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It's useful in comparison to the IPO price, which was $15. This means they left a lot of money on the table.

by tomp 10y ago

whatok 10y ago
Or they had to price at a larger discount to encourage a full book and enough of a pop to support the stock.
edutechnion 10y ago
So if they sold at their true price via the Google-style reverse auction, they would have $9 * 10 million more to use for business growth. Instead lots of hedge funds and high net-worth individuals that are big clients of GS and JPM made an easy $100k this morning.
- harryh 10y ago
  Think about it this way: 9 * 10m = $90 million. But probably they couldn't have sold the whole 10M slug at 24. Let's guess and say they left more like $45M on the table. They are currently at a ~2B valuation. 45M / 2B = 2.25% Twilio is (in theory) a high growth tech company. Say they want to grow at 15% a year. 2.25% / 15% = .15 or about 2 months worth of growth. 2 months is certainly something, but in the grand scheme of things isn't the hugest deal in the world.
- whatok 10y ago
  Sentiment behind tech IPOs is already negative and complicating the IPO process would only further that sentiment. Hard to imagine the bookrunners would ever agree to that.
- evanpw 10y ago
  > true price via the Google-style reverse auction Even with the auction, Google IPO'd at $85, and the stock opened at $100. If you think that the investment banks gave away $90M of Twilio's money to their friends, do you believe that Google did the same thing with $300M of their own money?
- jonknee 10y ago
  Or they would have pissed everyone off by having an auction instead of a regular IPO and they wouldn't have had nearly as much interest in their shares. Google was a very special company and even then nearly managed to screw up their IPO.
  - tomp 10y ago
    No need for an auction. I don't know about this specific IPO, but often there are predictions of what the true stock price is (i.e. the "first trading day" stock price) floating around before the stock starts trading. E.g. for Facebook, the expected share price was about 37, the IPO was at 37, and the trading opened at 37. Facebook got the "premium", instead of the hedge funds and banks.
    - jonknee 10y ago
      Facebook may be the worst example of an IPO done right you could have picked. NASDAQ bungled it so badly they got sued: http://www.reuters.com/article/us-nasdaq-omx-facebook-litigation-idUSKBN0NE1FD20150423 http://www.reuters.com/article/us-nasdaq-omx-facebook-litiga...
      - arjie 10y ago
        The article says it was technical issues. That has nothing to do with the discussion.
        whatok 10y ago
        It absolutely has to do with the discussion. The reason for the tightness of the IPO and first day closing price of Facebook was because of those technical issues. Trading was disastrous and had Facebook not been a household name, it's easily believable that it would have traded even lower.
        itchyouch 10y ago
        Actually, the news prior to the IPO about FB's advertising not being quite as effective made people lose a lot of confidence in FB and want to pull out. This exposed a race condition within the IPO process that bungled it up. The post mortem talks about "order modifications" which are actually order cancels right up to the point of the cross was supposed to take place. http://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2012-20 http://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2012-20 Pricing the IPO lower would have had people not feeling that the IPO was overpriced. The overpriced feeling people got caused them to want to tap out and brought out the particular race condition that Nasdaq hit. Normally, IPOs get lots of buying interest. The all-in, then folding behavior was unprecedented as people who didn't believe in the company IPO would never have put in bids in the first place.
harryh 10y ago
That's not necessarily true. They were selling 10 million shares all at once in the IPO. Just because a smaller number of shares are trading higher now doesn't necessarily mean that they would have been able to sell that whole slug of 10 million at 23.99.
- pbreit 10y ago
  The volume is 12 million and it hasn't traded under 23. So, yes, in theory they could have sold the block for more than $15, possibly as high as 23 and change.
  - harryh 10y ago
    Ya, I agree that it's likely that some money was left on the table though I'm skeptical that they could have gotten as high as 23. Comparing volume to the size of the IPO block is a bit of an Apples to Oranges comparison.
    - pbreit 10y ago
      Oh, for sure. And it's better to "leave money on the table" than come out with a whimper. The pop will almost certainly help them do a secondary in the next 4-18 months.
- eldavido 10y ago
