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What Should You Offer For Google Stock?

   
6:41 pm on Jun 15, 2004 (gmt 0)

WebmasterWorld Administrator brett_tabke is a WebmasterWorld Top Contributor of All Time 10+ Year Member Top Contributors Of The Month



Short, but informative article from Forbes:

[forbes.com...]

The much-discussed deal remains unscheduled and Google has as yet to even select an exchange, according to a New York Stock Exchange spokesman. Susquehanna Financial, of Bala Cynwyd, Pa., said that under the Dutch auction process, investors directly submit their own bids for shares; the seller then sorts the bids from high to low and locates the highest price at which the number of shares offered is exhausted by the sum of the bidders' quantity requests.

Also a nice related background article on Google:
[cioinsight.com...]

6:49 pm on Jun 15, 2004 (gmt 0)

WebmasterWorld Senior Member essex_boy is a WebmasterWorld Top Contributor of All Time 10+ Year Member



My wife.
6:52 pm on Jun 15, 2004 (gmt 0)

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Essex_boy's wife
7:02 pm on Jun 15, 2004 (gmt 0)

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IMHO, One should valuate the company {using either a multiple of earnings or discounted cash flow method, and basing the estimate on data from similar companies already public}.

- The valuation should include a determined premium or discount to the market averages according to your feelings about the position of Google in its industry.

- Then you have to do the math to figure out what % of the company a share will be and bid accordingly.

Of course, everybody's tolerance for risk will be a factor in both the discount rate as well as the {determined premium or discount} you give to the company. Now that I think about it, even the projected cash flows will be affected by the assumptions that you make.

You know what would be a good idea, to use this forum to gauge the interest in the community on the ipo once the actual process is in place. A topic titled {Post here the number of shares and the bid that you are thinking of doing}. That would be a somewhat useful topic.

7:28 pm on Jun 15, 2004 (gmt 0)

WebmasterWorld Administrator skibum is a WebmasterWorld Top Contributor of All Time 10+ Year Member



No more than you think it will fall back down to when Microsoft hops in the search game. ASKJ seems to defy gravity at times so maybe Google will too for a while.

If it trades in a similar range to Y!, Ebay, etc.. then a P/E of around 100 would probably be about the max long term multiple.

8:14 pm on Jun 15, 2004 (gmt 0)

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Value or momentum - that is the question.
8:16 pm on Jun 15, 2004 (gmt 0)

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There is value if you can figure out the momentum :)
8:24 pm on Jun 15, 2004 (gmt 0)

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A gmail invite?
8:25 pm on Jun 15, 2004 (gmt 0)

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A gmail invite?

Nah, dime a dozen these days. :)

8:36 pm on Jun 15, 2004 (gmt 0)

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Using Google's earnings for the 1stQtr. 2004 ($63.9 Million) and annualizing it we get $255.6 Million. Using Yahoo's PE of 98, We get a valuation of $25,048.8 Million

If your share is one out of a billion outstanding after the ipo then hipothetically the market will value it at $25.05 {If it considers Google exactly as Yahoo}. Then again, the question is not how much do you think the market will value the stock?, but what should you offer for it? And we also know that Yahoo is not exactly as Google.

I got the earning numbers from another post, and I haven't checked for accuracy with the S-1

11:23 pm on Jun 15, 2004 (gmt 0)

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Depends alot on if you are going short-term or long-term .....

..... Shane

11:48 pm on Jun 15, 2004 (gmt 0)

WebmasterWorld Senior Member marcia is a WebmasterWorld Top Contributor of All Time 10+ Year Member



>>hipothetically the market will value it at $25.05 {If it considers Google exactly as Yahoo}.

Or initially much, much higher, especially with the frantic trading that'll likely take place for a while.

From what I was told a while back, prices at an IPO are often very much inflated from the real amount the stock will eventually be worth once it settles down and stabilizes, and then price tends to drop sharply pretty soon after the IPO, gradually settling in.

