A couple of days before the much-awaited Google (NASDAQ:GOOG) IPO, I wrote an article that said there was too much pessimism surrounding the IPO and that the media was not giving the little guy enough credit to get the pricing right. The little guy was, after all, who the Dutch auction IPO process was aimed at. Google executives wanted individuals to have access to the offering and to play a role in determining the price. I had faith that one way or another the market would figure it out, and it did.
After announcing that the range for the issue would be $108 to $135 per share, there was a snag: not enough demand by investors to get the deal done. The range was lowered and the deal ultimately done at $85 per share. In my opinion, this was driven more by individual investors, not institutions. A lot of big money was likely put off by the lack of information provided by management for things such as what it was going to do with the proceeds.
A couple of months ago I wrote an article that touched on Google's IPO creating a ton of Internet stock supply and hurting all the stocks in the group. Well, that sort of happened, too. Yahoo! (NASDAQ:YHOO), Ask Jeeves (NASDAQ:ASKJ), and others are all down significantly from their highs. The market has efficiently reduced the supply by reducing the share prices.
I believe that the market gets these types of things right more often than not. I had no idea that the price range would be reduced for Google, but I did believe the deal would price in such a way that it would not immediately sink -- in fact, price stability is a major selling point of the Dutch auction process.
I'm not smart enough -- as so many of the emails I get love to tell me -- to have come up with this on my own, but as the song goes, "it's all just a little bit of history repeating." There will be other big, exciting events in the next few years. Remembering the Google episode may make you better prepared for the future.
By now you know that Google closed that first day of trading at $100. Since then it has held up reasonably well, trading between $103 and $109. Looking forward, I think that Google is likely to soon start correlating to the other Internet stocks. I'm not sure whether it can outperform Yahoo! or not. We probably don't need to decide right away.
Want to read more from the Fool on Google? Check out these articles by Bill Mann:
Fool contributor Roger Nusbaum is an investment manager and wildland firefighter in Prescott, Ariz. At press time neither nor his clients owned any of the stocks mentioned.
