First of all, I really admire the guys at Google for doing their IPO differently. There is absolutely no reason to let the bankers and underwriters walk away with more money from the IPO than the company itself. When I worked at Netscape, I watched the Netscape collect $24 per share for IPO stock which the business guys then sold on the market for $70+ per share on that very same day. That means that for every $24 that went to Netscape, $46 or more went to the bankers, who never built any product or any value. What a shame for both Netscape the company and the investors in Netscape. Congrats to Google for having the power, foresight and courage to do it differently.
But, I’m a little worried for our friends at Google too. I’m not planning to purchase any of their stock myself (much too risky for me!), but I did check out their IPO site when you could still get a bidder ID. (You can no longer get a bidder ID now) What I saw was pretty daunting. The site was like most prospectuses – it outlined all the hazards, risks, and things which could go wrong. But on top of that, you had to click “accept” though about 4 pages of legalese and terms which were just really long. As an individual investor, I got scared halfway through the process and dropped out of my plan for getting a bidder ID altogether.
Now, consider how traditional IPOs go. If you want to invest, you call your broker, and say “I want to invest in Google”. He says okay, takes your request, and does everything else for you. Its so easy. If you were going to “invest on a whim”, he’s completely happy to take your money and help you do just that. All the legalese was signed and taken care of when you opened your brokerage account years ago; so there is no daunting process.
But Google really puts that process in your face. I think it will scare investors away. I’m not an expert in the field, so I don’t know how many people will be scared away. Will institutional investors be scared? Or just private investors? I don’t know. But I do understand supply vs demand, and the process simply can’t increase demand for their stock. Keep in mind, SEC regulations make it illegal to “pump up” your stock. So, disclosing all the bad stuff is the right thing to do. Arguably, your broker makes it too easy to gloss over the warnings in the more traditional IPOs.
On top of all the process just to get in on this IPO, the IPO is also closed to non-US persons. This further decreases demand for the stock. I don’t know how much, but it can’t be good.
Finally, there are all the recent publicity problems for Google – they forgot to register a bunch of shares they had issued, they accidentally spoke to the press during their quiet period, and they think its worth $100+ per share at the opening, which seems pretty high to a lot of people. Wow – thats a lot of bad stuff!
So, my prediction – I don’t think the stock will maintain a $100 price within 1 week of the IPO. The real question is “how low will the sellers go”. I do not think there will be very much demand to buy at that price, but sellers may be unwilling to sell immediately for less. So, I’m expecting lower-than-expected volumes of trading, and gradual decline of the price; settling around $60 per share in 3 months.
Well, I hope everything goes really well for them; but I won’t feel bad for them in any case. The fact is they built a great product, and they will have success. At some level, whats the difference between a $10, $20, or $30 billion IPO? The investors will whine about the difference, but to the employees that built Google, its a great success no matter what, and they should be proud.
Keep in mind that I have no idea what I’m talking about, and I am basically making all this up.