This morning at around 7:30am, guys at work wanted to find a song to download. Because we couldn't install iTunes or any sort of paid music-downloading software, they basically searched on the web to no avail until I stepped in with a solution: a Chinese-based search engine which has an mp3 search function, www.Baidu.com. We used this site and within 20 seconds, downloaded and played the song we wanted, it worked like a charm.
Strangely enough, Baidu also turned into a public company today. That means that it decided a long time ago that it wanted to be traded on a stock exchange in order to gain more capital from potential shareholders, and so they along with an investment bank (in this case, Goldman Sachs) went hand-in-hand over the past few months to set up what wall street calls an Initial Public Offering, or IPO.
The role of the investment bank in creating an IPO for a company that wants to go public is very simple: determine a market price for the company, find people to buy the stock, figure out all the legal details with the SEC, and in the end, do the entire job for a nice 8 digit fee.
So this morning when the market opened, the fresh-from-the-oven stock of Baidu.com (Ticker: BIDU) came onto the open market at $27. Almost immediately, the stock jumped to $60, within two hours, the stock rose to $80, and after 3 and a half hours, it reached $100. When the stock market finally closed at 4:30pm, the stock closed at $126, or up $95.54 in one single day. That is ridiculous. Now that seems great if you were lucky enough to get in on the deal and buy some of the shares, but most of that was reserved for large mutual funds and institutional investors (aka people who wanted a piece of the pie had to have been some of the huge ballers on Wall Street, with tens of millions ready to invest and really good relations with the Investment Bank).
At the end of the day, while the gain of BIDU was completely astounding, the biggest shock is not the potential value that was gained in a day (that within itself is a whole new post) but rather, the complete FAILURE by GOLDMAN SACHS to fairly value the company.
Why do I say this?
Think about it. If you are the executives of Baidu and the firm you hired [Goldman Sachs] values your company at $27 and tells you it will sell it to the market at that price (one of the typical roles of an Investment Bank during this process) and in the same day, the value of that $27 stock rises almost $95.54, you just got COMPLETELY FUCKED. It's as if I told you that your car was worth $5k, bought it for $10k, and then turned around and sold it for $100k -- at first you thought you got a sweet $5k profit, but in the end, you realize that you just incurred an opportunity cost of $95k. Got it? Yes, the CEO of Baidu might as well have just turned around, bent down, and taken it up the butt by every single institutional investor in the world... why? Because if we calculate the volume of the stock right now multiplied by the change in its stock price, you just got snubbed out of... well, a mere... $2.1 BILLION DOLLARS.
Not only did the executives at Baidu get screwed, but so did all the foreign venture capitlist firms who put up hundresd of millions of investment dollars to have the stock sold at $27....
And as per my character, I never criticize without providing some sort of suggestion or solution, and thus, the only possible thing to do for the executives of Baidu is obvious: sue the living fuck out of Goldman Sachs, they axed the IPO and deserve to have their white-shoe name tarred-and-feathered in front of Wall Street. In fact, that might really be what happens next, so keep your eyes peeled.
On a brighter note, I do enjoy taking credit for pointing out this stock before the IPO even came out this morning, as referenced by my music download in the beginning of the post.
Quincy Scott (Trader): "So what's your stock pick tomorrow Feng?"
P.S. Read the first sentence of my previous entry (put in at 10am).
Source Link: CNN
Strangely enough, Baidu also turned into a public company today. That means that it decided a long time ago that it wanted to be traded on a stock exchange in order to gain more capital from potential shareholders, and so they along with an investment bank (in this case, Goldman Sachs) went hand-in-hand over the past few months to set up what wall street calls an Initial Public Offering, or IPO.
The role of the investment bank in creating an IPO for a company that wants to go public is very simple: determine a market price for the company, find people to buy the stock, figure out all the legal details with the SEC, and in the end, do the entire job for a nice 8 digit fee.
So this morning when the market opened, the fresh-from-the-oven stock of Baidu.com (Ticker: BIDU) came onto the open market at $27. Almost immediately, the stock jumped to $60, within two hours, the stock rose to $80, and after 3 and a half hours, it reached $100. When the stock market finally closed at 4:30pm, the stock closed at $126, or up $95.54 in one single day. That is ridiculous. Now that seems great if you were lucky enough to get in on the deal and buy some of the shares, but most of that was reserved for large mutual funds and institutional investors (aka people who wanted a piece of the pie had to have been some of the huge ballers on Wall Street, with tens of millions ready to invest and really good relations with the Investment Bank).
At the end of the day, while the gain of BIDU was completely astounding, the biggest shock is not the potential value that was gained in a day (that within itself is a whole new post) but rather, the complete FAILURE by GOLDMAN SACHS to fairly value the company.
Why do I say this?
Think about it. If you are the executives of Baidu and the firm you hired [Goldman Sachs] values your company at $27 and tells you it will sell it to the market at that price (one of the typical roles of an Investment Bank during this process) and in the same day, the value of that $27 stock rises almost $95.54, you just got COMPLETELY FUCKED. It's as if I told you that your car was worth $5k, bought it for $10k, and then turned around and sold it for $100k -- at first you thought you got a sweet $5k profit, but in the end, you realize that you just incurred an opportunity cost of $95k. Got it? Yes, the CEO of Baidu might as well have just turned around, bent down, and taken it up the butt by every single institutional investor in the world... why? Because if we calculate the volume of the stock right now multiplied by the change in its stock price, you just got snubbed out of... well, a mere... $2.1 BILLION DOLLARS.
Not only did the executives at Baidu get screwed, but so did all the foreign venture capitlist firms who put up hundresd of millions of investment dollars to have the stock sold at $27....
And as per my character, I never criticize without providing some sort of suggestion or solution, and thus, the only possible thing to do for the executives of Baidu is obvious: sue the living fuck out of Goldman Sachs, they axed the IPO and deserve to have their white-shoe name tarred-and-feathered in front of Wall Street. In fact, that might really be what happens next, so keep your eyes peeled.
On a brighter note, I do enjoy taking credit for pointing out this stock before the IPO even came out this morning, as referenced by my music download in the beginning of the post.
Quincy Scott (Trader): "So what's your stock pick tomorrow Feng?"
P.S. Read the first sentence of my previous entry (put in at 10am).
Source Link: CNN
posted by Kevin at 4:24 PM
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