Surowiecki on the Google IPO

posted by Jason Kottke Aug 20, 2004

While everyone was kicking Google's IPO like it had just pissed on the rug, I was wondering why James Surowiecki hadn't weighed in yet. Well, he has now (in the Financial Times) and it's fantastic. He hit all the high points:

When the company first announced it was planning to go public, most estimated that the company would end up with a market cap of $15bn (£8.2bn) to $25bn. When trading started yesterday, it was worth $27bn.

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.

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.

A classic case of middlemen who are no longer needed (or at least needed less) fighting to retain control over what they think of as their domain. What cheeses me off is all the "journalists" who uncritically covered the IPO and gave the investment banks and money managers a platform from which to attempt to manipulate the market like that. Business as usual for many journalists, but irritating all the same.