  Yeah, I think this is classic econ 101. Share price is a function of quantity supplied. You reduce quantity supplied, and for any market with a downward-sloping demand curve, the price will go up. Perhaps a better way to look at this is that (1) market participants have differing views of the fair value of the securities, and (2) given the current market price, only market participants who think the shares are worth >= $24 (last trade) will buy. There is no "true price", just a lot of opinions resulting in individual buy/sell decisions.
  - harryh 10y ago
    Indeed! This is the same reason that when companies get bought (like LinkedIn) the price is generally a decent premium over the last traded share price.
siscia 10y ago
This comment is confusing... I don't know if is me not knowing how an IPO works or parent. For what I know during the normal stock exchange you sell to the highest price and buy to the lowest. Suppose there a stock EXMPL, and some people want to buy and other want to sell. Now put all those people in a line with the seller facing the buyer sorted by price. So in front of seller line there is the one that want to sell at 100, followed by the one who want to sell at 101, then 103 and so on. In front of the buyer line there is the one who want to buy for 99, followed by 98, and then 97 and so on. In this situation no exchange is been made because they cannot agree on the price. Now suppose that someone is betting heavily on EXMPL and decide to buy 100 shares at 102$. It goes in the first position of the line and ask to the one who is selling at 100: 1> "how many share can you sell me at 100?" 2> "75 share for a total of 7500$" 1> "Deal, here the money!" Now our buyer goes talking with the second of the line... 1> "how many share can you sell me at 101?" 3> "100 share for a total of 10100$" 1> "I only need 25 for a total of 2525$, here are the money" 2> "Deal, here are the share!" And the 102$/share guy left. At this point the last tick sign 101$ which is the "price" of the stock, note that nobody is buying anymore at more than 99$. During an IPO I wouldn't expect much difference... In my understanding the money "left on the table" are just the one needed to rise the price... Am I missing something?
- whatok 10y ago
  You're overanalyzing it. The company priced 10mm shares at $15 with the banks running the IPO so: company -> banks The first actual public trade was $23.99 so banks/clients of banks -> public markets.
  - siscia 10y ago
    Aaah it makes more sense now :) thanks
- eldavido 10y ago
  IPOs are sold by salespeople with pitch decks to brokerage firms, who then sell to their clients. It's not done through an exchange; it's done on handshakes and phone calls, on human time scales, in the weeks/months leading up to the first day of trading. People sometimes refer to the first day of trading as an "IPO", but that's not quite right.
pbreit 10y ago
That's a bit of a mis-nomer because a pop sets them up much better for a secondary. Among other benefits of a pop. Absence of a pop gives the impression of "failure" which takes awhile to overcome.
- tomp 10y ago
  "Failure" like Facebook? A more serious question: how many secondary offerings are there?
  - nemo44x 10y ago
    It depends, especially on the sector. Experimental Biotech companies will do many secondary offerings throughout their existence. In this case the underwriter who controlled this IPO likely has what is known as a "green shoe". The green shoe is an agreement to sell more shares (up to 15%) after the IPO and they acquire them from the company at the IPO price. This means the bank could sell 15% more stock that wasn't part of the original IPO at current market prices and only have to pay the company the original IPO price. The company raises more money and the underwriter makes more profit. This happens when there is a successful IPO where the market prices the stock higher than the IPO price.
mathattack 10y ago
Give things a few months to settle. Right now there are lock-ins that keep prices higher than they might eventually be. One the lock-ins are over, the price will be more realistic. I'm with you that huge first day bumps don't help the company much. A little PR is nice, but if the price stays that high, they underpriced. The investment banks have huge incentives to have these first day pops, as it's free cash for some of their high-volume customers.
ChuckMcM 10y ago
"Leaving" sounds like a choice, there are lots of considerations. We don't know how the roadshow went, so we don't know what people were saying about participating at different prices. We also don't know what constraints they had on dilution from previous term sheets. Personally I'm glad to see a "Unicorn" step out of the corral and survive in the wild. If it is still above a $B valuation after the employee lockup period ends that will definitely classified as a success.

