Comment Articles

Why Google's IPO did work

Ester Dyson CNET News.com

Published: 23 Aug 2004 10:10 BST

This is the week that Google is useless as a search term to filter news results, because seemingly everyone is talking about Google.

But a lot of what they're saying, at least in the press, is coloured by the people the press is quoting -- mostly Wall Street analysts and bankers. Of course, those analysts want to paint the whole initial public offering as a dismal failure, because its Dutch auction process flouted the rules of Wall Street and its gatekeepers. And of course, would-be institutional investors, also quoted, successfully drove the price down from its originally projected -- and too high -- level. (For my biases, scroll to the end of this column.)

In the end, the market debut worked, if clumsily. It will continue to work -- probably with some volatility -- over the next few weeks, as trading settles down. The current fluctuations disguise the fact that Google and its original investors got a mostly fair, risk-adjusted price for their shares and that the stock still has room to go up over time as -- or if -- the company delivers on expectations.

The initial hoopla last spring was driven mostly by the press and possibly by investment bankers hoping to get in on the deal. Perhaps foolishly, the company responded by pricing the deal at a premium to what rational analysts said it was worth. That made sense for a while; indeed, some people suggested that the stock would still be underpriced at well over $100.

Then the backlash began, as potential institutional investors talked down the price in the press, and the IT stock market overall started retreating. Google itself made and revealed a number of blunders, including an atypical bout of excessive openness -- an interview with Playboy.

Personally, I'd rather criticise Google for excessive secrecy. But in the end, the company is open about what it says -- if a bit smug -- and open about what it will not say. It explicitly snubs all the short-term gyrations that have occupied the press lately.