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Why GOOG jumped 18% the first day?
Interesting explanation from TheStreet.com
gopi




msg:1235187
 3:03 pm on Aug 20, 2004 (gmt 0)

[thestreet.com...]


Investors who had winning bids for more than a handful of shares were allocated 74.2% of the shares they had sought to purchase, TheStreet.com has learned. If that's true across the board, it suggests that Google priced its offering well below the level that bidding would have supported, helping to feed the stock's 18% surge Thursday

The 74.2% allocation suggests that the search engine company, which along with early shareholders sold 19.6 million shares in its initial public offering of stock, received enough bids priced at $85 or above to sell as many as 26.4 million shares.

That excess demand helps explain why Google's shares rose Thursday: For every 742 shares that the company and insiders sold in the IPO, there was pre-existing demand for an additional 258.

The allocation also indicates that Google could have priced its deal higher than the $85 per share price it set in the IPO.

In theory, after collecting bids from different investors -- each for a specific number of shares -- Google could have set a stock price high enough so that only 19.6 million bids would have been accepted, enabling winning bidders to receive 100% of the shares for which they had bid. That highest possible price is known as the "clearing price."

But Google, after having received a healthy amount of criticism over the way it conducted its IPO, evidently decided not to squeeze every last dollar out of Wall Street that it might have been able to.


 

Lord Majestic




msg:1235188
 3:12 pm on Aug 20, 2004 (gmt 0)

IMO much important question that needs answering is why on Earth Google or Yahoo should trade at ridiculous P/E ratios (140 for GOOG as of now!) and have capitalisation similar or higher to that of real companies like General Motors or Ford or Motorola or many other companies that actually produce real things?

I am not even talking about beaten into the ground telecoms - if I had to choose between my broadband connection and Google then I would not hesitate for a split second to make the right choice.

[edited by: Lord_Majestic at 3:13 pm (utc) on Aug. 20, 2004]

loanuniverse




msg:1235189
 3:12 pm on Aug 20, 2004 (gmt 0)

The 74.2% allocation suggests that the search engine company, which along with early shareholders sold 19.6 million shares in its initial public offering of stock, received enough bids priced at $85 or above to sell as many as 26.4 million shares.

Bahhhh, that was known in this board hours before trading opened.

[webmasterworld.com...]

Forget the street.com or fool.com use Webmasterworld for your Google IPO Watch, Finance, and Business Operations news :D

loanuniverse




msg:1235190
 3:18 pm on Aug 20, 2004 (gmt 0)

other companies that actually produce real things?

To paraphrase a great man….. It depends what your definition of real is…..

gopi




msg:1235191
 3:24 pm on Aug 20, 2004 (gmt 0)


Bahhhh, that was known in this board hours before trading opened.
[webmasterworld.com...]
Forget the street.com or fool.com use Webmasterworld for your Google IPO Watch, Finance, and Business Operations news :D

Wow , WebmasterWorld is THE GOOGLE PLACE , huh?

gopi




msg:1235192
 3:44 pm on Aug 20, 2004 (gmt 0)

>> companies that actually produce real things?

LM , many Fortune 100 companies make most money on intangible things than real things ...You know GM and Ford make much much more in their finance business than in the automotive sector? (I know last quarter Ford made around 1.6 billion in financing and a lost around 300 million in making automobiles!) ...In short Ford or GM are just lending companies which happens to make cars :)

Also if you think GE makes money in bulbs or medical instruments or jet engines , forget it ...they too are a big finance/trading company which happens to make other stuff too

Chndru




msg:1235193
 7:03 pm on Aug 20, 2004 (gmt 0)

And is going up the second day too... to 106 ish..

MovingOnUp




msg:1235194
 7:09 pm on Aug 20, 2004 (gmt 0)

IMO much important question that needs answering is why on Earth Google or Yahoo should trade at ridiculous P/E ratios (140 for GOOG as of now!) and have capitalisation similar or higher to that of real companies like General Motors or Ford or Motorola or many other companies that actually produce real things?
140 may be a bit high, but if they're able to grow their business 10X in the next few years (very possible), that's a way-forward-looking P/E of 14. If they can grow their business 10X and maintain a P/E of "just" 28, that'll give them a stock price of double current levels.

The stock market is all about the future earnings, not the past. There's no way General Motors, Ford, or Motorola can grow as rapidly as Google or Yahoo.

Lord Majestic




msg:1235195
 8:29 pm on Aug 20, 2004 (gmt 0)

You know GM and Ford make much much more in their finance business than in the automotive sector?

Yes I know, but they just sell cars at a loss (or low margins) to only rip people off on finance. They still sell real things and everything else is used to support it. Ford also existed for a very long time and I am safe in knowledge it will be around in 20-30 years.

On the contrary Google, Yahoo and others existed for a fraction of time in a totally new field where new stars come every few years only to burn later. This is characteristical of the whole IT sector, perhaps only Microsoft is more or less immune (for now) due to their effective monopoly on desktop - Google aint got monopoly so its only natural to question even P/E ratios of 14, yet alone 140!

gopi




msg:1235196
 9:37 pm on Aug 20, 2004 (gmt 0)

LM , i know what you say ...but as the previous poster said Ford or GM can never grow like an yahoo or Google or for that matter Ebay...And i believe this valuation ceases once their growth matures!

On a unrelated note its really interesting to see companies which are well known for one thing derrives most of their revenue from some other thing (like Ford/GM making money on financing rather then selling autos!) ...

