GOOG: Google : Small investors say 'No' to Google

» Normxxx - Small investors say 'No' to Google

SAN FRANCISCO (CBS.MW) -- You don't have to be a poker player's daughter to know that Google's IPO is a lot like gambling.

This table's minimum bet is something north of $500. Google's Dutch auction process is serving as a method for assessing the psychology of those pulling up seats at the table.

But many potential investors are saying "No" to this offering.

In an ongoing poll of who's interested in buying Google (GOOG) between $108 and $135, about 90 percent of readers said they'd pass.

Over the next week, leading up to the Google IPO, I will continue to keep reporting readers' responses.

Here are some:

David Berkowitz: My take is Google doing the auction (for the little guy) and then pricing shares so outrageously is like a veteran rock group saying they're going on tour for the fans and the cheapest tickets are $500. A lot of fans will skip it and the average investor will be priced out. Bottom line: Google can value itself however it likes, but it should be up front and not masquerade as the "people's IPO."

BF response: Whether Google designed it or not, it does appear that small investors may not have the same advantage as large investors. So, what's really changed?

Leo: The Google IPO looks much too expensive for me. While I understand that I can get some through Schwab, I'm going to pass. I don't have a feeling for what should happen since the offering comes out so high. I'm thinking I will load up on some Ask Jeeves (ASKJ: news, chart, profile) and Yahoo (YHOO: news, chart, profile) stock and watch it pulled along and hopefully take some profits.

BF response: Loading up while everyone is ignoring the entire group isn't a bad idea. I like buying when everyone is selling. Just make sure you can get out just as quickly. Look at ValueClick (VCLK: news, chart, profile) and InterActiveCorp (IACI: news, chart, profile) in Wednesday trading.

Kevin Ballard: Not a chance. As a small and middle of the road investor anything above $40 per share and a 30 price-to-earnings multiple is not something in which I'm interested. There are just too many other companies out there that can do better.

BF response: Even though I'm tempted to pay the ante and participate as a purely academic exercise, I'm resigned to sitting out and enjoying the show. So, enjoy the show. It's probably best to find other stocks out there that are being ignored.

Susan Burgess: No, I wouldn't buy Google shares at the IPO price range. I can't afford it. I am also worried that the price will drop after the IPO because it is too high to start with. I am a very small investor/trading, not a pro, just your average poor person trying to make a buck and getting beaten up in the market.

BF response: You have to know your risk tolerance. If you can't afford it, you'll have other affordable opportunities.

Trevor: No, not with the other "search engines" selling in the 30's. I love Google and it is the only one I use. But even $100 is too much for a company that only supplies information. I would jump in at double the price of the other search engines because then I could see some upside potential. At 100 and without a clear sign of dividends, added to your comments on pending debut of Microsoft's (MSFT: news, chart, profile) MSN Search , I can only see the stock depreciating.

Ping Chun: Would I buy at this price? Negative. Like 90 percent of those polled, I'll wait until the dust settles.

BF response: Patience is a virtue.

Those who'd buy

Google lover: A lot of people have been writing that Google's price is overvalued. I think too many people focus on the absolute stock number of 108 to 135, when the price per share isn't what matters. It's that number combined with the outstanding number of shares. Clearly a lot of journalists never learned how to divide at school.

I will bid at $120 (the midpoint). My reasoning: This year's P/E for Google is projected to be about the same as Yahoo's. Forward P/E's suggest Google at 50 times and Yahoo at 63 times (ref: Barron's article). Given those numbers, if Google's stock is at $120, it will be at a discount to Yahoo's market cap and we can expect that next year's earnings and P/E will be better than Yahoo. I either short Yahoo because it's valued too high. Do you see anything wrong with this reasoning?

BF response: Not on the valuation reasoning. With regards to your earlier comment, yes, many people focus on the price per share and not the entire market cap. But at a $100 IPO price and a minimum bid of five shares, that's a $500 minimum investment. There are many people who cannot afford that. As for comparing with Yahoo, just keep in mind that Yahoo is far more diversified, so it can rely on branded-media advertising whereas Google can't. Also why would you expect Google's earnings to grow faster? Remember, even Google said margins are coming down. Google spends very little on marketing and advertising as a percent of sales.

Interesting scenarios

James Enck: I really enjoy reading your insights on the Internet. I too am curious to see what the response is to the Google IPO pricing and the entire auction approach. I assume a lot of institutions will sit it out, hope for it to tank and then buy in at a lower valuation. However, I also know that the Google guys are pretty bright, and if I were in their shoes, I'd have some very exciting announcements in reserve to support the price in the after market. That may be the risk that investors face -- betting on a collapse that doesn't come.

Kevin Lee: I'm just brainstorming here, but think of this as an alternate scenario. The Dutch auction, which was supposed to stop speculation, ends up fueling the speculation after the clearing price goes lower than expected. With the Dutch auction everyone who gets shares should be happy, as they get the shares at or below their bid. However, the aftermarket heats up. Here's the possibility: Many leery investors stay away from the Google IPO at the listed price range because they think it is too high. The clearing Dutch auction price on the IPO comes in much lower perhaps at 70. All the investors who stayed out of the IPO fearing a high clearing price come rushing into the market after the open. Stock closes at 35 percent above the Dutch-auction price. It could happen. I wonder what clearing price would cause them to pull the IPO or if they would reset expectations lower prior to the IPO date to assure a fully subscribed auction...?

So would you buy Google shares at this price? E-mail: Or, you can e-mail me at: Bambi.blogs.com

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx