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August 19, 2004
The Critics Come Out
Many papers running tough-minded pieces on GOOG this morning. While I agree with the process comments -- the IPO was messy, bankers & investors didn't support the deal, etc. -- I don't agree with many of the comments and conclusions.
For example, it is simply not true to say, as does Matthew Rhodes-Kropf, an auction theorist at Columbia University, that the auction "got Google a worse price than they could have gotten using a standard mechanism". What is his basis for saying that? Most people, myself included, thought $85 wasn't far off an appropriate value for an IPO. Assuming GOOG undercut that number on a traditional offering to give institutional investors a first-day bounce, we would have ended up roughly where we are now -- except less of the proceeds would have gone to Google.
Further, many fixate on the high initial price range, calling that a mistake. What people continue to forget is that an indicated IPO price range is non-binding. It is not a list price, nor is it some price sheet to which investors must adhere. You can safely ignore it, as it is obvious many Google bidders did.
The FT, however, gets it right:
Most investors and analysts saw greater problems for Google in the poor outlook for internet stocks, the timing of the initial public offering, and its use of a Dutch auction, rather than its re-pricing of the shares.
Precisely.
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