Google IPO in Doubt

News Analysis Light Reading 8/5/2004

Looks like Google may not be able to afford those 1.35 billion cokes, after all (see Tracking Google's IT Booty).

The search engine, which recently filed for an IPO, is running into trouble with the public offering, based on a new legal complication -- and a general lack of interest from investors, according to multiple sources around the investment community.

Google officials declined to comment for this story.

After all the hype and planning, is it possible that the Google IPO could become... ungoogled?

Get the whole, sweet lowdown at Next-Gen Data Center Forum.

— Evan Koblentz, Senior Editor, Next-Gen Data Center Forum, and R. Scott Raynovich, US Editor, Light Reading

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IPIPIP 12/5/2012 | 1:23:37 AM

re: Google IPO in Doubt Could anyone who understands this issue explain it in plain language??

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ratnl_invstr 12/5/2012 | 1:23:33 AM

re: Google IPO in Doubt Google's stated goal of taking the auction route was to allow retail invetstors to have a level playing field. But they messed up their IPO on many fronts:

1. Retail invetsors still have to go through brokers such as Fidelity who have stringest eligibility requirements (min. account balance of $100K, min. number of trades in a year etc). If Google was really targerting retail invetsors, why not allow people to bid by depositing money upfront in an escrow. This way investors who wanted to invest $10K, $20K and those may not have $100K+ in established brokerage accounts could still particiapte.

2. Google's indicative price of $100+ per share is very high. By lowering the price/share to say around $20-$30, and increasing the float, they could still have targetted the same corpus. Wonder why they missed this one.

3. They missed notifying many governmental agencies on already issued shares, which is a gross oversight. Wonder who is advising them on share transactions.

The goal of bidding process is noble, but I do not think Google understands retail investor's situations. Result is a lack-lustre participation.

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drone387 12/5/2012 | 1:23:31 AM

re: Google IPO in Doubt "Google's stated goal of taking the auction route was to allow retail invetstors to have a level playing field. But they messed up their IPO on many fronts:"

4. Two Tier Stock Structure: Insiders get 10x voting rights than new shares. This is a major reason for lack of institutional investor interest. Apparently, the Google road show bombed.

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paolo.franzoi 12/5/2012 | 1:23:30 AM

re: Google IPO in Doubt
Yeah, invest in me...give me money...make me rich...BUT I am keeping control.

Sounds like in general they had college students or people from KPFA doing their investment advice.

So, back to the original question:

1 - The deal is priced too high (Google is not worth what GM is).

2 - There are hidden gotcha's in the corporate structure which limits the value of the investment.

3 - The way this was done looks ameteurish, not giving lots of confidence to investors.

That helpful IPIPIP(yada yada yada)?

seven

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BlueWater66 12/5/2012 | 1:23:30 AM

re: Google IPO in Doubt I wouldn't actually call it amateurish. Oddly, the VCs still control the board. From a corporate structure point of view, Google is very similar to all the smaller start-ups we discuss on this message board.

When the VCs sit around the table looking at their "liquidity event" and control issues, it is like herding cats..... I'd blame GoogleGÇÖs problems on "group think" and overly greedy VCs. Obviously they are paid to make money, but they often over-negotiate their position to the point of being ridiculous.

Aside from the misstep about notifying the government, I suspect the share price, float, control issues, etcGÇª were each carefully thought out.

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lightbeer 12/5/2012 | 1:23:24 AM

re: Google IPO in Doubt Seems to me that the only thing Google is trying to accomplish is to cut out the middle man...namely the investment houses. Everybody knows how the game works. Investment Bankers give their rich clients a piece of the action. The Investment house talks up the stock (creating buzz) then advises clients to dump stock on the retail investors who don't want to be left out of the party. The rich clients make good scratch, the investment house earns their commissions, and the retail guys get to take the long ride down the curve to equilibrium.

Nice idea to cut out the Investment Banks but it won't work. To create the momentum and buzz you need the big money guys. These guys won't show up in sufficient numbers unless they know they have a sure fire arbitrage situation. With a auction situation then the chance for arbitrage is significantly reduced, and the stock should trade pretty much at equilibrium from day one.

Google and it's VCs are trying hard to leave no money on the table and pricing the IPO shares at a premium. But what is the upside for the investor? This is not a value stock? Does future growth command such a rich price per share? I don't see the upside to a business whose main revenue as I can see it is advertisement. Please someone enlighten me what other revenue streams are going to give it the growth required to justify such a steep IPO share price?

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rjs 12/5/2012 | 1:23:19 AM

re: Google IPO in Doubt What is so "rich" about the stock price?
Google is not as outrageously priced as you
would be led to believe. My belief is that it
is the investment bankers who are bitching about
the "rich" valuation of Google. These very same
idiots had no problem with rich and absurd valuations in the bubble years when they were feeding off the trough with the commissions.

Google is maligned because it is trying to be egalitarian in an elitist investment banking arena. Google had a revenue of 1.5B for the first half of the year. It is expected to make 3B-3.5B for the year. They have a very good gross margin.
To be priced at about 10 times sales is towards the high end, but "rich" is not the word. When you
compare it to the DOW or SP-500 or other indices
you will realize that it is just slightly at a premium, considering their margins. Now any good unbiased analyst should be able to tell you that. And do not give me the schpeel about $100 stok price. It is irrelevant. Arithmetic does not lie and I don't care what the POPE or the INVESTMENT BANKING experts have to say.

I sincerely hope Google is successful. It bodes well for the industry, the stock market, and investors as well. The fact that the price is well matched to the popular demand will also mean less volatility due to financial artifacts. The volatility of Google's performance as a company will then be truly reflected in the stock price.

Before anyone flames me, I don't work for Google nor I plan to participate in the IPO.

I am just sick and tired of the Wallstreet spindoctoring to talk down Google. It is just annoying to people with a modicum of commonsense.

-rjs

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