Potentially Overpriced Google IPO

Google represents one of the most popular search engines in the world. Recently its IPO was expected to hit the extraordinary $3 billion in value.

Google has been in the focus of attention of most Wall Street experts. However, when Google decided to issue the IPO in its own manner, most specialists were not very satisfied since Google decided to go straight to the investor. It bypassed the traditional network for which it won much of the dissatisfaction.

Instead of using the traditional way of issuing IPO through investment banking establishments and major brokers, it addressed directly the investors. From this approach it is evident that Google's managers are not fond of the traditional way in which investors are not given the opportunity to buy stocks on the original offering price.

Under the traditional approach investment bankers decide which brokers to get packages of stocks. Under such conditions individual investors are forced to purchase stocks well above the original offering price, after the stocks have gone through several hands.

Fairness or Overpricing?

Behind Google's concern that individual investors are given the opportunity to take their fair share at the original offering price, some negative implications may be hidden. One of them is that the price may get overpriced.

As mentioned above Google applies Dutch auction in which investors are given the chance to purchase stocks are the lowest last price. However, there are aspects that are worth consideration.

How Google's IPO system works?

You register on the company's website. After this you quote the number of shares you are willing and able to purchase and the corresponding price. When the IPO is finished, the highest price offered is given a priority and the number of shares is added until it meets all of the shares that constitute the IPO.

The price of the last share is usually referred to as the clearing price. This is the price that everyone pays. For example, the clearing price is $100. You will purchase the stock at $100 even if you have offered a higher price. But, if you have offered a lower one, you will not be able to buy stocks.

A good tactic for acquiring stocks that you really want will be to bid as high as you can afford. In this way you will ensure a greater chance for purchasing the stock. However, since this tactic is not a secret to anyone, this might lead to artificially high bids. Especially when there are many people who desperately want to own Google's shares. As a result the stock becomes overpriced.

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