Friday, October 22, 2004

Brilliantly Bumbling Google Earns a Bundle

If you were smart, and who doesn't think the people at Google are smart, how would you maximize value?

How about creating demand, shortening supply, then pouring fuel on the fire with a blow out quarter?

Indulge me in a few numbers:

1.) Initial filing range $100 to $135 per share for 25.7 million shares.

2.) WR Hambrecht says that placed bids indicated an auction price of $97 per share.

3.) But the smart institutions realize that the correct strategy is to trash talk the stock to lower demand, then set a price to ensure the classic 15% IPO discount. The investment banks helped make this happen by keeping control over institutional distribution.

4.) Price at $85 per share, but reduce the supply of shares to 19.6 million. Sure, it's only 7% of the total shares outstanding, but it's also 24% fewer shares that can trade until lockups expire.

5.) VCs decide not to sell, top brass reduce their sales too.

  • Kleiner doesn't sell 2.1 million shares
  • Sequoia doesn't sell 2.4 million shares
  • Schmidt doesn't sell 368,965 shares
  • Brin doesn't sell 481,113 shares
  • Page doesn't sell 482,415 shares
So what happens when the company announces a monster quarter, something expected right after an IPO?

Well in a few minutes the stock will open at $170 per share.

That means Kleiner and Sequoia each made about an extra $150 million by not selling in the IPO. In itself that's more than a 10x on their initial $12.5 million investments. Sure, they're locked up for a little while longer. No sympathy here.

Now individuals are different that VCs and selling a 10% stake in one security that is your whole net worth is prudent. Also, while the VCs can distribute their shares to their LPs (and keep a nice 20-25% piece for themselves), management can't sell their shares easily while still running the company.

Still, this was all predictable (just as the IPO result was).

We'll see what the lockup expiration in November brings, but I'd say they've created sufficient demand today that any dip will be short lived.


Blogger montecristo said...

Hello Derrick, on Geeking with Greg you posted some of the notes of the Google Analyst Day presentation, do you have those slides with notes? I have them without notes. Thank you.


12:48 PM  
Blogger montecristo said...

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12:51 PM  

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