Google's IPO Worked
James Surowiecki (author of The Wisdom of Crowds) writes in the Financial Times about why Wall Street analysts are wrong about Google's IPO. Contrary to their claims about the IPO, Surowiecki claims it worked as planned:
If Google's unorthodox method of going public has had any impact on the company's stock price, it is only because it forced Wall Street into a concerted whispering campaign designed to sabotage the IPO. It is hardly a coincidence that after Google directly challenged Wall Street's stranglehold on the capital-raising process, it suddenly went from being among the most-loved companies in America to among the most criticised. Much of the bad-mouthing we heard before the IPO came from money managers looking to talk down the company's price so that they could get a better bargain. One of the more laughable aspects of the whole Google circus has been false sanctimony about "valuation" from money managers who happily bought Cisco when its market capitalisation was $400bn and from Wall Street investment banks that bid internet stocks up to billion-dollar market caps.
The better it does that job, the better the economy as a whole will be. What that entails is getting prices roughly right. A big first-day pop is a sign that the opening price was wrong, not a sign that it was right. As for Google's supposed greediness, it is doing precisely what it is supposed to be doing: maximising the value it gets for selling off part of the company. Because it used the Dutch auction, it knows it is getting what people were really willing to pay, instead of what a coterie of investment bankers thought their friends and cronies should have to pay.
Wall Street can spin this however it wants. But Google went public without underwriting from a major investment bank, without handing out favours to well-connected executives and without dictating a price in the manner of Soviet central planners. Because it did, it now has hundreds of millions of dollars that it would not otherwise have had. By any standard, this was one IPO that worked.
I wondered why Google, in the days leading up to the IPO, was trashed consistently. Its products had not changed for the worse; one of its core values was still "Don't do evil"; their customers still seemed to love their products.
It was lazy journalists who were fed quotes from angry investment bankers that provided opportunities for the market to be manipulated by middlemen. These I-Bankers-cum-middlemen were unfamiliar to the role of being bypassed, and they wanted a larger piece of one of the biggest IPO pies in history. Google avoided the traditional IPO process by using a Dutch Auction and thus Google's underwriters shared a 2.8% commission, much less than the typical 7% underwriters usually receive for taking a company public.
Surface reporting with little analysis--just business as usual for the mass media, I suppose.