In a recent post, we looked at recent examples of technology companies using Dutch auctions to place their IPOs. WR Hambrecht pioneered this approach (and is now one of the underwriters of the Google offering).
All eyes were on Alibris as they were to be the first IPO auction since Google's announcement.
But Alibris canceled its offering after the auction "did not produce prices attractive to the company."
The company's CEO blamed the poor showing on a small number of interested bidders, which does not appear to be a problem for Google.
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| Google's prospects from a Google user and independent investor |
Alibris pulls IPO Dutch auction - 5/21/2004 10:04:30 PM
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Google adds more IPO underwriters - 5/21/2004 06:08:33 PM
Google filed an amended S-1 registration statement (prospectus) with the SEC this afternoon. It lists additional firms that will underwrite the Google IPO. Previously, only Morgan Stanley and Credit Suisse were listed, and neither of these firms does much business with ordinary investors. (And neither had more than a cryptic recorded message for retail investors looking for more information on how to participate.)
Presumably, if you have a brokerage account with such consumer heavyweights as Ameritrade, E*TRADE or Fidelity, you should be able to participate in the auction -- but the details have not been announced. I called the IPO desk at my broker, Fidelity, and they said it hadn't been decided how Fidelity will participate -- whether Fidelity brokerage customers could participate in the auction or how any of the mechanics will work. I'll post any new information here, feel free to leave comments if you get new info. Here's the list: Morgan Stanley, Credit Suisse, Allen & Company, Citigroup, Goldman Sachs, J.P. Morgan, Lehman Brothers, UBS, Thomas Weisel, WR Hambrecht, Deutsche Bank, Lazard Freres, Merrill Lynch, Ameritrade, M.R. Beal, William Blair, Blaylock, Cazenove, E*TRADE, Epoch, Fidelity, HARRISdirect, Needham, Piper Jaffray, Samuel A. Ramirez, RBC, Muriel Siebert, SunTrust, Utendahl, Wachovia, and Wells Fargo. Update May 21 22:00: The Financial Times provides some additional clarity: Google on Friday dealt another blow to Wall Street's traditional way of handling new stock market listings as it appeared to do away with the idea of using a core group of banks to act as co-lead managers on its initial public offering....grouped big-name firms like Goldman and Merrill Lynch with smaller brokers... Would-be investors in Google will be able to submit bids to any of these 31 institutions, with many of the banks and brokers accepting orders over the internet... The novel auction that Google will use to set its stock price and allocate shares to investors could be completed within just two hours of the SEC giving it the formal go-ahead for the IPO... |
Google to horn in on Microsoft - 5/19/2004 06:14:21 AM
The conventional wisdom on the Google IPO goes something like this: Google is a highly profitable and growing company with awesome technology. Today they're #1 in web search and context-sensitive advertising, and they're adding some new features like email. But they face huge risks and uncertainties that make investing in Google a dodgy proposition. Their web search patent expires in 2011, and they've already lost much of their technology lead to Yahoo and Microsoft. Maybe Microsoft will crush Google the way they crushed Netscape by integrating search into the operating system. Why pay a premium for a company with this much uncertainty?
I made the point in a prior post that maybe Google's ambitions are much more pervasive. Maybe Google intends to dominate the world and crush Microsoft -- and do it in a Don't Be Evil way. After all, hasn't Microsoft been the ultimate Villain Bent On World Domination? What self-respecting superhero wouldn't jump at the chance to put a villain in its place? Today's New York Times rehashes some old news about Google creating a personal-search application to find content on desktop PCs. It's been in use internally at Google for over a year, and is reportedly nearing release. Desktop search will be a key feature of Microsoft's next Windows upgrade, codenamed Longhorn, but isn't expected to be released until 2006 at the earliest. Google has already fired a warning shot toward Microsoft's desktop monopoly by introducing the Google Toolbar and Deskbar, available for free download. This allows direct search from a browser (or without a browser) without having to navigate to Google's web site, blocks pop-up ads, performs lanugage translation, retrieves word definitions, and other utility tasks. (The Google-Microsoft rivalry isn't exactly new information, but takes on greater relevance to investors trying to value the Google IPO.) Google's desktop search project, codenamed Puffin, is being run by a former Microsoft product manager, and the NYT says it is "expected to be introduced soon, according to several people with knowledge of the company's plans." So the central question for investors trying to decide how much to pay for Google shares is this: Could Google potentially leapfrog and marginalize Microsoft, usher in a new era of network-centric computing, and make Microsoft's core operating system monopoly largely irrelevant? Or will Google be shunted aside like Netscape was? The answer to this question may determine whether Google is worth $5B or $50B in its IPO this summer. |
More on Google Dutch Auction - 5/17/2004 07:31:19 PM
There's not much news coming from Google or their bankers to explain how the Dutch Auction will work, how ordinary investors can participate, or what's likely to happen to the stock price after the auction.
