Alright, the anticipation and excitement are over.
It’s time to get over Google’s messy IPO and focus on the company’s market position and prospects.
If you believe much of what you’ve read about Google’s long-awaited initial public offering, you’d think the search-engine giant was headed for the
rocks. Words like “disaster,” “bungled,” “amateurish” and “comedy of errors”
have been used to describe the admittedly clumsy process that ended Thursday
when Google made its ticker entry on the Nasdaq.
But the six-year-old company survived its Wall Street debut intact. Shares
of GOOG ended their first trading session at $100.34, a gain of 18 percent over the
much-ridiculed offering price of $85. (Google priced shares at $85 after announcing a price range of between $108 and $135 per share, prompting some derision.)
Certainly many mistakes were made along Google’s IPO road by co-founders Larry Page and Sergey Brin — most seriously, failing to register more than
28 million shares allotted to employees and consultants and doing an
interview in Playboy that may have violated the “quiet period” mandated by
the Securities and Exchange Commission.
But Page and Brin are Internet
entrepreneurs, not underwriters. There’s no doubt that a traditional IPO
shepherded by a Wall Street giant would have gone much smoother.
Indeed, there’s the rub. For a large chunk of the criticism directed toward
Google’s IPO has been fueled by the “Dutch auction” process Page and Brin
chose to take the company public. Briefly, a Dutch auction is designed to
level the playing field by allowing potential investors to set the share
price through the submission of bids prior to the offering date. A Dutch
auction, in other words, calibrates demand.
With a traditional IPO, a large Wall Street underwriter will set the IPO’s
price and dole out huge blocs of shares to well-connected institutions and
individuals. Often the underwriter will lowball the share offering to create
a “moonshot” IPO that immediately enriches insiders and creates a “buzz”
about the new public company. Five years ago, this was a weekly occurrence.
Trouble is, it meant the company going public often left money on the table.
The truth is that the chief complaints about Dutch auctions always come from
those who benefit most from that traditional IPO system: Wall Street
insiders who are used to booking windfall profits before shares even begin
trading.
Google’s co-founders decided the search company would use a Dutch auction
because it is more fair and democratic. And democracy, as we’ve seen, is
messy. You’ve got to give Page and Brin credit. Yes, they stumbled along the
way, but they withstood a barrage of second-guessing and criticism to stick
to their principles. And what they’ve ended up with is a highly regarded
Internet star with a huge market lead, $1 billion in annual revenue and a
multibillion-dollar war chest raised on their terms. Some disaster.
Chris Nerney is executive editor of Jupitermedia’s Earthweb and IT Management Channel and is also not an investor in Google.
