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Google IPO auction type friendly to students

By Colleen Honigsberg

May 13, 2004 9:00 pm

By choosing to run its initial public offering as an auction,
Google Inc. ““ developers of the online search engine ““
is giving students a chance they would not have had otherwise.

Unlike traditional tech initial public offerings, where shares
tend to only be available to friends, family and select clients of
the underwriters, Google’s shares will be available to anyone
willing to spend the money.

Interested individuals quote the maximum price they are willing
to pay as well as the number of shares they would like to purchase,
and, once the bids have been received, Google will decide on a
selling price.

Though Google is not the first company to use a Dutch-style
auction, it is the most high-profile one to do so.  

The thought of being among the first to hold ownership in an
immensely profitable company such as Google seems to have struck a
cord with potential investors worldwide ““ including at

Di Huang, a third-year business economics student, plans to bid.
For Huang, he said his bid has much to do with his desire to learn
about financial investments and IPOs, as it is a chance to make

“I’m not scared of failure because I will have
learned anyway,” he said, adding he expects Google to be a
solid investment because of its status as the most popular Internet
search engine.

“If (Google) can be so much more successful than other
companies at the same thing, it seems like a secure
investment,” Huang said.

Huang’s attitude of valuing education over profit might
end up benefiting him, as some financial analysts see the Google
IPO as risky.

With great publicity over the IPO, some investors think the
hoopla might drive the price up above market value. If this
happens, the price will fall soon after the IPO.

The IPO especially could be risky for single men.

“In general, research has shown that single males tend to
have the worst investment returns,” said Anderson School of
Management Professor Avanidhar Subrahmanyam.

“Generally speaking, they tend to be overconfident,”
he added.

A frequently quoted study by UC Davis finance Professors
Terrance Odean and Brad Barber found single men earned annual
risk-adjusted net returns that were 2.3 percent less than single

Overall, single women performed better than married women, who
performed better than married men. Espoused men in turn outdid

The researchers attributed the results to the fact that men
traded much more than did women.

Huang, upon hearing of the statistics, found them somewhat

“If I fail, OK. Fine. I’m bankrupt. I’m single
anyway,” he said.

Many financial analysts believe Huang is exactly the type of
investor Google is looking for. With the company’s decision
to retain the vast majority of voting stock within top executives
themselves, Google not only is preventing a hostile takeover but
also seems to be trying to avoid potential investors who want to
make significant changes within the company.

Google is known to the markets as having a somewhat unusual work
culture, where employees enjoy an unusual amount of freedom and
worktime recreational activities.

Each employee has one day a week to focus on his own pet
project, and workers sometime break for roller hockey games during
the day.

Some Wall Street investors have mentioned this attitude as a
hindrance, but Google executives repeatedly have said they have no
desire to change.

Google is, of course, also trying to make as much money as
possible. IPOs traditionally earn a lot of money not only for the
company but also for the banking firm underwriting the offering and
those investors who have first access to stock.

If initial stock is “underpriced,” then the first
group of investors who have access to the IPO ““ usually
family, friends and trusted clients of the underwriters ““ can
buy it at a lower price than people are willing to pay. These
investors then can sell the stock the same day for a large

Internet IPOs especially have been vulnerable to this trend.
According to online finance publication the Daily Corante, the
average Internet share price grew 65 percent on its first day of
trading during the Internet boom.

Google is trying to avoid this problem by asking the market
directly how much it values the shares.

“In this case Google would like every speculative dollar
to get into its bank account. Google is both egalitarian and a
superb capitalist,” said Anderson School Professor Gordon

“I’ve never completely understood why Dave Matthews
Band or Radiohead sells its tickets at face value and then lets
scalpers resell them for the true market value,” Klein

“Here we have a performer named Google that has cut out
the middleman and captured every dollar of what the admission
ticket to being an owner of Google is worth,” he said.

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Colleen Honigsberg
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