Google's St. Valentine's Day massacre? - 02/09/05 10:34 AM
176 million new shares will be eligible for sale on Feb. 14. Will the lofty price hold?
BOSTON (CNN/Money) - On Feb. 14, 176 million shares of Google stock, which have been locked up under the company's complex stock-release program, are scheduled to hit the market. As economists never tire of pointing out, more supply without more demand means that the price will drop.
On the eve of this date, the question potential investors -- and short-term Google holders -- must ask is this: Is Google's foundation in the market strong enough to withstand this flood, or will it groan and collapse under the weight?
The 176 million shares represent 65 percent of the total outstanding shares, and they will more than double the current float of 127.7 million shares. This offering will be the fifth post-IPO release from Google, and by far the largest.
According to Janco Partners analyst Martin Pyykkonen, in this stage of the game, typically 20 percent of the shares freed up by a post-IPO lockup expiration are sold. But Google's IPO and post-IPO process have been anything but typical. IPOs usually have 180-day lockup periods, "but it's rarely as much of the total outstanding share percentage as this one," Pyykkonen says.
Turbulence ahead?
Google's average daily volume is 10.8 million shares. If just 20 percent of the 176 million shares are in fact sold, that will equate to roughly three times the normal trading volume.
"Major lockups always create turbulence in shares," says Mark Mahaney, an analyst with American Technology Research. "Usually we see a trade-off going into lockups."
Of course, the recent Google activity could hardly be considered a trade-off, with the company reaching a new 52-week high on Feb. 2, although the stock is down about 7 percent from that high.
Still, for rank-and-file employees, the temptation to cash in on stock trading north of $200 per share must be overwhelming, especially for those who experienced the bubble and saw previous paper gains disappear (or who've heard the old-timers in their 30s talk about it). Roughly 45 million shares are owned by non-director employees.
"This is God-given chance to make me rich," wrote amy_lu123 on Google's Yahoo! Finance board, in a post titled "I am a GOOG employee."
While the verity of amy_lu123's claim can't be confirmed, the sentiment is a very real one that must be rushing through more than a few Google employees' heads. "The high price definitely creates pressure to sell," Pyykkonen says.
That desire must be doubly true for the VCs who invested in Google and own some 42 million shares. In the past six months, only 6.4 million shares have been sold by insiders.
Keeping good thoughts in mind
However, true to Google's norm-defying nature, some factors may align to keep the price afloat despite the massive influx of available shares.
The flood hits just after a tremendous fourth quarter, one in which the company -- which doesn't give guidance -- made some very bullish comments, saying it saw no price resistance from advertising customers and could raise prices if it needed to.
On Feb. 9, Google will hold its first analysts day, which should give a clearer picture of what the company is up to and what its plans are.
"As long as Google management doesn't come out looking like Martians on analysts day, there will be a strong bid to the shares," Mahaney says. If you still want in on Google, tune in to that meeting.
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BOSTON (CNN/Money) - On Feb. 14, 176 million shares of Google stock, which have been locked up under the company's complex stock-release program, are scheduled to hit the market. As economists never tire of pointing out, more supply without more demand means that the price will drop.
On the eve of this date, the question potential investors -- and short-term Google holders -- must ask is this: Is Google's foundation in the market strong enough to withstand this flood, or will it groan and collapse under the weight?
The 176 million shares represent 65 percent of the total outstanding shares, and they will more than double the current float of 127.7 million shares. This offering will be the fifth post-IPO release from Google, and by far the largest.
According to Janco Partners analyst Martin Pyykkonen, in this stage of the game, typically 20 percent of the shares freed up by a post-IPO lockup expiration are sold. But Google's IPO and post-IPO process have been anything but typical. IPOs usually have 180-day lockup periods, "but it's rarely as much of the total outstanding share percentage as this one," Pyykkonen says.
Turbulence ahead?
Google's average daily volume is 10.8 million shares. If just 20 percent of the 176 million shares are in fact sold, that will equate to roughly three times the normal trading volume.
"Major lockups always create turbulence in shares," says Mark Mahaney, an analyst with American Technology Research. "Usually we see a trade-off going into lockups."
Of course, the recent Google activity could hardly be considered a trade-off, with the company reaching a new 52-week high on Feb. 2, although the stock is down about 7 percent from that high.
Still, for rank-and-file employees, the temptation to cash in on stock trading north of $200 per share must be overwhelming, especially for those who experienced the bubble and saw previous paper gains disappear (or who've heard the old-timers in their 30s talk about it). Roughly 45 million shares are owned by non-director employees.
"This is God-given chance to make me rich," wrote amy_lu123 on Google's Yahoo! Finance board, in a post titled "I am a GOOG employee."
While the verity of amy_lu123's claim can't be confirmed, the sentiment is a very real one that must be rushing through more than a few Google employees' heads. "The high price definitely creates pressure to sell," Pyykkonen says.
That desire must be doubly true for the VCs who invested in Google and own some 42 million shares. In the past six months, only 6.4 million shares have been sold by insiders.
Keeping good thoughts in mind
However, true to Google's norm-defying nature, some factors may align to keep the price afloat despite the massive influx of available shares.
The flood hits just after a tremendous fourth quarter, one in which the company -- which doesn't give guidance -- made some very bullish comments, saying it saw no price resistance from advertising customers and could raise prices if it needed to.
On Feb. 9, Google will hold its first analysts day, which should give a clearer picture of what the company is up to and what its plans are.
"As long as Google management doesn't come out looking like Martians on analysts day, there will be a strong bid to the shares," Mahaney says. If you still want in on Google, tune in to that meeting.
Source