I just got received an e-mail asking what I think about Google's IPO. I thought I'd answer it here because with all the hype the IPO is receiving, I'm sure many people have the same question. (And besides, I need something to blog about during this boring week.)
Bambi Francisco wrote a piece about the Google's IPO in which she made a lot of great points about relative valuation and the increasing supply of internet stocks. I think she did a great job in covering all of that stuff, so I won't bother talking about those issues.
My concern with this IPO is that it's over-hyped and the little guy will be left holding the bag. No doubt those who get in at the offer price (the price set by the underwriters before the stock trades publicly) will do very well once the shares hit the open market. But my fear would be that the stock opens at a huge premium to the offer price and drops like a rock from there. (Remember what happened to the PALM IPO?) I doubt that Google will be as spectacular as that on the upside or the downside. My guess is that the underwriters will do a much better job of pricing the offering realistically and thus there will be no huge profit that people are panicking to take.
As with any IPO, I wouldn't recommend buying shares until after the stock's traded for a while -- like a month or so. The underwriters usually initiate coverage on IPOs after 22 days (I think) of trading, so I'd like to see how the stock reacts to their obligatory bullish hype and aggressive price targets. And certainly the first 2 or 3 days are only for daytraders who have the quickest of execution systems and/or those with strong stomachs. One of my favorite set-ups is to catch a recent IPO right when it makes a new all-time high after it's been trading for more than a month. It's very typical for these new issues to make a bowl (cup) pattern. I like to buy them when they complete the right side of the bowl and notch that new all-time high. That generally makes sure that the sellers are gone, and anybody that shorted it is now scrambling to cover. The climb back up to the old high will also show you that the stock's got some real sponsorship.
That's about all I can say for now. I'll revisit the topic once the stock starts trading.
Update: Now that they've filed for their IPO I've added some more interesting notes here.
Thanks, Mike.
There's a website w/a discussion board here:
http://www.google-ipo.com/
Already wise people are echoing your advice: Avoid opening day.
I can't believe somebody started a site for this. Now I'm really concerned!
OH, I was sorely tempted to set 10k aside and throw it all at Opening Day, but I've pretty much talked myself out of it.
Would you be agains a small timer like myself going short on say 10k on opening day after the price is very inflated? If so, Why?
I'm pretty sure that nobody, besides a market maker, can short any IPO before it's traded for at least 3 days. You have to be able to borrow shares to short them, so you'd have to wait for the first day purchases to settle before shorting. It's very likely that there won't be shares to borrow for weeks after the IPO.
Aside from that, just like going long, I'd want to see some kind of trend get defined. Assuming you're not a daytrader, you'd probably want at least a 10 day moving average to work with. I'd only short if it was below that average.
Some may want to short it based solely on valuation. But that's not my style and I wouldn't advise anybody to do that. (See the run TASR had... crushing shorts all the way.)
There may very well be an opportunity to short it early on, but I'd wait for some kind of technical signal (trend line break, break though support, bearish candlesticks... ) to do so.
Perma-bear time: Google IPO = market top. QED.
If I get some IPO shares, I'll flip it. Lots of competition in that space. I think they'll be fine, and might add a position after the initial hype wears off.
I make it a point to stay away from IPO's and then that equity for a whole year.
Was the Palm IPO offered as an online auction also?
No, PALM (now PLMO) was done the traditional way.
I am gratified to see that Google is taking theirs and limiting the ability of the big boys to profit off their backs. They won't win any friends on Wall Street, but they have worked long and hard for this, so more power to them. I LOVED that warning to people who intend to flip their shares to expect little (if no?) profit. And those are some amazing financials for an IPO! Wow! What a change this IPO is from the regular attempt to shaft investors! I may have to retract my Google IPO = market top quantum equation. The market top may come some time after.. ;D