Google's IPO getting rocky
By Michael Liedtke
Associated Press
SAN FRANCISCO — All the glee and glamour surrounding Google Inc.'s IPO is rapidly dissolving into doubt and derision about the online search engine's long-awaited stock market debut.
Associated Press
The backlash has been mounting since Google's July 26 disclosure about its plans to sell 24.6 million shares at $108 to $135 apiece — an unprecedented per-share price for a U.S. initial public offering.
The Google logo marks the approach to the company's headquarters in Mountain View, Calif. A remarkable upstart success in the dot.com sector, Google has tried to be innovative in its IPO.
The second-guessing has increased in recent days amid widespread confusion about the unorthodox auction Google is using to distribute its IPO shares and worries about potential legal problems involving how the company doled out stock in the past. Google also hasn't set a specific date for the start of the auction, although its latest SEC documents indicate it might happen this month.
To make matters worse, investors are souring on the stocks of many Internet companies, amplifying the questions about whether Google's IPO can live up to its tremendous hype.
"This could turn out to be a real dud," said Tom Taulli, a longtime IPO analyst who runs the Currentofferings.com Web site.
A Google spokeswoman declined to comment yesterday, citing securities laws that limit the public remarks companies can make before their IPOs. Those restrictions essentially have left Google defenseless against its critics, a handicap helping to propel the attacks against the IPO.
Google's target IPO price appears to be the company's biggest public relations problem. Since the company established the price range, "it seems like the commentary (about the IPO) has been turning more and more negative," said Matthew Crowder, who runs a popular online discussion board at www.google-ipo.com.
The discussion board has been peppered with denigrating remarks during the past two weeks, punctuated by subject titles such as "Google's Valuation: The Emperor Has No Clothes" and "You Are About To Be Had."
Much of the investor resentment seems to center around Google's refusal to split its stock before its IPO. That decision assured Google's shares will be priced well above the $7 to $15 typically demanded in the IPOs of U.S. companies.
Associated Press
If it had done a 10-for-1 stock split, Google could have pushed its IPO into that range while raising the same amount of money and still realizing a lofty market value of $29 billion to $36 billion.
Google founders Sergey Brin, left, and Larry Page are both expected to become billionaires when shares in the online search engine company go public. But it's not clear exactly when that will happen or how smoothly the auction will go off.
Because individual investors typically feel more comfortable buying stocks with a nominally lower per-share price, Google probably would have generated more investor enthusiasm with a pre-IPO stock split, experts said. "A $15 stock just looks less intimidating than a $100 stock, even though the mathematics don't really change," Randall said.
Google instead decided to follow the lead of billionaire investor Warren Buffett, who believes stock splits attract speculative investors. Google co-founders Larry Page and Sergey Brin — the company's biggest stockholders — hope to place their shares in the hands of long-term investors.
Google also flouted tradition by choosing to sell its IPO shares through a Dutch auction designed to ensure that individual investors have a chance to buy the company's stock. Historically, the investment bankers handling the IPO distribute most of the shares to institutions and a privileged few.
But the company's attempt to democratize the IPO process doesn't appear to be working. Many investors seem confused about how the auction will work. Others are worried that the egalitarian approach will draw too many unsophisticated investors who will drive the IPO price so high that the shares will plummet when they begin trading on the Nasdaq stock market.