In a typical IPO, shares are sold at artificially low prices to friends and VIPs who enjoy a lucrative "pop" in price when the shares are traded on the open market. But with an open auction process, the initial placement is likely to go for a price much closer to the open-market price, so there should be much less chance of an opening-day pop. (See prior post.) Google advises investors to hold the stock for long-term appreciation, and not expect to make a quick buck by flipping the stock soon after it is listed. There has been much talk that this type of auction may result in a "winner's curse" that will systematically cause the share price to fall after the auction. There have been a few IPOs auctioned using a method similar to the one Google is considering. These are very small in comparison to Google, but their performance after the IPO is interesting, and my confirm the "winner's curse" phenomenon. Check out Peet's Coffee, which was auctioned using Hambrecht's OpenIPO Dutch auction. See also Overstock and redEnvelope. Each of these issues declined dramatically following their listings -- 50% or so. Peet's was back above the offering price within a year, and today is up about 100% from the IPO (see chart). Overstock sold off even deeper in the months following the IPO, and is today up over 100% from the IPO price (see chart). (Last week, Overstock completed a follow-on offering of 1.5M shares, also through Hambrecht.) RedEnvelope sold off less, but continued to decline -- it's now down significantly from the first day (see chart). Today's Wall Street Journal profiles (sub req'd) Alibris, a loss-making online bookseller, which will be the first IPO auction since Google's announcement. Analysts will be closely watching Alibris -- "a poor showing for Alibris and other companies in the pipeline that are pricing auction-IPOs prior to Google's would add ammunition to critics to the process." Caveat emptor. |
Microsoft turns attention to web search - 5/16/2004 10:47:01 PM
The New York Times says that Microsoft is turning its massive attention (and budget) toward dominating web search, Google's claim to fame. "Microsoft Corp. isn't known for being first or best: It's known for being biggest."
Google Inc. currently dominates Internet search, something analysts say could pose problems for Microsoft -- and not only because Google takes away advertising dollars. As the amount of digital information explodes, Microsoft also recognizes that computing today is not just about creating work documents, e-mails and pictures of your sister's new puppy -- it's also about finding all that later. "Microsoft is racing to play catch-up," just as it did when it discovered the internet, and ran Netscape into the ground. But it's about reputation and trust, not just another product: "It's not just technology, it's trust...Google is trusted, and Microsoft is not as trusted.'' See www.dontbeevil.com about trust and Google's corporate ethic. Microsoft intends to integrate search not only into the MSN web service, but into the core operating system itself: "In the current Windows operating system, it's easy to get lost in a web of directories and subdirectories....The new system is being designed to easily find data from different sources -- say, a Word document, a picture and an e-mail about the same event -- regardless of where it is stored." Even though Google is first and arguably best now, never count out the behemoth from Redmond: While Microsoft may be lagging now, analysts say Google should still be very nervous. After all, some of Microsoft's biggest successes have been in technologies it was late to develop -- most notably, its now-dominant Internet Explorer browser, which trounced the original leader, Netscape Navigator. |
How Does Google Value Its Own Shares? - 5/16/2004 10:16:38 PM
The Wall Street Journal uses Google's own disclosures to figure out how Google values its own shares. Very clever stuff!
The article (sub req'd) looks at the compensation expense Google records--more than $200M worth-- and backs into the value per share that Google imputed using various methods: By digging into those numbers, Jack Ciesielski, publisher of Analyst's Accounting Observer says he can estimate how Google itself valued its own shares as recently as the first quarter of this year. ... Mr. Ciesielski says Google added $75.4 million to its deferred-compensation account during the first quarter. Dividing that by the slightly more than one million options Google issued during the first quarter, he estimates that Google figured the excess value of the options at $75. Those options carry an average exercise price of $16.28. Adding the two figures together, Mr. Ciesielski estimates, Google valued its shares at roughly $91. Using a different method to triangulate, Google says that, based on the Black-Scholes formula, the fair value of the options it issued in the first quarter was $67.06. Using that figure, the $16.28 exercise price and Google's other financial assumptions, Mr. Ciesielski says Google valued its shares at $80.44. As usual, "a Google spokeswoman declined to comment, citing the "quiet-period" restrictions around the IPO." These two methods would value Google at between "$21.7 billion to $24.6 billion." |
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