High Hopes for VISA, Another MasterCard? Google?

I was first exposed to the very bright, very concentrated (small number of positions in his portfolio) Mark Sellers at last year's Value Investing Congress West. He is an investor worth listening to. In this article he talks about great companies and their IPOs (Initial Public Offering). His article discusses some relatively recent, successful IPOs and more importantly he is excited about the upcoming VISA IPO. Enjoy!

When Google completed its initial public offering in August 2004, the stock seemed overpriced. Even after reducing its IPO price from $108 to $85, the company’s trailing price/earnings ratio was well over 200. Journalists, analysts and market pundits exclaimed that Google was the most overpriced IPO in years, and warned investors to avoid it.

Shortly after the IPO, analysts were confused about how to model the company’s earnings. The average analyst estimate for Google’s first quarter as a public company was 56 cents a share, but the range of estimates was all over the map. Clearly, there was no “consensus” earnings number. Most analysts were cautious.

When Google then reported earnings in October 2004, its earnings per share were 70 cents a share, and the stock jumped 15 per cent in one day. Analysts then rushed to increase their estimates for the following quarter, but were again too cautious. The next quarter, Google beat the average analyst estimate by 15 cents, earning 92 cents a share compared with estimates of 77. The quarter after that, Google earned $1.29 compared with the average estimate of 92 cents.

As it turned out, Google’s stock was incredibly cheap at its IPO price of $85..."

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