The Venturpreneur is an interesting blog I stumbled on last week. Now I discover that the author is Gordon Smith, someone I met in Tilburg, the Netherlands (not as strange a place as it may sound for two Americans to meet — Tilburg, along with Amsterdam, is an Internet studies powerhouse).
Gordon is now a law professor at Wisconsin, and he's writting some provocative comments today about the new Google IPO:
The Growth Story: Selling stock in an IPO is not about convincing people that your present performance is stellar. It is about your growth story. People who invest in IPO shares are hoping that your company will become the next Microsoft. A compelling vision is crucial. I have been reading the prospectus for clues about Google's growth story, and this is what I have found.
Bottom line: The prospectus is worse than I imagined it could be. I assumed Google would have a difficult time telling a growth story, but I thought that they would give it the old college try. Instead, their growth story is nothing more than a celebration of past accomplishments. “Don't you just love our search technology?!”
Yahoo is currently trading at a price/earnings ratio of approximately 125. Google is currently less efficient at servicing the bottom line, and it admits that operating margins will decline. In the face of these realities, it will need to achieve a price/earnings ratio higher than Yahoo's to obtain the kind of valuations projected over the last few days. While it may reach such lofty heights if retail investors get overly enthusiastic, those prices are not sustainable under any scenario contemplated in the prospectus.
I hope this is pessimistic, although it certainly seems right as far as I can tell. I'd like the first major IPO which is run on a pure public auction, without huge margins to the
parasites investment banks, to be a stunning success.
Update: John Battele's take on the IPO
According to the “founders’ letter”, Google is becoming so big that they’re going to have to start conforming to some of the reporting requirements for publically traded companies even if they stay private. Maybe whatsizname and whatsizname don’t particularly care how much money they get from the IPO, but figure that as long as they have to act like a publically traded company, they might as well collect a few megabucks from it.
sure, they have to start filing, but they could file and stay private. no law against that. Cargill is still private, and their revenues are just a weensy bit higher than Google’s.
the motivation from what I can suss out is: one, the VCs really, REALLY want their freaking money now since Google is probably their one big win from that round of funding. two, and probably more important to the founders, non-founding employees would like a big fat payday to buy a house.