Possible Google IPO – Is it Evil?

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Ok folks, time to open your wallets, call your brokers, or join an online trading site. If you missed out on the big Internet stocks of the late 90’s, or lost your savings on the bubble burst- well, it’s time to make it up. Google plans to announce within days that it will push forward with an initial public offering, reports CNN and The Wall Street Journal.

Sure, your stock in Yahoo, FindWhat and Ask Jeeves is doing fine… but wait. Google, the most powerful of all search engines, is rumored to be going IPO. Woohoo! Time to rake up. What will they open at? $5 a share? This could be the chance to double or triple your investment in one day. I mean come on, everything looks sunny side up, doesn’t it?

* Google IPO rumors have been on the rampage since last October, with some Wall Street folks valuing Google at as much as $25 billion.
* Google will soon be required to disclose publicly more information about its business, under a Securities and Exchange Commission rule triggered after closely held companies surpass a certain size.
* According to analysts, Google is expected to have to make such disclosures as early as next week and such disclosers usually trigger a demand for such a company to offer public shares.

It all looks like cake. Google files, they get rich, so do their investors. However, some tech people, including Ensight’s Jeremy C. Wright, think otherwise. Jeremy sees the Google IPO as being, well, evil.

Jeremy writes:

My primary reasons for opposing the hype around the IPO (more than the IPO in particular) is that it will help in creating a bubble-type mentality, it will get a disproportionate amount of smaller investors involved, it will focus an illogical amount of attention on tech and it will, overall, raise the level of expectation across the board.

First, let’s run through a couple of sample scenarios. When Google IPO’s it will either be really good or really bad. Some people might disagree with the ‘really bad’ part but too bad. Google is, apparently, a good company. There is a huge difference between a good company and a good stock though. So, drop the whole good company thing and what you have is a company trying to prove itself on the stock exchange just like any other.

So, there are two things that could happen when Google IPO’s. Either it will be really good or really bad. If it’s really bad obviously loads of people will be burnt and it will be a disaster. I’ll get into the hows and whys in a minute, but suffice to say that in my opinion, a good IPO will have far more disastrous effects than a bad IPO.

Before the IPO there is hype. As a result of hype, people who otherwise wouldn’t have ‘invested’ in tech or in stock are saving money, borrowing money, opening margin accounts, signing up for online trading accounts, etc….Once again small-time investors are getting in, a company is getting a huge amount of press before the IPO is even announced, people are borrowing to be able to buy.

And if it’s a bad IPO? These people will lose money, sure, but they will also lose confidence and they will tell their friends. A bad IPO will set tech back about 5 years.

A good IPO will be much, much worse than a bad IPO? Why, for the exact same reasons as why a bad IPO would be disastrous. Let’s run the scenario. Half the people who could invest in Google do. They make some money (most of them). They tell their friends. The next time a tech IPO comes around, they play the game again, and win again. They tell their friends. By the the third time, everyone in town is playing the game. Eventually something gives out. Billions are lost.

Google, please don’t IPO.

Ok, well it may be difficult to argue the Google IPO being… evil, especially when compared to a mining company. Jeremy goes deeper into his IPO worries:

The “pro Google IPO” camp (if there is such a thing) seems to basically base their opinion that this will be a fantastic IPO on two basic points. The first is that this isn’t the tech bubble of before. It took months for that bubble to ramp up. The second is that Google is a “good company”.

Let me tackle these quickly by saying “I agree”. I really do. It isn’t the tech bubble. And Google is, apparently, a “good company”. However, I don’t believe that has any bearing on the IPO or the potential for harm to tech investing as a result of this IPO.

First, the “this isn’t the bubble” argument. As anyone will remember it took nearly 4 years for the bubble to get into full swing. The issue is that this isn’t the beginning of a new bubble. There is a nascent expectation. There are 2 million investors lined up to gobble up IPO shares. This simply isn’t the same environment as the last tech bubble so anything about it doesn’t really apply.

Second, yes Google is a good company, as far as we can tell. However, there are two fundamental things that will change once the IPO happens. First, it will be a public company, forced to be scrutinized in ways it’s refused to be before. Second, there is a massive difference between a good stock and a good company.

Restating the Original

Before I restate my position let me say that I have nothing against Google. They ‘done good’ with search technology and have, overall, helped the Internet tremendously in my opinion. Good company? Every profile I’ve read says yes. None of this has to do with Google as a company.

So, my position is essentially this.

Good IPO: people make money, they tell their friends, expectations are unnaturally high (even more so… average tech stock is already in the 60-70 times earnings range… not quite at the bubble’s 170-220 range, but still unnaturally high). More people invest, we’re right in it again.

Bad IPO: Well, if it’s a bad IPO 2 million investors have lost money and faith in tech is set back 2-3 years. Not really as bad as if it’s a good IPO, but bad enough.

So, again, nothing against Google. Mainly this is against tech sentiment, nascent hope and unrealistic expectations for a repeat of the ‘get rich quick’ opportunity that the last boom afforded.

Good IPO or bad IPO, given Google’s success and income, they may have to go public next week. The Search Engine Journal will bring you such news as it happens and looks forward to the final verdict on this looming IPO. Special thanks to Jeremy at Ensight for bringing this Google IPO commentary out into the open.

