The purpose of this blog is to follow the insider trading activity associated with the hyped up wave of social networking and media IPO’s pre and post bubble pop. The underlying assumption is that these media glorified IPO’s are in reality merely pump and dumps, which make insiders outrageously wealthy at the expense of the enterprise, employees, and outside investors. But this post focuses on a related but different subject matter – the incredible amount of wealth that insiders can accumulate if a company excels longer term post IPO. My primary concern is that the IPO process in general is flawed leading to wealth accumulation that far exceeds what any human being could actually be worth. The purpose of this post is more philosophical in nature. The two examples I will focus on are Google and Amazon.
Amazon launched its IPO in 1997 and Google in 2004. Amazon raised $54 million for the company through the IPO and Google $1.67 billion. At the end of the first day of trading, Amazon’s enterprise value was $438 million and Google’s value was $27 billion. I admire Google’s founders who thwarted the crony style Wall Street IPO process and instead went public using a Dutch auction. Today, Amazon’s enterprise value is $87 billion and Google is worth $205 billion. Both companies have been very successful and their performances are indeed impressive. I want to point out that both companies faced considerable skepticism when they went public, but there aren’t any skeptics around today. But here is my main concern.
The founders of Amazon (Jeff Bezos) and Google (Lary Page, Sergey Brin, Eric Schmidt) have a combined net worth of $59.4 billion! Just to put that number in perspective, in 2009 the federal government spent $59 billion on food stamps to feed 38 million Americans. The Department of Education spent $56 billion in 2010. The Department of Homeland Security spent $51 billion in 2011. The Department of Housing and Urban Development spent $59 billion in 2010. The Federal government only allocated $18 billion to NASA in 2010. These four men are apparently worth almost twice the value of Costco (valued at $38 billion), or worth five times as much as Nordstrom (valued at $12 billion), or worth twice as much as Dell (valued at $30 billion). Are you kidding me? I know they came up with great ideas and executed on their business plans, but are these four men really worth that much money? Is any human being worth $1 billion, $10 billion, or $17 billion dollars? Does one human being really add that much value to the world?
How on earth did four human beings become worth $59 billion? The answer is simple. Each of these founders received millions of shares before their respective enterprise went public. The millions of shares they received were “founders shares” meaning that when they sell them into the public market the proceeds go into their bank accounts and not into the company’s bank account. Remember, Amazon only raised $54 million (not “billion”) in its IPO and Google $1.67 billion — a lot less than the $59 billion these founders have generated through the IPO process. But here is the kicker. According to Forbes Magazine, Mark Zuckerberg, the founder of Facebook, is worth more than each of the Google founders! Mark Zuckerberg is apparently worth $17.5 billion. Are you kidding me? Again, is one human being worth that much money? Might the IPO process be flawed? You think!