the company? Is money falling into their laps and will that change once the statements are more exposed?
Public companies are VERY different beasts, and even though Google was “forced” to go public, they are not looking so good for long-term investors at this time. Forget that the founders and the company are “more” rich for a second and think of investors.
I never understood why they came out with an estimated trading range of $108 – $135 in the first place – wasn’t the whole point that they were supposed to let the market decide in the auction? It would have avoided the whole “lowering” of the IPO price. I mean, if they hadn’t said anything about what they thought the price was and the market came up with $85, would anyone think it was a “disaster”? It sounded a lot like the investment banks got nervous about letting the bidders pick the price without some advice…
OTOH, the whole auction (like most auctions) seemed pointless anyway. Since they pretty much did everything they could to guarantee it would not pop when trading began (perhaps too good of a job) what was the incentive to bid?
Everything turned south when they put out the 108-135 range that I think just about everyone thought was a reach. In so doing they provided cover for the nay-sayers. The nay-sayers would have looked a lot sillier bagging on Google at a $20b valuation.
The problem is that Google has forgotten their own origins — they rose to fame by unseating Altavista, which at that time nobody thought could be overtaken. Google seems to think they are invulnerable, and I think that this is what is behind their decision to flout convention with this offering. I think Google is far more vulnerable to the likes of Yahoo, Microsoft and Amazon than they realize. The Google brand is great, but searchers have no brand-loyalty — it’s all about the RESULTS. If someone else comes out with significantly better results, Google will be history, just like Altavista. It’s a very risky business. Speaking from experience, life is completely different for a public company. Among other things, being public puts a serious damper on innovation because suddenly every decision has to be scrutinized, reported and justified to the market. It also puts a serious damper on secrecy because of requirement for greater transparency. I think going public, while providing useful cash, is a major obstacle for a tech company and I wonder how it will change Google’s culture. I use Google all the time — it’s my favorite search engine… for the moment… but if someone came out with something significantly better, I don’t have any reason to stick with Google. Currently there just isn’t anything “sticky” about Google (except *maybe* Gmail for some users).
Beware the Wall Street spin machine. If Google’s auction style is labeled a “failure” then others won’t follow and the Street’s commissions will be safe.
For an alternative view look at the comments by Mark Cuban who viewed the IPO as a large success.
http://cbs.marketwatch.com/news/story.asp?guid=%7B8940B209-A89B-41BF-840F-9059BFE9CF07%7D&siteid=google&dist=google
If people don’t buy into the spin it could be that in time Google won’t be remembered for it’s search engine but the way it’s IPO disintermediated the investment banking business.