So Google popped 18% today. That shouldn’t have happened. The goal of their much-discussed auction was to ensure that they made money. The typical bubble IPO involved a “pop” of as much as 100-300% on opening day. This put huge sums in the hands of bankers and the bankers friends, sometimes illegally. Ideally, Google’s trading should have been at about 85 today, because anyone who wanted to pay $100 for the stock could have paid $85 yesterday. So what happened?
I have a couple of thoughts, niether of which are really satisfactory.
Firstly, the auction was imperfect. It was challenging to get into–various reports that I’ve read indicate a need to buy 100 shares, or have $50,000 or so invested with a bank before they’d help you in. So maybe some players were excluded from the auction. A variant of this idea is that people stayed out of the auction in droves, and bought in today.
Second, “Wall St,” by which I mean the emerging markets groups of a few major banks, really doesn’t like this. It makes it harder for them to play the IPO game the way they want to. I find it possible that some of them decided to bid the price up on opening day as a way to make the auction appear less effective than it was. That is, by making Google pop, they discourage other companies from using an auction method. This would have cost them about $210 million, if they were creating the pop. I don’t think that they’d have spent that much, but its possible.