Has Google Blown Its IPO? (Continued)

I guess not. It looks like the deal is going to happen. Probably today or tomorrow.

But the price they got came down to a more reasonable $85 to $95. That's roughly $22 billion. My back of the envelope math says that price is about 7.4x this year's sales and 60x this year's earnings.

Yahoo! is the closest comparable and it is worth $31 billion (you have to back out the $7 billion of value that comes from Yahoo!'s ownership of Yahoo! Japan) and trades at 11x this year's revenues and 65x this year's earnings.

I have a friend who bid in the auction thinking that Google wouldn't get its price and would go out at a "bargain". It looks like he is going to be right. To protect himself from that "bargain" going down, he intends to short Yahoo! against his Google shares. That looks like a decent plan based on these numbers.

I don't think there is as much arbitrage in the long Google/short Yahoo! trade as my friend does, but at the low end of the Google range there does appear to be some spread to be played.