Many investors assume they can participate in the Google IPO if they simply have a brokerage account at a participating firm. Be advised that there may be stiff eligibility requirements -- at Fidelity, for instance, you must have $500,000 in assets on deposit or execute 36 trades a year to qualify.
On May 21st, Google announced an expanded list of banks and brokerages that will underwrite the Google IPO. There's very little information available from the lead underwriters, Morgan Stanley or Credit Suisse, and the brokerages on the new list don't seem to know how it will work yet either.
I called my brokerage, Fidelity Investments, and they have virtually nothing specific to say. The representative at the IPO desk couldn't find any guidance from Fidelity, so he actually did a Google search and recommended I visit www.google-ipo.com since it was the first result returned. (I'm a little insulted that www.buygoogle.com wasn't the most relevant site in Google's search -- but you can judge for yourself which site has the more insightful Google IPO news!)
The Fidelity rep did refer me to their website for info on IPO eligibility requirements:
Participation in OpenIPOs, traditional IPOs, and other equity public offerings through Fidelity is reserved for brokerage customers with a minimum of $500,000 in certain assets held at Fidelity, or customers who have placed 36 or more stock, fixed income, or option trades in a rolling 12-month period.
Fidelity’s allocation methodology and IPO system were designed to evaluate customers based on their relationship with Fidelity as defined by their Social Security number. Each customer who participates in an IPO offering is evaluated and ranked based on the assets and revenue they have in accounts under their SSN.
By the way, the penalties for flipping IPO shares soon after the listing are pretty severe:
The first time customer sells shares of an IPO obtained through Fidelity in the first 15 calendar days they will be prevented from participating in IPO process for 180 days. The second time ... they will be prevented from participating in the IPO process for 365 days. The third time ... they will be prevented from participating in the IPO process permanently.
Fidelity's rules apply to both traditional IPOs that are allocated by Fidelity, as well as Hambrecht's OpenIPO that is allocated through a Dutch auction similar to Google's stated plan. So while the rules may change for the Google IPO, many ordinary investors may be frozen out of the Google IPO because they don't meet the minimum eligibility requirements.
Some kind of test of knowledge or investing sophistication is probably warranted to ensure that naive individuals don't get burned in this transaction. But is a half-million-dollar deposit requirement the best way to do this?
I'd encourage you to check with your broker and let me know their IPO eligibility requirements. I'll post any responses that I can verify.
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| Google's prospects from a Google user and independent investor |
Google IPO -- need $500,000 to participate? - 6/01/2004 09:03:22 PM
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L.A. Times -- "Avoid the Google IPO" - 5/31/2004 07:43:15 AM
Columnist Michael Hiltzik recommends (registration req'd) that investors "avoid the Google IPO" because this "highest-profile IPO in years" is likely to be priced "optimistically" and reflect "manic expectations."
According to Hiltzik, Google appears to be an "earnings prodigy" and a "great company" that at the same time is a "lousy choice for investors." Even though Google has excellent business prospects -- innovative technology, superb financials and a "wonderfully collegial" executive team -- the price the Dutch auction places on the company is likely to be much too high: If today's price already reflects optimistic expectations for the future — let alone manic expectations — it's plainly less attractive than if the stock market were somehow overlooking the company's great potential and thus undervaluing its shares. Investment heroes like Fidelity's Peter Lynch beat the bushes for stocks in the latter category. The lambs led to slaughter in the dot-com crash had bought up the former... Google may be a treasure, but it sure isn't buried treasure. While the Dutch auction will allow the ordinary investor to play the IPO game, the usual IPO "price pop" is also likely to disappear. "In other words, the small investor will finally be allowed past the velvet rope, only to discover that there's no more party." Google also "faces strong competition from such well-heeled and experienced trench fighters as Microsoft Corp. and Yahoo Inc." And Hiltzik worries that Google's collegiality and Don't Be Evil ideals may be "undermined" by the realities of the public company marketplace. Google is a great company but is likely to be priced too high to be a profitable investment. Google is like the horse who is favored to win -- "even the most foolhardy horse player knows that you can never make as much money by betting the favorites as you can by looking for the occasional long shots ready to come in." |
Google, Gmail, Privacy and IPO Pricing - 5/30/2004 04:39:59 PM
The result of the Gmail privacy flap may be more important to Google IPO investors than most people think.
No sooner did Google announce its new email service as an April Fools Day metaprank, than privacy advocates cried foul over Google's intent to serve context-sensitive ads when email messages are viewed. The California State Senate passed a bill on Thursday to restrict Gmail. As originally written, the bill would forbid serving ads based on content unless all parties to the email gave their consent -- which could have killed Gmail. The Senate passed an amended version that now requires that no personally identifiable information be retained, that information cannot be transferred to third parties, and that deleted messages must "no longer be obtainable in any retrievable format." (The amended bill is very short, you can read it yourself in a couple minutes.) So what's the net result for prospective investors in the Google IPO? Ninety-five percent of Google's revenue comes from advertising. In Google's pay-per-click system, Google only earns revenue when a user clicks on an ad -- and many more ads must be served to content pages (such as Gmail) since web search is not growing fast enough to drive rapid growth. To justify the incredible valuations that are being bandied about, Google needs Gmail to continue the rapid growth of ad revenues. The limiting factor may not be advertisers willing to buy ads, but available content to serve the ads that have been purchased. If legislators succeed in stopping or delaying the roll-out of new advertising vehicles such as Gmail, growth and cash-flow assumptions will need to be revised downward, hurting the valuation and stock price. And the risk may be substantial -- if a single state such as California passes a draconian measure, or even requires consent from both Gmail users and recipients, the viability of the service could be severely hampered. Even the seemingly reasonable requirement for deleted messages to be be "no longer obtainable" may be vexingly difficult to achieve in a system with tens of thousands of networked servers spanning the globe. Gmail has great promise, and is receiving rave reviews from beta testers. The free accounts given by invitation only to early testers are being sold for $50-$90 on eBay, and more exotic payments elsewhere. But Google critics portray Google as an evil Big Brother, and are waging campaigns to stop them at the grass-roots level or through the courts and legislatures. Google needs to make a compelling case that its Don't Be Evil policy can support a rigorous privacy standard while making a profit. The current privacy policy doesn't go far enough. |
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