It's useful in comparison to the IPO price, which was $15. This means they left a lot of money on the table.

by tomp 10y ago

It's useful in comparison to the IPO price, which was $15. This means they left a lot of money on the table.

whatok 10y ago

Or they had to price at a larger discount to encourage a full book and enough of a pop to support the stock.

edutechnion 10y ago

So if they sold at their true price via the Google-style reverse auction, they would have $9 * 10 million more to use for business growth. Instead lots of hedge funds and high net-worth individuals that are big clients of GS and JPM made an easy $100k this morning.

harryh 10y ago
Think about it this way: 9 * 10m = $90 million. But probably they couldn't have sold the whole 10M slug at 24. Let's guess and say they left more like $45M on the table. They are currently at a ~2B valuation. 45M / 2B = 2.25% Twilio is (in theory) a high growth tech company. Say they want to grow at 15% a year. 2.25% / 15% = .15 or about 2 months worth of growth. 2 months is certainly something, but in the grand scheme of things isn't the hugest deal in the world.
whatok 10y ago
Sentiment behind tech IPOs is already negative and complicating the IPO process would only further that sentiment. Hard to imagine the bookrunners would ever agree to that.
evanpw 10y ago
> true price via the Google-style reverse auction Even with the auction, Google IPO'd at $85, and the stock opened at $100. If you think that the investment banks gave away $90M of Twilio's money to their friends, do you believe that Google did the same thing with $300M of their own money?
jonknee 10y ago
Or they would have pissed everyone off by having an auction instead of a regular IPO and they wouldn't have had nearly as much interest in their shares. Google was a very special company and even then nearly managed to screw up their IPO.
- tomp 10y ago
  No need for an auction. I don't know about this specific IPO, but often there are predictions of what the true stock price is (i.e. the "first trading day" stock price) floating around before the stock starts trading. E.g. for Facebook, the expected share price was about 37, the IPO was at 37, and the trading opened at 37. Facebook got the "premium", instead of the hedge funds and banks.
  - jonknee 10y ago
    Facebook may be the worst example of an IPO done right you could have picked. NASDAQ bungled it so badly they got sued: http://www.reuters.com/article/us-nasdaq-omx-facebook-litigation-idUSKBN0NE1FD20150423 http://www.reuters.com/article/us-nasdaq-omx-facebook-litiga...
    - arjie 10y ago
      The article says it was technical issues. That has nothing to do with the discussion.
      - whatok 10y ago
        It absolutely has to do with the discussion. The reason for the tightness of the IPO and first day closing price of Facebook was because of those technical issues. Trading was disastrous and had Facebook not been a household name, it's easily believable that it would have traded even lower.
        itchyouch 10y ago
        Actually, the news prior to the IPO about FB's advertising not being quite as effective made people lose a lot of confidence in FB and want to pull out. This exposed a race condition within the IPO process that bungled it up. The post mortem talks about "order modifications" which are actually order cancels right up to the point of the cross was supposed to take place. http://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2012-20 http://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2012-20 Pricing the IPO lower would have had people not feeling that the IPO was overpriced. The overpriced feeling people got caused them to want to tap out and brought out the particular race condition that Nasdaq hit. Normally, IPOs get lots of buying interest. The all-in, then folding behavior was unprecedented as people who didn't believe in the company IPO would never have put in bids in the first place.

harryh 10y ago

That's not necessarily true. They were selling 10 million shares all at once in the IPO. Just because a smaller number of shares are trading higher now doesn't necessarily mean that they would have been able to sell that whole slug of 10 million at 23.99.

