Thinking About A Google IPO

from the good-company,-bad-IPO dept

James Cramer has written up a great column summarizing many of the points (much more concisely) that I’ve been trying to make to people who ask me about the potential of a Google IPO. The company is (despite it’s incredibly secretive nature) clearly doing quite well and is probably a worthwhile investment – if and only if you can get it at the initial offering price – which is unlikely to happen. As Cramer points out, the demand for Google stock is much larger than any other IPO. Everyone seems to want in on this deal, partly due to the Google phenomenon, and partly due to the lack of big time IPOs in years. This explains how people who should know better were conned into buying non-existent shares in the company. It also sets up the perfect environment for flippers. The big time institutional investors are going to get first crack at the shares (at the price the bankers set the IPO at), and will quickly try to flip the stock on the open market, where people who don’t know any better will snap up the shares at two, three or even more times its initial public offering price. What Cramer leaves out, of course, is that plenty of people who simply don’t understand investing will think it’s a good thing that the stock jumps up so much on its first day of trading when all it really means is that (a) the company left money on the table and (b) there are a lot of silly investors out there who don’t understand how to value a stock.

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Comments on “Thinking About A Google IPO”

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Ann says:

the offering price

You say that Google is probably a good investment if one can get it at the offering price. But if Google uses a Hambrecht auction, the shares won’t be profitable even for the auction’s “winners”, because they’ll push the price up too far. Excessive underpricing (i.e. a big first day pop) isn’t good, but overpricing also isn’t good for the company and is far less pleasant for the investor.

I’m still hoping that Google will choose a method that gives everyone a chance to participate without the auction risk that all the people trying to squeeze in at once will push the price too high.

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