My colleague Richard Duprey wrote today about the revelation that Google
I have two takes on this. First, private companies with inexperienced management often have some missteps when dealing with stock. The only reasons this is a big deal is because Google grew to be such a smashing success, and the correction came fairly late in the game.
The other is that any talk about this being a reason Google would delay its IPO is complete balderdash: Google's IPO is not drawing the investor interest that everyone thought would be its divine right. After all, this is Google. GOOO-GUL. We all use it every day, and everyone's been waiting for this moment, well, forever. The reason that Google's thinking about delaying an IPO in which everyone seems to be interested in principle but not actuality is because few people are stepping up to buy its atrociously overpriced stock. You hear whispers about the company wanting to give fund managers a little more time to digest the offering. Bunk. Folks have been hot and bothered about a Google IPO for two years. This isn't a company that people need to get up to speed on; it's an IPO that, for once, people seem to be smart enough not to chase.
Essentially, what's driving the demand for Google coverage is a media that wants this to be a big thing, wants an event about which people can get excited. This isn't it, and yet it still creates its own interest. The Google IPO is like those famous people whom people are interested in mostly just because they're famous and not on any real intrinsic merit. Pia Zadora. Anna Nicole Smith. Carrot Top. Kato Kaelin. A giant heap of "whatever" that still seems to attract interest in some circles.
Google's managing to do something that I really thought would be impossible: Spoil the Dutch auction for future IPOs. This is supposed to be the great equalizer, a way for the common man to get shares alongside the big Wall Street houses. It also tends to prevent those infernal first-day pops in pricing, and it lowers the need for underwriting services. Needless to say, Wall Street hates Dutch auctions, though they've been very successful for RedEnvelope
Google's sorta like the senior prom: really interesting and exciting in concept, a bit underwhelming in actuality. You have the dual-class share system, meaning that though Google will take your money, it's not really interested in what minority shareholders think. Its stock has been priced at simply absurd levels, with a P/E that could exceed 350 at the open and cash flow generation that's not much better. And no, I'm not talking about the price per share. There have been some grumblings from people who have balked at the $108 to $135 per-stub projections -- which is just silly. Google stock isn't expensive because the quote per share is high, it's expensive because its implied price for the company is high. And if the IPO fails, it wouldn't be because of inherent weakness in the Dutch auction system (though Wall Street would press this point very hard): It would have everything to do with Google's price it set for itself.
Anecdotal evidence informs me that the underwriters are finding little demand for the Google IPO. If this is true, perhaps people are coming to the conclusion we came to back in April: This is an IPO that we're happy to watch but not participate in. It's kinda like a bullfight -- I wouldn't go anywhere near that ring until I'm sure there's nothing named "toro" anywhere in the building. Great to be a spectator, but I'm afraid the participants may get mauled.
Bill Mann owns shares of RedEnvelope. Please check out the Motley Fool's newest newsletter service, Motley Fool Inside Value. A free trial is yours, well, for free!