Some people, using a speculative and preventive strategy, buy in on the IPO, wait a bit for it to go up and sell a portion for a profit, and to prevent losing too much value on the deal in toto when it does fall in value.

Don't know by anything personal, just what I've been told by a few people in investments - so it's worth about a grain of salt but interesting strategy anyway.

There's a certain online women's community site that went public several years back and the stock was trading for a lot at one time, at opening - possibly in the $ 90's (would have to look that up). No, it sure didn't last and as of a couple years ago was on the verge of delisting, though has made a recovery.

Not a chance that happening with Google, but the the pattern of highly inflated opening price and a subsequent fall seems to have been evidenced.

12:09 am on Jun 16, 2004 (gmt 0)

WebmasterWorld Administrator skibum is a WebmasterWorld Top Contributor of All Time 10+ Year Member



Gotta wonder if it will be seen like Ebay - hot out of the gate and never really cooled or more like other techs that do cool off.

Seems like it would be virtually impossible for any company to knock off Ebay because of the nature of their business, people are so entrenched in it that every incentive is there for people to keep using Ebay or start using Ebay if they want to buy/sell person to person.

In search, MSN Yahoo!, could knock em' off, or just lots of bad PR could tank a search engine. Its probably not anywhere near as "durable" a company as Ebay and doesn't deserve the same vaulation. Increasing returns doesn't apply as much to G.

1:57 am on Jun 16, 2004 (gmt 0)

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Or initially much, much higher, especially with the frantic trading that'll likely take place for a while.
Yeph, that is the thing with the auction.... However, doing a calculation like the one above should give you a point of reference.... You know a number with some logic behind it.

The one thing that is funny to me is when people throw out a number with no idea as to what percentage of the company that share will represent.

The number's only merit would be that you could actually give your reasoning for your bid, it doesn't mean that it would be the correct bid or that you will even get any shares with it.

Also, can anyone confirm that the auction will be "dutch" the way it was described in the article?

2:15 am on Jun 16, 2004 (gmt 0)

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A couple of predictions... I think MS is going to drop a couple of points, though nothing major, they day Google opens. Google is going to be big - but when Microsoft releases THEIR search it's going to be bigger. When the official announcement is made from Microsoft, expect Google's stock to go down and MS to go up. If you do what I'm suggesting, since you DIDN'T buy Google and DID buy Microsoft your MS stock just went up in value. Sell it. Now.

Then use the money and buy Google stock as soon as it takes a dip because Google's dip is going to be short-term. I expect they will issue a press release to counter Microsoft's within the week, possibly even the same day. Over the next couple of days, maybe weeks, Google will stabilize and pick up to where it was before - possibly due to nothing other than the intense from people who will be doing what I'm doing. But it WILL recover from the dip MS causes. Sell it when you feel comfortable or when you see the rise start to taper off.

Anyway, that's my prediction ... I'm not a stock broker or anything so I don't want to hear any bickering if the above DOESN'T happen, but it's a very strong possibility that it will. I'll be buying this way though - even if Microsoft doesn't budge when Google does their initial offering, they WILL rise and fall when MS releases their search or more detailed news about it.

3:08 am on Jun 16, 2004 (gmt 0)

WebmasterWorld Senior Member marcia is a WebmasterWorld Top Contributor of All Time 10+ Year Member



This brief piece from the SEC about demand and pricing is interesting in view of Google having a provision regarding speculation

When an IPO is "hot," the demand for the securities far exceeds the supply of shares. The excess demand can only be satisfied once trading in the IPO shares begins. This imbalance between supply and demand generally causes the price of each share to rise dramatically in the first hours or days of trading Many times the price falls after this initial flurry of trading subsides.

[sec.gov...]

More here

SEC: Initial Public Offerings [sec.gov]

3:30 am on Jun 16, 2004 (gmt 0)

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>Also, can anyone confirm that the auction will be "dutch" the way it was described in the article?

