The entire stock market is taking another drubbing today, and Google is no exception. Its shares tried to rally in the morning, but are now trading below the $329 they closed at yesterday. That’s a key price level Google employees are watching because a huge chunk of their options (1.7 million across the company) were granted with a weighted average exercise price of $329.78. The options are worthless under that price. In addition to that, there are another 5.7 million options that were granted at weighted average exercise prices of $450 and above. (see table below). All told, 61 percent of Google’s stock options granted to employees are currently under water.
The rest of Google’s stock options become worthless at the average exercise prices of $275, $177, and $21 (for pre-IPO employees, who don’t have much to worry about). All of these numbers com from Google’s second quarter 10-Q and don’t reflect any options that may have been granted in the third quarter. (Google’s third-quarter earnings announcement is next week).
Only eight days ago Google’s shares were trading at $411 and three months ago they were above $450. In that time, a lot of paper wealth has disappeared and along with it incentive for many recent hires to stay. Of course, the stock could rally and everything will be honky dory again, but if Google’s market cap is being fundamentally reset along with the rest of the stock market, it could face some serious retention issues in the coming months. The free food and transportation are great perks and all, but let’s get real here. Without the financial upside those stock options represent, Google employees will start looking elsewhere.
It is a danger if the stock does not recover. On the other hand, if the economy truly is spiraling into a recession and capital is drying up for new startups, frustrated Google employees might not have anywhere else to go.
Update: How many Google employees are completely underwater with their options? As I understand it, Google grants stock options to employees during the week they are hired. The last time the stock was this low was almost exactly three years ago. So anyone hired since October, 2005 is pretty much under water. That is 75 percent of all current employees (Google had 5,000 employees three years ago, and now has about 20,000).
Update 2: Google shares rallied a bit at the end of the trading day, closing at $332, just above the watermark for some of those options. Next week is earnings. Will it bring another plunge or a rebound?
This is such a short-sighted, reactionary viewpoint fed by the fear-mongering media and emotional financial markets.
not sure the incentive has gone away, its not like if they jump and go to XYZ that they are in better shape
I’m sure glad I’m not affected anymore.
Erik, its HUNKY DORY not honky dory…..
http://www.phra...hunky-dory.html
“Sequoia’s Startup Advice: Save Cash, Slash Costs, Stay Alive” by alleyinsider.com
Wow, now they get it. So what about the good old days of super high salaries and burn cash like there is no tomorrow? I guess the entrepreneurs who were more on making big companies from nothing are looking pretty rosy about now. Imagine these clowns. Oh we do not invest in anything under five million. One million is peanuts. WOW.
With the current situation, these employees indeed have fewer choices and probably stay put until a clearer outlook.
Staying put is very sound advice, Google isn’t going to go bust, some people may end up a little worse off then they started but it could be a hell of a lot worse
http://www.zenbylunch.com
How about just issue new options and chuck the old ones? (if it becomes a problem)
Retention problems, sure, if there were other companies just shining in brightness to pull them away. But right now, I suspect many people are glad to have a secure job, options regardless.
I would think that what this adds up to is that it’s a good time to join Google and get options priced at a much lower value than they would have a year ago.
Companies like Google, IBM, Microsoft might take a drubbing in terms of stock price, but they throw off money, even in a downturn and eventually their stock prices will go back up.
If you’re a long term investor (and I don’t mean 1 year, I mean you’re going to hold for 5-10), things are looking attractive right now. Obviously it’s not a good time to bet your mortgage money on an upswing, but if you’re following an investment plan of investing a certain amount each quarter investments in solid companies this quarter are going to provide some good long term upside.
This is just about the funniest thing going right now. Smart people know that a job is a job is a job. All of this contrived and perceived wealth has no value, nor will it ever. For example, go into your local supermarket and tell them you wish to pay for your groceries with options. There is no reality value to options until they can be converted to immediatley available currency. This is not to say that you can not go to a broker and pay for goods with options, in fact if there is any inclination regarding an approximate window of recovery I am sure “brokers would love to see you coming at today’s rates and values. If one took a job for options then they are getting what they really wanted, an opportunity to be overworked and underpaid. If they took employment for the sake of employment (smartly) then there is no loss and ANYTHING received in excess of immediately available currency is a plus.
OMG! its the end of the world!
I will happily pay money to any googler to sign a private contract to let me exercise their ‘worthless’ options.
You can get me at blazespinnaker@gmail.com
The biggest companies are affected the most, like the biggest constructions will fall the hardest at earthquakes.
http://www.newspopl.com
1. Wait a week or so until they go down even more
2. Get a job at Google with stock options based on current price
3. Wait for the market to recover
Think of this as a positive, anyone who has a bit of cash should be hovering around the stock market waiting to pounce – it’ll recover.
One of two things will happen -
A. The stock will go back up, and the market will even itself backout and become stable again.
B. Stocks never go back up, there is a mass depression, everyone goes broke and there is a mass exodus from the united states to the next semi-stable place in the world.
Which one is more likley.. I would go with A. But who knows, half of this country thinks Palin is a Super-Duper Gee Golly idea.
Art VanDelay
http://www.show...ourthoughts.com
Art VanDelay
http://www.show...ourthoughts.com
It’s a shame employees feel free food and transportation is expected from an employer. Even the union workers today feel they deserve a huge entitlement. I believe this market correction is going to correct more than just the housing prices!
All stocks right now are being hit hard by the lack of confidence in the market. The government we hope is doing everything they can to loose then credit market and have lenders trust each other again though far to late in acting. Companies like IBM give hope to the entire tech market but Google is more of an advertising firm so with small businesses cutting expenses, pay per click prices are falling and the amount of ads are as well. Google is very innovative company and will bounce back when the market does. Like any other company with a good balance sheet, Google is a cheap buy right now for those who can afford it.
http://www.techNmore.com
But they still have free food!