Loren Baker
Loren Baker is the Founder of SEJ, an Advisor at Alpha Brand Media and runs Foundation Digital, a digital marketing strategy & development agency.
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  • Wesley Warren

    Its also possible that the IPO could be good but not GREAT, so the stock could rise in a steady fashion, not skyrocket to triple or quadruple in a single day/week. It could just come out and be another solid company to invvest it. I think the bust hopefully taught many people a painful lesson and hopefully that will keep the price from exploding to quickly. A slightly positive stock could just help the market overall, just stating that there are more than just two possibilities. πŸ™‚

  • Colin MacDonell

    Your comments about “setting the industry back X number of years” is unfounded and lacks supporting facts. “The Market” isn’t going to be as drastically affected by this one IPO moreso than others, excepting of course that this particular IPO has and continues to get much more MEDIA exposure than others.
    Nice try with the attempt to get the words evil and google in the same context, but I really don’t think you know a damn thing about what you’re talking about.
    Evil? I think you need to become way more informed before you start flinging the holy water about.

  • John Doe

    This is really stupid. There is just no comparison to the Internet Bubble hype-IPO days… Google is a profitable company which, while innovative, has a well-defined market with real also-profitable competitors. When Google’s financial numbers become public they’ll be compared to Yahoo and others, and even if those numbers look very good the very fact that they /can/ be compared to Yahoo will put keep expectations firmly planted on this planet.

  • Loren

    As Editor of the Search Engine Journal I’d like to add to this discussion that we try to report Search Engine News on a fair and balanced basis. The pending Google IPO is huge news and has the ability to profoundly effect the US economy and Internet businesses as we know them. We do like Google and the IPO news has our heads buzzing. By reporting on search news in a balanced fashion, we feel that bringing up an interesting viewpoint on the IPO is informative to our reader base. Hence, posing a question and quoting an existing viewpoint on another site, not our own. The same story quoted in this feature was also quoted in the Washington Post and the Seattle Times. In such, it is news commentary on a huge breaking story and we feel our readers may find such a viewpoint worthwhile.

    Much thanks for your thoughts and opinions,
    Loren Baker
    Editor in Chief, The Search Engine Journal

  • Someone

    Just a clarification… despite what you’ve written here, and what a number of other sites have written, Google CAN NOT go public next week. What they may do is FILE TO GO PUBLIC, meaning that they will not actually go public for a few months. In filing, though, they will open up their books. However, it’s inaccurate to say that they’ll go public next week.

  • Jeremy C. Wright

    Just to clarify, for those who don’t think I know what I’m talking about (hey John Doe). The effect I’m talking about has little to do with economics and more to do with psychology and game theory. Success breeds success until it breeds failure, mob mentalities, follower succintness… All well documented. I have no problem being wrong, I just feel that all of the positive exposure without ANY checks or balances (ie: is this worth investing in isn’t a question I’ve ever heard asked in conversations about Google) can only be a negative thing.

    Even if it turns out well, it will redefine people’s perceptions of IPO’s. To say this is a positive thing is to say that people can just look at the hot company of the day, invest, and make money.

    Sorry, but it doesn’t work that way. If anything, ever, encourages people to not do their homework, not seek financial council and not invest money they are fully prepared to lose, it will affect the market and the economy in a negative fashion. It’s a lesson history has tried to teach us, and one we haven’t learned very well.

    And, for the record, the same pieces Loren quoted have also been in the Miami Herald, the Chicago Sun Times, the Wall Street Journal, the New York Times and many other papers. Doesn’t mean I’m right, but having a logical, balancing opinion isn’t a bad thing.

    After all, it’s not like I’ve got anything against Google. None of this is their fault, and I wish them all the best. Great bunch of guys, many of whom I know quite well.

  • Doug Ryan

    Jeremy C. Wright is a moron. With this logic, let’s all strive for mediocrity!

  • Jeremy C. Wright

    Yes, because by investing in the Google IPO you will obviously achieve riches, glory and happiness.

  • Brian

    Jeremy brings a well thought argument. However he states the following:
    Second, yes Google is a good company, as far as we can tell. However, there are two fundamental things that will change once the IPO happens. First, it will be a public company, forced to be scrutinized in ways it’s refused to be before. Second, there is a massive difference between a good stock and a good company.

    However a law passed during the Great Depression in 1934 requires any company with more then 500 shareholders and over 10million in assets to register with the SEC. Google is being forced to have SEC scrutiny without the benefits of it going IPO. Because of this Google doesn’t have much choice in the matter, they can take the scrutiny with none of the benefits, or then can go IPO and reap the wealth.

  • Jeremy C. Wright

    Actually, I cover that in one of the pieces Loren references πŸ™‚

    Btw, look slike I was wrong. If the ‘auction’ methodology Google’s proposing in today’s SEC filing works as planned, there shouldn’t be the huge flux in share prices.

    Hopefully it works, as Google’s a good company πŸ™‚

  • Wesley E. Warren

    This is slightly off topic, but its driving me crazy. – What is up with all the forward-slashes after the apostrophes? It’s really ditractin’ me πŸ™‚