So I won the Google game. A couple of hours after the market closed on Wednesday, I got a polite e-mail informing me that my bid had been accepted and that I would soon be the proud owner of some Google stock at the IPO price of $85 per share. At 1:04 a.m., I got a second e-mail saying that I had been allocated exactly four shares, one fewer than I had bid for. At noon today, the stock opened at $100 on the Nasdaq. I immediately flipped all four shares. After brokerage commissions and taxes, I appear to have banked about 20 bucks.
What was my "winning secret"? Well, I spent days analyzing financial statements and industry projections and quarterly results and comparable companies and cash flows and valuation multiples and discount rates and customer feedback and … No. I made a few back-of-the-envelope calculations, determined that the stock could be worth just about anything, and concluded that, if I placed my bid at $98, just above the top of the recently reduced $85-$95 price range, the company would be hard-pressed to declare this "speculative" (the initial range was $108-$135, after all), and that, thanks to the dynamics of this type of auction, I would get stock at whatever the IPO price was. I also figured that, given the weeks of Bronx cheers culminating in the near-farcical revelation that the company's idiot-savant founders had thumbed their noses at securities laws by granting a quiet-period interview to, of all publications, Playboy—the company would want to stem the PR bleeding by pricing low enough to ensure the stock popped. Miraculously, my logic appears to have been right. Too bad I didn't bid for 5,000 shares.
(I should add that my first bid, before the company slashed the initial price range, was $113. I should also add that, because I have now sold my shares, the stock is almost guaranteed to rocket straight to $200—at which point I will feel like shooting myself.)
So, what's the takeaway? Did the auction work? Was it a better method than the traditional IPO? Was it more fair, more democratic? Did it discourage speculation? Did it eliminate the first-day pop? Did it crack apart one of the last great price-fixing schemes—the Wall Street IPO cartel?
Sort of. The company's secrecy and arrogance did alienate most of Wall Street—Google management has now learned, presumably, that you don't whip up demand for your stock by making big investors feel that you are doing them a favor by allowing them to buy it. But this alienation probably would have happened regardless. The company cracked the Wall Street IPO pricing cartel, but that doesn't mean smaller and less influential companies can do the same. The company did discourage (some) speculation by shouting from the rooftops that speculators would lose money—before ensuring that speculators wouldn't by pricing the IPO low. The auction did allow little guys to bid and, in some cases, to win, and this—from an entertainment perspective, anyway—was undeniably fun.
This said, in the end, the auction was not, for all intents and purposes, much different from the traditional IPO. The company maintained control over pricing and probably priced shares below the auction "clearing price." Professional investors still got better information than amateurs. (There was lots of scuttlebutt, nuance, and management body language they got access to that you didn't.) Most important, far from eliminating the first-day pop, the company rewarded IPO investors with a gift of nearly $300 million.
And so the fun part ends. Now Google has to prove it's worth nearly $30 billion.
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