It's happened. Google is going public. You'd think that they spotted Jesus walking across the water near the San Mateo Bridge. Some are saying that a Google IPO will be the trigger that revives Silicon Valley. Others believe that a Google share allotment at IPO is going to be the path to a deeeluxe apartment in the sky.
The mania is charming, in an incredibly self-delusional, frightening sort of way. Yesterday, for the first time ever, I couldn't access the SEC's EDGAR site because so many people were piling in to read Google's S-1. Business websites pulled out their "Microsoft just merged with China" typeset. Dogs and cats sleeping together. Total Chaos.
OK, not really. But I noted people even on Berkshire Hathaway (NYSE:BRK.A) discussion boards talking about the Google IPO. I'll bet the North Koreans are even talking about it. All of this (plus a good reading of the company's registration statement) is exactly why I'll be keeping my investment dollars very far, far away from Google. It doesn't matter where the thing gets priced -- people are going to buy, and they're going to think that riches await. After all, people who got in early on eBay (NASDAQ:EBAY), Amazon.com (NASDAQ:AMZN), and Yahoo! (NASDAQ:YHOO) did spectacularly, no?
Keep in mind, though, that none of these companies came public anywhere near market capitalizations of $25 billion. People got wealthy with these companies because they got in on the ground floor, and were lucky enough not to be in wanna-be flame jobs QXL, AltaVista, or Beyond.com. Yahoo!'s opening-day IPO valued it at $1 billion; Amazon and eBay were valued well south of that. Depending on demand for the auction, Google's opening market capitalization could be as high as $25 billion, larger than Costco (NASDAQ:COST), the same size as Automatic Data Processing (NYSE:ADP), more than double the size of Southwest Airlines (NYSE:LUV). Ground floor? More like a castle in the clouds.
Google's likely to be spectacularly successful -- its rate of growth is substantial. But make no mistake about it: This IPO is for the benefit of the insiders, and the mania around it suggests that they're going to make out extremely well. Which they should -- this is the way of capitalism. And my read of things is that Brin, Page, Schmidt, and company have been fairly honorable and idealistic.
I also had to laugh out loud when I read about the hoops Google put up for investment bankers: 24-hour turnaround times for questionnaires, lengthy and onerous non-disclosures, banning them from Google headquarters. It all reminds me of Coming to America: "What kind of music do you like?" "Whatever kind of music you like." That's power.
And it's power that the insiders are trying to keep, over customers, investment bankers, and soon-to-be shareholders. Wouldn't you know it? Google's set up a dual class stock structure. The publicly traded Class A stock and management-held Class B stocks have identical economic rights, but the Class B shares get 10 votes for each one that the Class A shares receive.
Guess how every single vote in the history of the company will go? However management wants it to -- it's already stuffed the voting boxes. Fellows, if you're going to quote Warren Buffett in your owner's manual (a fine document, by the way), you ought to at least recognize that Buffett considers Berkshire shareholders as partners and gives them the right to buy shares that have the same power as his. If you don't want to have to listen to others, then don't go public.
Google will not be able to control the pricing on the opening day of the IPO. But I really have to wonder whether this really just isn't anything more than cashing in at the peak. Yes, the insiders will be wealthy beyond their wildest dreams, as will many employees. But if Google's business is so insanely great, why in the world would they want to share? Public offerings have always been about companies needing to raise capital for operations or for new capital projects. Google's financial statements reveal no such need.
Being public is both hard and expensive for companies, and for Google, it seems to be utterly unnecessary -- the company generates plenty of cash from what it does, and it's taking on some risk that being public will change its core culture.
But these are all just window dressing. Here's the thing that I would fear as a Google investor: Ask Jeeves' (NASDAQ:ASKJ) algorithmic search engine Teoma already receives rave reviews for its results, and Yahoo! recently unbundled Google's search so it could feature its Inktomi technology. And wouldn't you know it, Microsoft (NASDAQ:MSFT), not one to leave nickels in billion-dollar stacks lying on the ground, will include an algorithmic search engine bundled in its next generation of Windows products, due out next year.
Google is a phenomenon, an amazing creation, unique in culture and in level of success. But it owns no content whatsoever. As rivals such as Yahoo! that do have access to all their other internal resources catch up, what will the competitive pressure on Google be then? Already Yahoo!'s shopping service simply blows away what is available on Google due to its access to internal content.
None of this is to say that Google is a bad company, or that it's disappearing. That's not a bet I'd make at all. But this mania over its IPO, certain to come out 15-20 times sales and perhaps over 100 times earnings, just has me scratching my head. Great companies can have lousy stocks if you buy them at the wrong price. Given the excitement here, that's almost exactly what this promises to be.
If you are even thinking about trying to get some Google shares in the IPO, read the S-1. You might find, as I did, that this promises to be one of the better spectator sports to come along in some time.
Got a take on the Google IPO? Excited to join in the cattle call? Got a take on the registration filing? We're waiting to hear from you. Come give us the good word on the Google discussion board ( free trial required).
What does Bill Mann know? He only likes cement and reinsurance companies anyway. Of the companies mentioned in this story, Bill owns shares in Berkshire Hathaway and Costco.
