By the time this column is published, Google may or may not have launched its initial public offering, which may or may not have gone out at more than $100 per share and which may or may not have either fallen drastically or spiked upward during its first days of trading. Stock market investing is already just this side of outright gambling, but when the subject is a dot-com, even of Googles stature, you may be better off pulling the one-armed bandit at the MGM. Confused? Heres a breakdown.
History. Tech IPOs in general are not what they once were. One of the other hot IPO prospects this year, Salesforce.com, has had a rough ride, to say the least, having had to lower its offer price to $11 per share after quiet-period violations and, at press time, trading around $10 per share.
The trepidation is not surprising, given the shock of the stock market crash of 2001 and 2002. Recall: On Jan. 3, 2000, Yahoo closed at $475 ($118.75 split-adjusted) per share; a year earlier, on Jan. 4, Amazon closed at $354.94 ($59.16 split-adjusted) per share. Nobody in his or her right mind expects to see such rarefied values again, regardless of the level of irrational exuberance around Google.
Bad timing. The markets have been less than friendly this year, after performing phenomenally last year in just about all sectors. After trading in a narrow range for most of this year, the markets fell precipitously earlier this month, the beginning of what many analysts believe is a legitimate bear market. The economy is still growing, but its growth is slowing. In addition, this month being the traditional vacation month, its not the best time to find a lot of stock buyers, many of whom are out shopping for suntan lotion.
Its just search. Google has grown very fast—from $86 million in revenue for 2001 to $440 million in 2002 to $1.46 billion in 2003. Growth will continue, but many analysts already see that growth slowing, as have the growth rates of all the most successful dot-coms, including Yahoo, Amazon and eBay. After all, Google is still just a search engine, and its revenue is heavily dependent on paid or sponsored Web advertising, which is almost as fickle as the stock market.
Mistakes were made. The Google IPO phenomenon has created a kind of cult in and of itself. Investing in Google is supposed to be “good” for you, like eating whole grains and drinking purified water. But the image of Google as a pure, unadulterated search company became tarnished the day it decided to cash in. The company tried to appear above the fray by issuing stock in a Dutch auction—supposedly to help the average investor and hinder the big investment banks from making a killing. But with the offer price now figured at as much as $135 per share, what average investor can afford to get in? Finally, snags regarding the registration process and stock issued to insiders—not to mention the interview of founders Sergey Brin and Larry Page in Playboy—pushed the IPO date back by weeks. The spark is definitely gone.
Competition. Google did have a legitimate lead in search technology over Yahoo, MSN, AOL and others, but while Google was raking in cash the past few years, those competitors—especially Yahoo and MSN—have gotten better. As a frequent user of search tools, I can say that Yahoo and MSN are now as good as, though maybe not better than, Google. In addition, in contrast with Google, both companies, especially MSN, have sources of income other than search-driven ad revenue.
Paranoia. Like all large success stories, Google has its share of antagonists. Google-watch.org, for instance, argues that Google has replaced Microsoft as the Big Brother of the Internet, thanks to its Gmail idea and personalized ads.
Finally, its important to distinguish between loving the search and loving the stock. If you are married to the site, youll no doubt have a long and happy life together. Google stock may yet be a pleasant surprise, but youd better get a prenup if youre thinking about buying it. Theres just one thing—they dont offer those for stocks.
Scot Petersen can be reached at [email protected]