The Google IPO
To Derive Bid, Use Dow + Pi Your Age
By Nancy McKeon
Washington Post Staff Writer
Sunday, May 2, 2004; Page F01
So Google dropped both shoes at once last week. Not only did the search-engine company announce its much-anticipated initial public offering of stock, but it laid out an unusual method of pricing and selling those shares -- a modified Dutch auction.
The thing about this kind of auction is that we investors will be putting the first numbers on the table, each bidder telling Google how much he or she would be willing to pay per share. Then, as befits a search site that uses secret, complex mathematical formulas to find data, Google co-founders Larry Page and Sergey Brin and their advisers will use a secret, complex mathematical formula to pick the dollar figure they like. If we guess right, we may -- only may, for reasons that are also secret and complex -- win the right to send our money to the guys at Google.
But how to figure out how much to bid? Oh, sure, you could read through the financials and calculate the growth rate tied to advertising revenue, more than $100 million last year. And then you could discount that number against the competitors -- Yahoo and Microsoft -- winkling their way into the arena.
But that's much too simple. A complicated offering such as Google's deserves complicated calculations.
One might be to multiply 35 cents (the cost of each phone call you don't have to make while researching a topic) times the number of times you Google something in the course of a day (3? 17?) times the number of workdays in a leap year (about 240, usually the same as in a non-leap year, silly). That gives you a rather wide range -- $252 to $1,428 per share -- but what the heck.
But that's taking this offering far too seriously, says Allan Sloan, Wall Street editor for Newsweek magazine, whose Deals column appears in The Post.
"Here's what you do," he said sternly. "If you live in an urban area, you go out and you examine pigeon droppings."
"Just examine them. They'll tell you what to do." Pause. "If you live in a rural area, you can work with chicken droppings."
Washington Post Magazine humor columnist Gene Weingarten, while feigning ignorance of things financial, was equally firm in his method.
© 2004 The Washington Post Company
Proceed With Caution On Stock, Advisers Say (The Washington Post, May 1, 2004)
After IPO, Google Founders Plan to Remain in Control (The Washington Post, May 1, 2004)
Aiming to Auction Its Way To a More 'Inclusive' IPO (The Washington Post, Apr 30, 2004)
Taking Stock of Google (The Washington Post, Apr 30, 2004)
Google E-Mail Ad Plans Raise Fears About Privacy (The Washington Post, Apr 2, 2004)
Google Improves Searches In a Number of Ways (The Washington Post, Jan 18, 2004)
Google Fans Fill Web With Buzz Over IPO (The Washington Post, Jan 13, 2004)