Google Stock Rises 22% in First Day of Trading on the NASDAQ

Google, which provides gratis the search capacity found on the index page of this little journal, has gone public (NASDAQ: GOOG). However, this follows a downward revision of the pricing range, a reduction in the number of shares sold, and a few regulatory scares that kept everyone wondering just when the first shares would get traded. At the same time, what is important is that Wall Street managed to get a first day pop out of a stock that was sold in such a way that a decline was more likely than a fall.

Priced at $85 by the underwriters, the stock broke $100 right away. The 19.6 million shares sold, less than the originally planned 25.7 million priced the far side of $100 a share, put the market capitalization at $23.1 billion, just shy of General Motors, which is worth another $600 million. It's bigger than Amazon.com's $16 billion, but McDonald's is a $33.33 billion monster. Still, the Happy Meal is 25 years old, while Google's date of incorporation was just a few years ago, September 7, 1998 to be precise.

Google's success stems from thinking differently about making money and about providing a service. That sideways logic resulted in the Dutch Auction approach to the sale of its shares. In such an auction, bidders offer what they will pay, those with the highest offer price getting their order filled first, and when the stock is all sold, the deal is done.

This means that the usual Wall Street practice of low balling the stock, pricing at $16 when the market will trade smoothly at $25, won't get the underwriters and other interested parties a huge profit -- at the expense of the company, by the way. If anything, the price will be set too high, or at least high enough to prevent speculation from moving the price higher.

Yet, it didn't work that way. Stock was withdrawn from the deal, and the pricing range was revised downward. Suddenly, there was an inefficiency in the market that the Wall Street wizards could exploit. Collusion, malfeasance or gross negligence are hard to prove in the courts, but something happened that theory says shouldn't have happened. And the reason why may be illuminating and interesting.


© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.


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