Commentators are still trying to figure out what to make of Google's IPO. This comes from Bruce Mann, a partner at the law firm Morrison & Foerster LLP and former WR Hambrecht investment banker ... and Google apologist:
If in the beginning there were irrational expectations about Google’s pricing, that does not reflect adversely on the Dutch-auction process. Despite a bad market, the Google IPO was well priced and the shares were distributed fairly. The Google IPO shows that the market is smarter than any individual investment banker. It appropriately discounted the stock because of risk; there were no hidden balls. Compare the Google offering to so many of the technology IPOs of the late '90s, when in hours or days after its IPO a stock would rocket up to huge multiples of its initial price, or would open at an enormously inflated price only to collapse.
Well, there is still time for Google to collapse, and it looks like the late 90's IPOs to the extent that pent-up retail demand drove the early price increases. Admittedly, Google's price increase was not as great as those in the late 90s, but consider the starting point -- how much higher can the valuation be than $25.8 billion?
On the other side of the fence is Chris Anderson from Wired Magazine:
Although I applaud Google's attempt to use its clout to try an interesting experiment with alternatives to the financial status quo, it was so badly handled that the results are ambiguous at best. More likely, they're counterproductive, possibly even setting back the cause of auctions.
By trying to change too many variables at the same time -- challenging the convention of an investment-bank-led IPO, hugely increasing the usual number of underwriting banks and trying to come up with some novel auction rules on the fly -- Google was bound to run into hitches.
And when it did, the Wall Street establishment, which had been basically asked to dig its own grave as a condition of participation, bit back with glee. The end result is that auctions, long a campaign of real financial rebels such as Bill Hambrecht, now look messy, dangerous and inefficient, which is a shame...
I basically agree with this, though note that the point is more about perception than reality. The pricing retreat was really a surprise, and I think Wall Street will use that as an argument against auctions in the future, but this was not a disaster from a fundraising standpoint. Google was clumsy, but it basically got what it wanted. That seems to be Esther Dyson's conclusion, too:
Of course those analysts want to paint the whole IPO as a dismal failure because it more or less bypassed Wall Street and its gatekeepers. (But) the market worked. My read of it is that the initial hoopla was driven mostly by the press. Perhaps foolishly, the company responded by pricing the deal at a premium to what rational analysts said it was worth.
That made sense for a while. Indeed, some people suggested the stock was still underpriced. Then the backlash began, as potential investors talked down the price and the (technology) stock market overall started retreating.
Google made and revealed a number of blunders, including an atypical bout of excessive openness -- an interview with Playboy. I'd rather criticize Google for excessive secrecy. But in the end, the company is open about what it says, if a bit smug, and open about what it will not tell...
My coverage of Google will continue, but not as intensely. I like the company's products and technology, even though I think many of its current public shareholders will be disappointed with their returns.
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1. Posted by Seth Finkelstein on August 23, 2004 @ 5:36 | Permalink
Without being an apologist, I think it's fair to cut them some slack in the price retreat, due to the adverse market conditions. It's hardly the first IPO to have its price lowered when the market took an unfavorable turn during the time just before pricing.
It actually looks very standard - bubblish valuation, small float, etc.