Google IPO and Common Sense ... Ask TaxMama ... May 9, 2004

Ask TaxMama.Com
Tax Information With A Mother's Touch

Published by Eva Rosenberg, MBA, EA
Volume 6, Issue 257 May 9, 2004


	Google IPO and Common Sense
	Child Safety Seats Tips for Summer
	ITIN So
	Too Good to Be True
	Do I Owe?
	Caring for Dad


	IRS Doesn't Conduct Investigations By Email Do Not Respond To Bogus Requests


	Bessie and the Farmer

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Google IPO and Common Sense

We're still waiting for the details. It's a very unusual offering. In fact, it's one that angers many analysts. The stock being offered will not have the same voting power as that of those who work for Google. Yet the letter from Google's president, Larry Page, which he calls an owner's manual to Google shareholders, is very compelling.

He addresses the major flaws in today's companies planning. They plan to please the market. They plan for short-term profits, instead of long-term benefits to the company. They reward executives and managers for doing things that will have a positive effect on the company's share price, but will hurt the company long-term. They provided bonuses and incentives to managers and executives for meeting their own division's goals, even if they do it at the expense of another division - causing some other part of the company to incur heavy losses. Larry Page and Sergey Brin, his co-president, want to avoid those pressures - from the market and the disinterested shareholders.

I think it's brilliant. And I think it's about time that the business model for companies was changed to one that includes common sense and overall company health.

Is the stock worth buying? If you even can ...? Well, even their IPO is unusual. They will have an auction. Then they will perform a caculation (I don't understand it) to determine the optimal value of the stock. Then, they will accept offers at that price. Those who bid higher will pay the lower, optimized price. So, it's not going to be a wild, bidding war, shooting the price into the stratosphere. Perhaps, if you want to hold the stock for the long-term, it IS a good investment. Personally, I love the company and the elegantly simple way it operates. But, I would wait to buy stock until the price and the market for the stock stabilises.

Oh and speaking of stocks, in our last episode, I mentioned Cisco as an interesting company for the long-term. Barry Pinsky from Merrill Lynch in Encino sent me a most intriguing analysis. It includes projections of Cisco's dividends and price/earnings ratios over the next couple of years. ML anticpates a decline in profits. It's a fascinating analysis. See, that's what good brokers do for you.

Will Cisco do poorly in the next couple of years? Will Google thrive, as, by all indications it appears it will?

Companies today are much too large for anyone or any board to see the entire picture, or even to know what all their resources are. The anti-trust legislation of the last century was designed to prevent that from happening. Somehow, that seems to be pushed to the wayside. In this millennium, companies are larger than ever, swallowing up valuable human treasures and laying them waste, much like marauding savages.

It reminds me of one of the classic cases of a rapacious business, that we studied in business school - LTV, Ling- Temco-Vought, a holding company started by James Ling. He'd buy up under-priced and valuable companies. Then, he'd sell off it's assets (plants, equipment, patents, etc.), effectively putting entire towns out of work. He was held out as the prime example of the Ugly American, when it came to business. They even filed bankruptcy in 1992 to avoid paying their employees' pensions. (His actions even spawned a James Garner and Natalie Wood movie, Cash McCall. Only the movie had an interesting twist.)

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