The Google auction, as I understand it, isn't of the true "dutch" variety. As with a dutch auction, Google will rank all bids (disregarding those it deems speculative). They then determine the highest price at which all shares would be consumed, and that is the "offering" price. Everyone who bid at or above that offering price would receive the shares they bid for (or a fraction thereof) at the offering price.

Note: even if you bid above the offering price, you still receive shares at the offering price, thus making the process a "modified" dutch auction and not a true one.

Again, this is as I understand it. Anyone see anywhere that I am off base?

3:48 am on Jun 16, 2004 (gmt 0)

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I thought a lot more people would say they wouldn't touch Google because of their "falling out" with many webmasters. Webmasters may not make a search engine popular as many like to claim, but we are the first to notice when something is going wrong. We didn't create G; we were the first to notice that they had something good. We are not going to bring G down either. However, we have noticed that Google is not as great as it used to be. Shouldn't investors be watching webmasters' opinions on this one?

I, personally, would not buy their stock unless I could get it for nothing.

4:17 am on Jun 16, 2004 (gmt 0)

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The bidding method has alot of potential to overvaluate google stock to the point where it would be worthless to even try to go near.

At this point I do not think the question is what would you pay, but the question should be when will google make some major decisions (what markets comes to mind) before anyone should even think about tossing any money at it.

5:15 pm on Jun 16, 2004 (gmt 0)

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Isn't the whole idea of participating in an auction, that you set the price that you are willing to pay for the stock. If people bid more than you and get the stock and you don't so what?

Sometimes is worth it to just walk away. I know is difficult, but with some discipline it can be exercised.

5:33 pm on Jun 16, 2004 (gmt 0)

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The problem with using Yahoo's P/E as a guide is Yahoo is significantly overpriced.

Yahoo is also a less risky prospect than Google - Yahoo is so diversified a portal it has few threats. Google is a search engine with some other stuff tacked on. I;d hate to see it - but Microsoft could potentially kill Google within 5 years. It takes nothing to switch from one search engine to another.

Certainly the IPO prices will be overvalued. If you just look at discounted cash flows over the companies lifetime with a reasonable 25 - 30% growth rate each year - you are hard pressed to get a valuation much beyond $20 billion - more like $15 billion. This is a lot lower than the valuations floating around in the press.

Personally - I wouldn;t invest any money in a Google IPO - no interest in paying a premium for a risky bet.

5:40 pm on Jun 16, 2004 (gmt 0)

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Devil's advocate here:

The problem with using Yahoo's P/E as a guide is Yahoo is that it seriously underepresents Google's growth rate, which has been much higher than Yahoo's. Furthermore, it doesn't include Google's innovative abilitys that have made it possible to be in the leading edge of internet advertising.

</Devil's advocate>

8:35 pm on Jun 16, 2004 (gmt 0)



Hi Devil's Advocate,

I think you might have forgotten something. Google is solely dependent on PPC and the network of traffic they currently enjoy. PPC is their only real revenue stream, bringing in 95% of the money. By the way Overture is suing them for infringement and probaby won't but could win and thus take away 95% of Google's money. Even if they win the lawsuit with Overture, the are still very dependent on the network of sites displaying their ads. These sites contribute 20% of revenue and Google expects their reliance on non-Google sites to grow.

On the other hand Yahoo is more diversified. It has Overture PPC, HotJobs, MatchMaker, Directory lisitings and other services that all contribute revenue.

Google may seem new and exciting but from an investor's perspective it is not the healthiest of choices.

8:01 am on Jun 17, 2004 (gmt 0)

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Googles growth has been much higher than Yahoo's but that is only because Yahoo's business is more mature. Expect Google's growth to slow. If I had a choice of having either Google or Yahoo I would take Yahoo everytime. Yahoo is not a risky proposition in the same way Google is.

Google has shown itself to be a savvy company with very good ideas - if they can diversify and build upon their core capabilities then they stand a chance. Beyond that - Microsoft has double Google's worth just sitting in the bank in cash - they can & will develop search equal if not better to Google. If they can get away with adding it to windows - then Google will suffer.

 

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