i disagree completely...if you want to look at a bubble bursting then take a look at what just happened to every single chinese stock. VERY UGLY stuff! i don't think you can say bubble until we know how many shares they will be issuing. if its a small number then watch out we could see an explosion. everything depends on how the overall markets are doing when the IPO is done also. right now there was no market for chinese internet stocks and all you have to do is look at the LTON and TOMO charts to see what happened. no bubble there.
one more thing....u can't short IPOs for 90 days i think. so yeah put options are the way to go. puts are great for stocks where there are no shares to short....see TASR
Three words for you: Altavista Hotbot Lycos I was involved (coordinating all the legal work) in an IPO of a big European search engine that, by some metrics, became the largest European portal within a year after our IPO. We raised ~ € 650m in cash, with a valuation of € 5.5 bn at the time of our IPO. We had revenues of € 40m the year before our IPO and a loss of € 80m. The valuation was absolutely ridiculous and the stock price never went up (instead down from € 24 to something like € 0.07), which was quite an unpleasant experience for employees like me who not only had heaps of stock options, but also participated in a "Friends and Family" program, which meant we had the "privilege" to buy substantial amounts of stock at the IPO price (no rebate), but with a lock-up period of 6 months, so we could watch it go down and could not sell. I remember the time very well when Altavista and Hotbot were the "state of the art" search engines on the Internet. I even remember when Google came up and knew it meant doom for companies who positioned themselves as search engines and had spent a lot of marketing money to do so, like we did. One of Google's fundamental problems is lack of a deep customer relationship. As a Google user, you go to the site, do your search, and you are gone, unless you have something like the Google Toolbar installed, which is a step in the right direction for them. Switching cost is much higher if, e.g., you are a "My Yahoo" and/or Yahoo Mail customer. Even if a different mail provider has a better feature or something, you are not just going to change your mail address just like that. On the other hand, if a better search engine comes up and gets all the hype, there is really nothing holding you back from switching from Google in the blink of an eye. Google, of course, realizes this, and tries to address it by introducing Gmail and things like that. The danger with this is that it will take away focus in their company. They are great because they focused 1) on search, 2) on search, 3) on keeping it simple. By introducing more and more features and services, they are in danger of making the same mistake the portals made when they blew things up and thought they needed to offer every new thing on the Internet - loss of focus on the key things. On the other hand, Google does need to introduce new things to trigger growth. So they are in a dilemma. Couple that with increased spending and effort on Microsoft's and Yahoo's behalf in order to bridge the gap in search, and I would be extremely careful when thinking of investing in Google, as much as I like what they have been doing and as much of an enthusiastic user I still am. I have seen companies like this go down first-hand. You have been warned .
SJC - Was the IPO an auction? I've read that the auction method as used in Europe, and as will be used by Google, results in overpricing. Comments? As an aside, I very much like what I have read about the nontraditional aspects of the Google IPO approach (haven't read the S-1 yet) ... no quarterly guidance, two classes of stock, no first day runnup and flipping, sticking it to the investment bankers on their fees, etc. But I don't know about the overpricing issues.
Good read Jackie. The difference in those companies you mentioned and Google is that everyone I know uses Google. Everyone ! They are positioned properly, and IMHO their stock will soar. My guess is that MS buys them out at some point. DD
i hope it does...i need some longs. it's ugly out here right now. all these previously strong stocks are getting beat down right now. the more i look at things the more think we could have another bear market on the horizon. companies keep coming out with good earnings but just get sold off. i'm curious what the internet sector is gonna be like when google does its ipo.
That's all fine and dandy, and I would agree that they have a much stronger position than the other three I mentioned had, simply because the market is more mature and they have a much clearer "winner" tag on them already. However, whether your next statement will come true... ...solely depends on how much of their strong market position, track record, the imagination of how much they can grow, etc., etc., is already included in their IPO valuation. I have not checked the numbers, but my hunch is, a lot of the expected future growth will already be a determinant for their floating price. Then, they can be positioned as great as they want and they can fulfill all their greatest dreams of growth, but if that's already in the valuation, their stock will NOT soar. On the other hand, the downside, among other reasons for the reasons I tried to outline above, is huge. Basically, what I am saying is, beware of buying stock because you think their product is great, and because everyone uses it. Nothing replaces fundamental valuation techniques when it comes to looking at an investment like that, and my guess (maybe I'll do the numbers when I find time) is that Google has enough hype to cash in on the small investors' wet dreams, which is always risky for said small investors. Obviously, this would make complete strategic sense for MS if they feel they cannot make a better product, but (without having thought about it for long) I am pretty sure that antitrust laws would not allow that anymore at this point. I actually think that MS will be able to offer a search at some point that will be at least as good as Google's. One can think about MS what one wants, but once they have decided they want to conquer a certain market, they have generally been very good at it, and they know exactly who they have to hire and what they have to do to get where they want.
No, it was not an auction. That whole IPO was pretty crazy (in the 4 days leading up to when we had to file the papers, I slept maybe 10 hours total), we came out at the peak of the bubble, and basically the day after we came out, the bubble burst (we still had a great party in the German Stock Market Building in Frankfurt (on the trading floor!) though, oh the Dotcom Craze! ). Our banks were Goldman and Deutsche, so it wasn't like we were using 3rd tier banks either. But looking back, I really want to talk to those bankers and the others that were involved and see them justify their valuation again. Just thinking about how much more we were worth at that time than many brick-and-mortar companies is ridiculous. And one argument that is now being made in favor of Google, namely the high revenue per employee, was true for us as well, relatively speaking. When we did the IPO, expected revenue per employee for the year would have been like a million € or so. That number is quite irrelevant, but it blinds people. Again, not saying Google is a bad company, or that they cannot grow or beat the others. Just warning everyone to think twice about buying stock like that out of the wrong motivation.
