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James J. Cramer Brace for Google-Related Giddiness By James J. Cramer RealMoney Columnist 4/30/2004 9:28 AM EDT URL: http://www.thestreet.com/p/rmoney/jamesjcramer/10157689.html |
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Can't fault the Google guys for trying not to bubble-up the market. They have set parameters on their deal that are meant to correct many of the faulty mechanisms in the IPO market that both helped facilitate the bubble -- selling a sliver off to a couple of mutual funds and hedge funds that flipped it to the unwashed at the opening price -- and brought about its timely demise when the bound stock was set free. Everything about the auction process impresses me and tells me they've thought through all the ramifications. They have dictated to Wall Street how the deal should be run, even when this type of dictation would crush the traditional underwriting spreads: 3% fees instead of 6%; no stupid road shows; no control by a mindless syndicate desk that really has a corporate finance and a couple of high-commission-generating accounts to watch for; no corrupt friends and family. If I didn't know better, I would say that these guys actually read Confessions of a Street Addict, where I suggested this method as an antidote to the problems. But changing the mechanism, making it fairer and more honest, doesn't eliminate the possibility that this company will come public at $60 billion to $70 billion. That's one of those events that creates the so-called virtuous cycle upward where people say, "Hold it, you mean InterActiveCorp
(IACI:Nasdaq)
sells at X and Google sells at 10 X? Let's go buy InterActiveCorp." You can substitute Ask Jeeves
(ASKJ:Nasdaq)
, Yahoo!
(YHOO:Nasdaq)
, Amazon
(AMZN:Nasdaq)
or any other name you would like from the era in there. The big issue is that the market will never be equipped to handle a company that has taken over the Net as long as the Net is the way that retail buys stocks. You can control who gets the stock from Morgan Stanley and Credit Suisse, but you can't control the buyers in the open market. You can control the offering price, but you still can't control the opening price that could be dictated by market orders from non-Morgan Stanley or non-Credit Suisse clients. And the latter certainly will be bubblicious. We have enough to be concerned about right now that we don't need "bubble" talk put on it, particularly when whatever tech bubble we had at the beginning of the year is looking mighty popped. Foundry
(FDRY:Nasdaq)
doesn't go from $33 to $10 in a heartbeat in a bubble. You don't get the massive deflation of the Conexants
(CNXT:Nasdaq)
and the EMCs
(EMC:NYSE)
in a bubble. Still, we are all so "savvy" in the media that we will point it out and it will contribute negatively, not positively, to the months ahead. I say that fully knowing that Google will reignite interest in the market. The problem is the individual nature of the deal. Put simply, there is no other Google to follow Google. What's good for Google is really good for just Google and whatever companies it plans to buy with its new cash and stock hoard. It will not trigger an honest wave of new companies. There aren't any others. So, try to be skeptical in the wake of the coming giddiness. And hope that the model that Google produces takes hold on Wall Street, even if it would crush profit margins, because it just makes so much more sense than the old way. But then again, the cartel of underwriters will never allow this to happen again unless the Justice Department wakes up and sees what's been happening for years. Unless the Securities and Exchange Commission realizes that Google just did its job for it. Unless New York Attorney General Eliot Spitzer sees the Google model and says, "You know what? That's the first trust-busting idea I have ever seen happen on the Street." None of which will happen. Because that's asking for too much good to come out of the Google deal all at once.
