Google and the search for wealth

Lots of people must be wondering what this auction stuff is all about. At least those eBay regulars know some rudiments of the online process. Google's version is better, safer and likely to be fair. Google borrows the basics from an old Dutch flower auction with its own version; like how it made a better search engine than rival Yahoo.

The idealism of the young founders, Larry Page and Sergey Brin, is a breath of fresh air. Reminds me of a time when I wanted to change the world. But how long will these two young people be able to hold on to their idealism?

The power of Wall Street is not to be underestimated. The idealism the street knows is profits and the path leading to profits. Once Google goes public, it will need to chant the profit mantra quarter after quarter, forecast the future and guide analysts so they can draw their own conclusions and enlighten a larger audience.

I don't think Google can escape this predicament.

Google made a U-turn yesterday. In the first signs it is dancing to the familiar tune, the company announced it will accept ads with images - a reversal from its earlier stand that it would not accept banner ads. The IPO is just around the corner and there is too much hype and big expectations. The pressure is on to show improved earnings than what was revealed at the IPO filing.

Google has all the elements of the dot-com days. Free lunches, fun, hockey in the parking lot et al. Wall Street admires this fun from a distance but never indulges. Show me one investment bank that you can call a fun place.

After the IPO, the stock prices on the board will determine if Google is successful or not; not how much fun it is at the Mountain View headquarters. You can have fun as long as the quarterly profits keep going up. When that stops, so does the fun.

Google is now the Seabiscuit of Silicon Valley. It is the embodiment of hope. Tech heavyweights such as Sun, Cisco and Intel have all seen their big days and lack the steam to power resurgence. Once locomotives of the wealth train, they feel lucky to meet quarterly earnings forecasts. Earlier this week, Cisco stocks got battered despite a good result. For Sun - the "dot" is invisible.

Millions are betting on Google to win. In an age of war; terrorism and uncertainty; $41 a barrel oil and $2.50 a gallon of gas; mass layoffs and skyrocketing house prices, Google looks like light at the end of the tunnel. It is yet another light of hope in our endless search for wealth - this time with a search engine.

Google's IPO auction in a nutshell

Google IPO auction will have five stages: qualification, bidding, auction closing, pricing and allocation. To be eligible, bidders need to fulfill eligibility norms set by the underwriters - in this case Credit Suisse First Boston and Morgan Stanley. Eligible bidders will be issued an electronic identification. Google strongly recommends that aspiring bidders read the prospectus and understand the risk factors.

Bidding: Google will announce the number of shares available for the auction. Qualified bidders with stock trading accounts should be able to bid through their existing accounts. If you don't have a trading account, contact one of the underwriters to open one for the proposed auction. Mention how many shares you are willing to buy and at what price. The trick is how to determine the price of the share. Google will indicate a price range in its prospectus that will be released before the auction. No one knows what this price range will be. The winning bids are determined by Google on a clearing price after the close of the auction.

But there is good news. Multiple bids are allowed and you may try your luck at different prices to hit the bull's eye.

Don't speculate too much. Underwriters are empowered to reject bids they deem highly speculative or too high. Google holds the right to accept or reject any bids. Google may ask you to confirm your bids before closing the auction giving one more chance to withdraw bids.

The price and allocation of the stock is where the Google ingenuity comes to play. Google decides a clearing price for the stock. The clearing price is the highest price at which all of the shares offered may be sold to potential investors. It means those who bid above this clearing price get all the stocks they asked for at the clearing price, which is lower than their bidding price. The remaining stocks will be split among those bids that meet the clearing price.

The company expects that successful bidders will at least get 80 percent of the total number of shares they bid for.

Source: Google's IPO filing to Securities and Exchange Board

Ram Venkatraman's column appears on Fridays. He can be contacted at ram@smdailyjournal.com