Sweet. Now I can finally afford to buy some.
Google is about the last group of people we should worry about.
They aren’t worrying about us Believe that
Google’s stock could see a short-term bottom if it were to announce a healthy round lay-offs (which would see a lot of the options go back to the pool when the departed don’t exercise them). As for medium to long-term stock prices, who knows.
Time is bad… Stocks of all major IT companies fall down… not just google
this slowdown will defiantly hit the software and internet industry also. and online advertisement also in big trouble
……just wait and see ….
hahaha. This is great. I hate google and their sub-standard crap products.
By your comments I’m assuming yourself or your company is making better products than Google? Otherwise you can keep quiet about Google.
I would imagine even the $21 option guys are wondering how the company will actually survive sellng advertising
You are all bunch of whiners. A Valley of Whiners!
My startup is going to kick Google’s ass. All this means I can hire pissed off, bitter folks. But they better work like Jason “Mahalo” said: 24/7. They better not be married nor have kids. And better live within 500 feet of the office. Back in my day, startups were real gritty — no Cyprus jaunts (kinda like that guy who had a $5000 shower curtain), massage parlors (SF PD you listening to that??), onsite day care at $1M per kid (skirting child experimentation laws if you ask me).
I work at Google. I don’t think anyone’s any more bummed out than the world at large. Employees mostly seem to like working here. It’s not a “massive wealth” opportunity, we all know that.
The article has an inflammatory headline and no content. This seems like another of Techcrunch’s anti-Google hatchet jobs. What’s with you guys?
Sorry to hear that you STILL work there. Working like a slave and no payoff? Hope at least you are an engineer that you can still get free food. Maybe you can save some money by having your laundry done at the big G? Sucks to be like the rest of the world doesn’t? I hear you.
Erick Schonfeld, I agree we are all affected and if we are all affected, Google has probably the best chance of surviving then other companies.
And google is one of those smart companies that has alot of cash to buy back their stock at these low prices, a method Warren Buffet uses alot, or is Warren Buffet doomed too Erick?
I wish you would provide us articles on technology startup related material rather than Google Stock info I can pick up at a finance news site.
I am sure that Google will rebound. If you take a look, it appears that something promising has happened since that initial graph… Perhaps people are buying now, hoping to make some quick money when the market changes…. Perhaps it’s all speculation…
This is when we get to divide the Google employees into three groups based on intelligence:
1. The employees who exercised all of their vested options via risk-free same-day-sale right after the vesting period, cashing in and diversifying their windfall. (most intelligent).
2. The employees who considered their vested shares ‘the best possible investment’ and sat on their options without exercising and diversifying them (lazy, uneducated).
3. The employees who PURCHASED their vested shares (sometimes with borrowed money) to avoid paying short-term capital gains on their windfall, and will not be responsible for the tax burden of the purchase price. (Fools)
4. The employees who have not vested yet but have already started to over-leverage themselves in anticipation of their windfall (pitiful fools)
There is no excuse for being in any category but 1 this time, after the lessons learned from Web 1.0.
Do your homework. Google uses *tradeable* stock options so they have significant value when below their strike price.
In any corporate environment there will always be a category of employees whose main objective is monetary incentives, and thus, they usually hold positions in administrative, managerial, finance, legal, or other similar positions within a company, and typically in most cases have a background in a non technical field. For those employees, perhaps the passion to create software or work on complex problems whether it being a global infrastructure problem or a simple add/subtract program may not be on their top priority list as the objectives of meeting the bottom line and getting compensated for it accordingly!
Nonetheless, there are also tech employees who may have a similar mind set to prioritize monetary incentives in order for them to do their job properly without worrying about life issues such as bills etc. However, employees at Google for the most part are compensated a salary that is above average in addition to other perks such as options, stock grants, and therefore, I don’t really think that it bothers them if Google’s equity stock value dropped as low as $300 or so!
I do not work for Google, but I would conclude that would be the most likely process of thought that takes place.
There are bigger problems that have precedence over the value of options perks, such as being EMPLOYED! So, the fact that Google is not announcing a major lay off of employees, rather, they continue to hire qualified candidates, then, that should tell you that this is a normal economic cycle. Get used to it, that’s how capitalism works, although we don’t live in a 100% capitalistic society as described or theorized by Adam Smith, we the United States nonetheless are by far the most capitalistic economy in the world, and I am happy that we are going through this parabola, as it indicates a yet more vibrant and healthy economy outcome in all sectors, whether it’s in the tech sector or otherwise. So RELAX FOLKS!
Frank, Berkeley – CA
It’s not just Google. But I can see why there is a lot of focus on Google being one of the most synonymous companies of the Internet and all.
Is this not to be expected though even without the current economic conditions? I remember, not so long ago, when a Google search actually resulted in good hits that were usable. Now when I search Google, often I have to sift through 5 to 20 pages of BS to find something I can go on. If that where the only measure of the company, then I’d say that even their current stock price is way over the top. They have had some other successes that temper that (Google Earth, etc) but I honestly don’t see the search results giving me (Average Joe) the hits I’m looking for. I don’t think any of the search engines do actually (but that is not a mystery). I think their current search engine/pay per link revenue generator is the search engine equivalent of a financial derivative. The bottom line for the end user is that it doesn’t really work that well but it makes people at the top wealthy.
I hate it when our companies stocks fall… I always get scared that I will loose my job
Yeah when your company is loosing its stock value that is pretty scary.
http://bioca77.blogspot.com
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