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60% of Google Employee Stock Options Are Drowning

by: Erick Schonfeld October 10, 2008 | about stocks: GOOG    

Erick Schonfeld

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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 come 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 hunky 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.

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This article has 14 comments:

  •  
    Oct 10 01:11 PM
    Look elsewhere? Where?
    Reply
  •  
    Oct 10 01:12 PM
    100% of MSFT standard issue employee options are under water.

    Reply
  •  
    Oct 10 01:27 PM
    Technically the options are not "worthless". They are underwater. However, because the stock market could still go up, the options may be in the money later, and thus still have value today. IIRC there is an active market for Google ESOP options and I believe they can be traded even when underwater.

    Kudos to the clever ones that exercised w/ a trailing stop around $700, and are now retired.
    Reply
  •  
    Oct 10 01:47 PM
    Well, Google is still lucrative than any other company in terms of job!! It is not just google going down. In fact all other companies gone down and most of them in more worst situation than google!

    I will say now more people will go join google and their retention will be more easy as everybody maintains or looks for stable job!!

    Companies like Google has cash and cash is king now!

    -
    Slick Deals 4 U
    Reply
  •  
    Oct 10 01:53 PM
    why does anyone care about this? show me a single public company whose options are not substantially underwater...i'd like to invest in it.

    Reply
  •  
    Oct 10 02:19 PM
    "Slick Deals 4 U" has a good point. It is most safest place to work given the current environment and in the no-so-distant-future given the company's business and potential, the stock is going to see the low 500s level.
    Reply
  •  
    Oct 10 02:21 PM
    The reason to stay is thatby about 2016 or 2020 Google should be the benevolent overlord running the world. I am serious. World leaders are not doing a very good job. This economic implosion may cause worldwide civil wars and such. Who can run the world that is increasingly becoming complex? Warren Buffet? Look what a buffon Bush is.

    Google is devoloping a massive brain that can answer questions such as how best to run economies? Google is building a massive brain data center along the Columbia river. In about ten or twenty years computation will be equal to a humans brain (my Blackberry is equal to Bush already).

    The only problem will be when Googlebot has to fight with Microsft for control.

    Stay at Google it will be an interesting ride.

    Google for Overlord!
    Reply
  •  
    Oct 10 02:24 PM
    I dont think writer understands.... if they want to leave...who is hiring...
    Reply
  •  
    Oct 10 03:02 PM
    And your point is?
    Reply
  •  
    Oct 10 03:22 PM
    This is one of the silliest things I've ever read. By all accounts, google is of if not the best place in the valley to work from the perspective of working environment, interesting projects, empowerments, benefits, etc....

    Secondly, for the engineers that I know, half their equity stake was granted as non-statuatory options but the other half was a straight stock grant that they vest into over 4 years. That part has to go to ZERO to be worthless.

    Thirdly, google, unlike other companies provides a market for employees to sell their interest in vested options, so even out of the money options are still valued by time value.

    Finally, your telling me that an employee that's doing interesting work in an extremely unstable economy working for one of the most profitable stable companies in the valley is going to voluntarily abandon that?

    Yeah, well I have a bride to nowhere to sell you, too.
    Reply
  •  
    Oct 10 04:49 PM
    Another point is that in this downturn, people going to try to save more and spend less! Consumer will be doing more research to find better and cheaper deals which they must buy! Guess what which tool is best to do this? Internet! And that is where Google has their strong foot!

    In such situations companies like Walmart, Coke do survive and I think Google will become one of them and will survive this massive downturn. Another reason to people join Google or not leave Google!! Need stable job guys and gals!

    Of course there is no doubt that Google's advertising revenue will go down but NOT to zero! They will be still profitable!
    Reply
  •  
    Oct 10 10:54 PM
    The options are not worthless. Due to the TSO program (Transferrable Stock Option), Google employee could sell stock options, even underwater, to institutional investors.
    Reply
  •  
    Oct 11 12:52 AM
    This is:
    -an anachronistic article (SEEN THE PERFORMANCE OF STOCKS LATELY?)
    -making specious conclusions (EMPLOYEES LEAVE TO GO WHERE?)
    -based on incomplete information (TSOs ANYONE?).
    Reply
  •  
    Oct 11 11:15 PM
    The true believers will stay at Google. Google could issue new stock options that are not underwater. Any of the major insiders at Google buying or are they selling? Employees will look at that. I worked for a company where insiders were still selling boatloads when price was way down. So basically they are saying the company won't do better.
    Reply
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