pbreit 10y ago
The volume is 12 million and it hasn't traded under 23. So, yes, in theory they could have sold the block for more than $15, possibly as high as 23 and change.
- harryh 10y ago
  Ya, I agree that it's likely that some money was left on the table though I'm skeptical that they could have gotten as high as 23. Comparing volume to the size of the IPO block is a bit of an Apples to Oranges comparison.
  - pbreit 10y ago
    Oh, for sure. And it's better to "leave money on the table" than come out with a whimper. The pop will almost certainly help them do a secondary in the next 4-18 months.
eldavido 10y ago
Yeah, I think this is classic econ 101. Share price is a function of quantity supplied. You reduce quantity supplied, and for any market with a downward-sloping demand curve, the price will go up. Perhaps a better way to look at this is that (1) market participants have differing views of the fair value of the securities, and (2) given the current market price, only market participants who think the shares are worth >= $24 (last trade) will buy. There is no "true price", just a lot of opinions resulting in individual buy/sell decisions.
- harryh 10y ago
  Indeed! This is the same reason that when companies get bought (like LinkedIn) the price is generally a decent premium over the last traded share price.

siscia 10y ago

This comment is confusing... I don't know if is me not knowing how an IPO works or parent. For what I know during the normal stock exchange you sell to the highest price and buy to the lowest. Suppose there a stock EXMPL, and some people want to buy and other want to sell. Now put all those people in a line with the seller facing the buyer sorted by price. So in front of seller line there is the one that want to sell at 100, followed by the one who want to sell at 101, then 103 and so on. In front of the buyer line there is the one who want to buy for 99, followed by 98, and then 97 and so on. In this situation no exchange is been made because they cannot agree on the price. Now suppose that someone is betting heavily on EXMPL and decide to buy 100 shares at 102$. It goes in the first position of the line and ask to the one who is selling at 100: 1> "how many share can you sell me at 100?" 2> "75 share for a total of 7500$" 1> "Deal, here the money!" Now our buyer goes talking with the second of the line... 1> "how many share can you sell me at 101?" 3> "100 share for a total of 10100$" 1> "I only need 25 for a total of 2525$, here are the money" 2> "Deal, here are the share!" And the 102$/share guy left. At this point the last tick sign 101$ which is the "price" of the stock, note that nobody is buying anymore at more than 99$. During an IPO I wouldn't expect much difference... In my understanding the money "left on the table" are just the one needed to rise the price... Am I missing something?

whatok 10y ago
You're overanalyzing it. The company priced 10mm shares at $15 with the banks running the IPO so: company -> banks The first actual public trade was $23.99 so banks/clients of banks -> public markets.
- siscia 10y ago
  Aaah it makes more sense now :) thanks
eldavido 10y ago
IPOs are sold by salespeople with pitch decks to brokerage firms, who then sell to their clients. It's not done through an exchange; it's done on handshakes and phone calls, on human time scales, in the weeks/months leading up to the first day of trading. People sometimes refer to the first day of trading as an "IPO", but that's not quite right.

pbreit 10y ago

That's a bit of a mis-nomer because a pop sets them up much better for a secondary. Among other benefits of a pop. Absence of a pop gives the impression of "failure" which takes awhile to overcome.

tomp 10y ago
"Failure" like Facebook? A more serious question: how many secondary offerings are there?
- nemo44x 10y ago
  It depends, especially on the sector. Experimental Biotech companies will do many secondary offerings throughout their existence. In this case the underwriter who controlled this IPO likely has what is known as a "green shoe". The green shoe is an agreement to sell more shares (up to 15%) after the IPO and they acquire them from the company at the IPO price. This means the bank could sell 15% more stock that wasn't part of the original IPO at current market prices and only have to pay the company the original IPO price. The company raises more money and the underwriter makes more profit. This happens when there is a successful IPO where the market prices the stock higher than the IPO price.

mathattack 10y ago

Give things a few months to settle. Right now there are lock-ins that keep prices higher than they might eventually be. One the lock-ins are over, the price will be more realistic. I'm with you that huge first day bumps don't help the company much. A little PR is nice, but if the price stays that high, they underpriced. The investment banks have huge incentives to have these first day pops, as it's free cash for some of their high-volume customers.

ChuckMcM 10y ago

"Leaving" sounds like a choice, there are lots of considerations. We don't know how the roadshow went, so we don't know what people were saying about participating at different prices. We also don't know what constraints they had on dilution from previous term sheets. Personally I'm glad to see a "Unicorn" step out of the corral and survive in the wild. If it is still above a $B valuation after the employee lockup period ends that will definitely classified as a success.