I was reading this Fool.com Article today and it estimates almost 28% of Dell's operating profits comes from Insurance business (warrenty) , Amazing is'nt it?

Lord Majestic




msg:1235197
 9:59 pm on Aug 20, 2004 (gmt 0)

Article today and it estimates almost 28% of Dell's operating profits comes from Insurance business (warrenty) , Amazing is'nt it?

Sadly not amazing - my day job (and it will end soon for good) is in retail and I know what those "extended warranties" or "insurance" are about.... My take is that soon people will realise what a con these policies are and refuse to pay excessive coverage on policies that won't pay out.

I don't think it will end well - in 1999 I believed (while working for a .com) that .com stocks are totally overpriced and they will fall - they did, but looking at current values in my view they are still a joke, in fact I think the whole stock market thing is just a game where guys with most money win. As the result the only stock I want is that of my own company - and I will be damned to sell any significant part of it.

Kirby




msg:1235198
 6:30 am on Aug 24, 2004 (gmt 0)

>companies that actually produce real things

When Warren Buffet, the 2nd richest man in America, was asked what the best (profitable) business model was, he replied, "A toll road".

Barry Diller of IAC (expedia, hotels.com, lendingtree, match.com, etc.) said recently that he makes money by finding where transactions take place and putting himself in the middle.

Bill Gates took a page out of Warren Buffet's book by licensing software.

Everytime someone makes a call on a CDMA phone, Qualcomm makes money on royalties, so they spun off their handset division because producing real things wasnt as profitable.

Lord Majestic




msg:1235199
 8:12 am on Aug 24, 2004 (gmt 0)

real or not, P/E ratio of companies that Warren Buffet will even consider investing in is highly unlikely to be over 140. Bill Gates is his friend (they play golf often apparently), but good old Warren (AFAIK) refused to invest in Microsoft - and IMO this high-tech company is the only one I am sure will be around in 10 years.

Corporate governance in Google is certainly at odds with old man as well. Time will tell who is right.

Kirby




msg:1235200
 2:13 pm on Aug 24, 2004 (gmt 0)

Good point, but I wasnt addressing the P/E issue as your "real products" argument doesnt take into account P/E ratios. Buffett is very conservative in that area. I doubt he would touch Google if it had gone off at $30 a share.

Lord Majestic




msg:1235201
 2:20 pm on Aug 24, 2004 (gmt 0)

Buffett is very conservative in that area.

Indeed, he is known to invest into companies that produce "real" things like Gillette (his famous decision to invest in companies that produce "blades"), year after year he shown that he made right long term bets. Not suprising because (AFAIK gain) he decides on whether to invest by looking at balance sheets, and having zero real stuff on balance sheet is certainly won't be helping.

gopi




msg:1235202
 3:25 pm on Aug 24, 2004 (gmt 0)

>> he makes money by finding where transactions take place and putting himself in the middle.

So Diller is a crackhead too , huh :)

Kirby




msg:1235203
 5:19 pm on Aug 24, 2004 (gmt 0)

Its never been about products with Buffett. While Buffett did well with Gillette and Coca-Cola, he is into banks, insurance and real estate. What's the real product there, other than money?

Buffett is into math. He did get jump started by buying a textile mill, Berkshire Hathaway, when the US textile industry was doing poorly, but he then re-allocated their capital into other areas, notably the insurance business.

While known as the "Oracle of Omaha" Buffett is really the King of "float". With insurance premiums paid up front and claims paid out later, he generated millions in low cost cash flow. When the market dived in the 60's, he re-invested this cash in good companies with marketshare, upside growth potential, low overhead/debt and low P/E ratios. Thats where he scored with Gillette and Coca-Cola.

Google, on the otherhand, is the antithesis of a Buffett company. Buffett looks at companies and projects their balance sheets out over 10, 15, and 20 years. Can anyone do that with Google?

IITian




msg:1235204
 8:55 pm on Aug 24, 2004 (gmt 0)

I can't see the relevance of P/E in valuing Google. Its earnings are growing up so fast that it can be 200 based on last year's earnings, 100 based on current quarter's earning, and 50 based on next quarter's earnings.

[General Motors and similar stocks are not growth stocks but income/dividend stocks and are valued as debt/bonds with P/E ratio based mostly on the interest rate.]

Better measures are market value to revenue model and simply market value. One has to ask if the market value of $25B is reasonable given that Microsoft is $300B, Oracle is $50B, Yahoo is $30B and my answer is yes. However, even though Google had great past, future risks seem to be higher - much higher than more established companies.

Personally I will not invest at such prices but there is a finite chance, albeit small, that Google can produce positive returns for current long-term investors.

Lord Majestic




msg:1235205
 9:08 pm on Aug 24, 2004 (gmt 0)

While Buffett did well with Gillette and Coca-Cola, he is into banks, insurance and real estate. What's the real product there, other than money?

ohhhh banks, insurance are all full of cash, and cash is very very real thing, especially when its invested in real estate :)

Kirby




msg:1235206
 4:02 am on Aug 25, 2004 (gmt 0)

LM, I wasnt clear about the real estate. I meant real estate brokerage. He has quickly become #2 in the US in this industry. And I know cash is real, but its a commodity, not a product, unless you are the U.S. Treasury.

HughMungus




msg:1235207
 4:30 am on Aug 25, 2004 (gmt 0)

Investors who had winning bids for more than a handful of shares were allocated 74.2% of the shares they had sought to purchase

I wonder why. Maybe to create the bump they wanted (which wouldn't have happened if everyone got the shares at the price they bid them for).

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