Companies Don't Have To Go Public
from the well,-of-course... dept
At the end of last week there was a flurry of articles from people talking about the rumors that Google would announce an IPO this week. We didn't post this because it's the exact same story that people have been running for months about how Google is probably going to need to disclose their financial info by Thursday. That was nothing new at all, but many people misinterpreted it to mean that Google would go public this week. At most, they might file to go public - which is quite different from actually going public. Even if they release the financial information as expected, it doesn't mean they have to go public, and some suspect that they'll stay private a while longer. While it's true that they'd be revealing the same info, there still wouldn't be the same pressure, because no one would be buying and selling their stock. Google seems to like being a private company, and while there's a lot of pressure to go public, that doesn't mean it will happen. One small note in the article was pretty interesting, though. It turns out that Google was actually structured as two separate companies (Google Inc. and Google Technologies) to keep them under the 500 shareholders financial reporting rule for as long as possible. Still, this whole debate brings up another annoying misconception that companies need to go public. While it is common, it is by no means necessary - and there are some very successful large companies that have stayed private and are quite happy in that position. Just like startups don't need to raise venture capital, established companies don't need to go public - and many execs who understand the downsides of being public are avoiding pressures to go the IPO route. Going public does give the company (and its shareholders) some liquidity, but that comes at a pretty steep price.
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A huge 500% increase on opening day has two major downsides: (1) it sets the market up for "flipping" or an immediate selling-spree, and (2) it becomes clear that the company should have valued the initial prices higher, so serious investors start looking even harder at their possibly weak financial analysis. There's no reason to invest in such a company once the sell-off begins, so the sell-off is very long and persistent.
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Huge first day pop
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