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Steven Pearlstein

A Gaggle Of Google Critics

By Steven Pearlstein
Friday, August 20, 2004; Page E01

In terms of herd behavior, the only group that rivals Wall Street investors is Wall Street reporters.

One moment, the guys at Google can do no wrong -- great company, great product, great corporate culture, strong financials, a refreshing approach to business and investor relations.

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Then the IPO falls short of inflated expectations, hyped mostly by the press itself, and suddenly they're a bunch of arrogant and cocky bumblers with the hubris to think they could do business differently.

This is the Wall Street version of the Michael Phelps story. Because Phelps has won only four of the eight gold medals he was supposed to, this phenomenal swimmer is suddenly the big disappointment story out of the Athens games.

Let's put the Google IPO in its proper perspective. It raised $1.7 billion, the 25th-largest IPO ever and the largest of any Internet company. It valued the company at $23 billion, roughly the same as General Motors. Those who had the guts to buy the initial shares scored a cool 18 percent gain on the first day of trading. And those two bumbling, amateurish founders are now each worth $3.8 billion.

If that's a "disaster," we could sure use a few more of them. Let's find out what chardonnay those "bumblers" drink and send a case to all the other high-tech CEOs.

What's particularly wrongheaded about the "Google flop" is the subtext that it is the predictable fate that befalls anyone who dares challenge the tried-and-true ways of Wall Street. You know, the inflated investment fees. The tainted and misguided research. The earnings management games. The prospectuses written in legalese meant to reveal nothing and hide everything. The corrupt ways in which IPO shares are distributed.

"This Wall Street system is time tested, having priced countless IPOs during the 1990s stock market boom," intoned the Wall Street Journal in its news columns. Could the Journal be referring to the same IPOs that grossly overvalued companies that never should have been brought public in the first place, leading to losses of hundreds of billions of dollars?

I particularly love the oft-repeated complaint that Google's young founders, Larry Page and Sergey Brin, were "arrogant." My colleague Jonathan Krim is probably right that Google could benefit by appointing a CHO -- a chief humility officer. But if arrogance is now to be a disqualifying trait for top executives, then I fear the Business Round Table will have to close up shop. I'll take the arrogance of youth who have created something out of nothing, and promise to run their company for the long haul, over the arrogance of a bunch of over-compensated corporate climbers who haven't created a new product in years and care most about meeting next quarter's earning targets.

And then there was the clucking over the interview Page and Brin gave back in April, a month before Google even made its IPO filing, which apparently violated the sacred "quiet period" when Playboy decided to publish it last week. This would be the same silly "quiet period" that prevents company executives from answering a simple question from a reporter, but not from mounting elaborate road shows at which they share inside information with favored investors, with whom they collude in setting an offering price.

Indeed, the reason many Wall Street firms and money managers refused to participate in the Google auction is that it required them to actually make their own determination of what the company was worth, without the earnings "guidance" of the company or the safety of the herd. When they whined about the "paucity of information," that's what they meant.

Mathew Ingram, a columnist for Canada's best newspaper, the Globe and Mail, wrote for the journalistic herd yesterday when he advised the Google guys that they shouldn't have taken the company public if they didn't want to play by Wall Street rules.

Sorry, Matt, but you got it exactly backward. If you don't like the way the Google guys play the game, then don't buy their stock. Apparently, there are plenty of others who will.

Steven Pearlstein can be reached at pearlsteins@washpost.com.

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