Naysayers are wrong: Google IPO was a success

[intelliot]

Early this year, back before Google Mania grew to bubble-era proportions, some optimists were speculating that the company's prospective initial public offering might produce an overall market value north of $20 billion. That sounded, in those days, like an amazing number for such a young outfit, and it was an affirmation of Silicon Valley's ability to reinvent itself.

Yet today, having bettered that number by a considerable margin in its IPO, Google is beset by second-guessers -- including people with distinct axes to grind -- who are calling the exercise a failure.

Google's management certainly did screw up in some ways. But overall, this IPO was a success. Don't let the naysayers, especially the Wall Street crowd, tell you otherwise.

The most important element of the success was the auction, which Google forced down the throats of investment bankers. Under the cozy old system, the bankers would set the price of hot IPO stocks grossly low and make sure their friends and favored clients got shares at the offering price, which they could then unload for fat profits.

This time, the company got the money, except for some relatively low fees to the banks. The stock had a modest surprising (to me, at least) first-day rise anyway, but the people profiting from that were those who bid in the public auction process, not insiders.

Google's sale of shares to bidders for $85 each was considered low only because the company itself, in what will be noted in business-school case studies as a monumental mistake, set an outrageously high target price in late July. That was hubris, and it was just the wedge the Wall Street crowd needed to talk down the actual selling price.

Political operatives might have given Google better advice: Set expectations low.

Presidential candidates heading into the early caucuses and primaries know that if expectations are too high, they can lose even if they win the voting. Conversely, if expectations are low enough, they can win in public perception even if they lose a particular contest.

Google created expectations that it could not possibly meet, especially after wider market conditions turned south and rational investors looked closely at the deal. Its hubris in other ways, including plans for substantial unloading of stock in the IPO by insiders and too little information about corporate strategy, added to potential bidders' unease.

Had the company set a lower target price earlier -- a price that still would be impressive by any other standard -- it would have looked downright brilliant today.

Wall Street's pique continues to fuel a retrograde spin on this story. The bankers, still sniping from the bushes, weren't vindicated by this IPO. Let's see more auctions.