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Thursday, August 19, 2004

Google's IPO and the Misinformation that Surrounded It

I can't believe what I'm reading in regards to the Google IPO. For instance this article has it all wrong, as most of the articles that I've read do. What is wrong with business journalists these days? Are they all stupid? I'm beginning to believe that most of them are...
In the Newsweek article, Brad Stone, business expert extraordinaire, opines on the failure of the Google IPO. The Failure?!? What the f*ck are you talking about Brad?
Let's dissect some of his assertions:

"That’s a leap of more than 15 percent for a stock that was supposed to be valued so fairly it would not surge in opening-day trading at all."
15% is a "surge"? Have you looked at the first-day performances of other highly touted technology IPOs, Brad? I didn't think so. 15% is well-within a respectable range and if you look at the intra-day volatility once the price reached $100 on the opening day, it stuck like a dart thrown by a talented Scotsman. Why do journalists make these sweeping statements without any validation? I actually have a theory on that, but more on that later...

"The Dutch auction model was designed to spread shares among the individual investors and discourage flipping of the stock. The revolutionaries, we can cautiously conclude, did not quite foment their latest revolution."
First, I must applaud Brad on his use of pussy hedge language. "...did not quite..." = lawyer talk Anyways, I'll put my balls on the table and call Brad out here because I think the IPO probably did foment a revolution. The hottest tech company on earth at the moment got underwriters to break collusionary pricing (taking 2% instead of the normal 7%), did NOT provide additional information to institutions beyond what was given to retail investors and ran the auction in a fairly orderly manner. Besides, how do we know that individual investors didn't get more of the shares? Who ran the stats on the split between institutions and individuals? I haven't seen the numbers -- Have you Brad?

"“The auction just did not work on a self-service basis,” says George Rosenbaum, chairman of Leo J. Shapiro."
Brad, what is Leo J. Shapiro and why should we care about it? I've worked in the capital markets for a decade and I've NEVER HEARD OF LEO J. SHAPIRO! Why Brad wants to quote him in an authoritative way is beyond me. And I have first-hand evidence that this Rosenbaum guy is out of his mind, because the self-service aspect worked perfect for me. I got on the site, registered for the shares and got in on the IPO just fine. Just because they held investors to having an account at the top 40 brokerages (minus Goldman) isn't exclusionary as those brokerages probably represented about 90% of investors anyways.

"Numerous mini-scandals during Google’s run-up to the IPO didn’t help either."
Mini-scandals?!? To whom, the uninformed public and journalism community? Here's his evidence with my refuttals:

"Brokerage firm Merrill Lynch walked away from the underwriters syndicate, reportedly with concerns over compensation."
Reportedly? I've been in the business for a long time and I can tell you that Merrill was probably booted or declined because they weren't given top billing. Goldman got kicked out because they tried to backdoor the executives by chatting with the chairman. To think that Merrill walked away because of compensation concerns only makes sense if the compensation questions was Merrill's own in the deal.

"Google shocked Silicon Valley by settling with rival Yahoo in a patent infringement dispute for $300 million in stock, acceding that its self-billed innovation machine had copied the advertising technology pioneered by Yahoo subsidiary Overture."
"Acceding"? More big words from Brad. Everyone knows that the patent process in America is flawed. If you don't know this, then you're obviously not in the biz. To say that this is tantamount to a capitulation may be overstating the issue. (Like them big words, Brad?)

"Google was accused of improperly registering shares granted to insiders, and Playboy magazine published an April interview with Google’s founders, violating the quiet period before the IPO."
The improperly registered shares issue is one that I've seen before and it wasn't really that big of a deal. Only now that it's Google it has somehow been demonized into this awful thing. And this Playboy article dust-up is a complete f*ck-up on Brad's part. Brad, the SEC never ruled that Google violated the quiet period. In fact, the Chairman of the SEC indicated that the rules surrounding quiet periods are nebulous and archaic and deserve a good, hard look given the evolution of the market over the last 100 years. It's amazing that the uninformed create mountains out of molehills and then point to the perceived mountains as scandals. That's the media for you: the blind leading the blind.

"If smaller investors were scared away by scandal and complexity, big institutions seemed to finally embrace it. After publicly complaining about the initial price range, and casting doubts on Google’s future viability in competition against Yahoo and Microsoft, Wall Street’s big money managers dived in at the later reduced stock price of $85."
Hmm...do you smell a rat here Brad? You should. It's clear that the investment establishment (institutional investors and investment banks) are PISSED about this IPO. The Google IPO clearly demonstrates a necessary evolution in the capital markets that disrupts established market player functions -- and they reacted accordingly. They talked down the IPO to the press and then bought it at a lower price. The funny part is that the press became the establishment's tool. All I saw were negative articles in the press leading up to the IPO and they all referenced mutual fund, hedge fund and banker people. Nice job, ask the establishment to give you your opinion on something that threatens their existence. I wonder what they will say.

So, I don't really mean to single Brad out as I could've shredded any single article that came out leading up to the IPO. Journalists JUST DON'T GET IT. And it's frustrating. Don't ask me why I feel the need to correct this situation, but I hope that people understand that the media is largely clueless and this is a good example of why.

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