4 ms·

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

by 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.
- jldugger 10y ago
  And yet finance 101 disagrees. Yes, market cap should be independent of number of shares, and the market cap = # of shares * $ per share formula still holds, which is why many prefer to think about market caps rather than accounting units. But it's also the case that a firm issuing a share for the price of $15, increases book value of the firm by $15, and this directly offsets the resulting shareholder dilution. Arguing it was impossible to find buyers at 24 dollars a share is a bit silly, given that the market immediately did just that.
  - harryh 10y ago
    Let's say that HarryCo, my own personal widget company, was IPOing. I'm selling 100 shares in the IPO. Goldman Sachs would like to buy 50 shares for $14 each. Morgan Stanley would like to buy 50 shares for $15 each. Barclays would like to buy 50 shares for $16 each. Citizen Bob would like to buy 5 shares for $24 each. So what happens? HarryCo IPOs at $15 (the maximum I can get to cover all 100 shares) and then immediately pops to $24 when Bob buys 5 shares from Morgan Stanley. I did not leave $900 "on the table" in my IPO because there wasn't enough demand to sell 100 shares at $24.
    - tomp 10y ago
      You missed the last part: > And then immediately crashes back to $16 because there are no other buyers willing to buy at $24. Which obviously didn't happen.
    - jldugger 10y ago
      A lot of your hypothetical hinges on GS / MS buying at 15 and holding at prices below 24. Which is a lot like saying they actually value it at 24, but were somehow allocated shares at a bid lower than that. IMO, Google did it right with the Vickrey / second price auction, and apparently this has been formalized OpenIPO: into https://en.wikipedia.org/wiki/OpenIPO https://en.wikipedia.org/wiki/OpenIPO If we assume that GS and MS have a reserve price of 24, as evidenced by the market open, then their strategic 15 and 16 bids do represent money left on the table.
gjem97 10y ago
There may be an effect there, but IMHO it would be a lot smaller than what we're seeing. As of 1:49, about 14.5 million shares have traded on the open market with an average price of about 25. Seems like there's healthy appetite for the shares far above the IPO price. It's troubling to think of the conflicts of interest that go into the pricing of an IPO. The company would like it to be as high as possble, holding the number of shares sold constant. Investment bankers would like to preserve their good relationship with the hoardes of potential IPO investors, and therefore would like the IPO price to be below the "true value" of the stock, to provide their clients with a nice short term return. Another interesting bit, is that most of the employees of the company going public actually care about the price of the stock six months from now when their lockup ends, so their incentives are not exactly aligned either. In short, the whole "big price pop on day 1 == good" idea needs to go away.
- was_boring 10y ago
  > Investment bankers would like to preserve their good relationship with the hoardes of potential IPO investors, and therefore would like the IPO price to be below the "true value" of the stock, to provide their clients with a nice short term return. Do you have a source for this? It was my understanding that the investment bankers want the IPO to be priced as high as possible because that's how they make their commission. See the potential windfall for JP Morgan on the Saudi Aramco IPO
  - evanpw 10y ago
    Both are true. The bankers make more money on this deal the higher it prices, but they can't get the next deal done unless they're on good terms with investors.
    - dforrestwilson 10y ago
      This is correct. It is a balancing act between two conflicting parties.
  - JDDunn9 10y ago

by harryh 10y ago

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.
jldugger 10y ago
And yet finance 101 disagrees. Yes, market cap should be independent of number of shares, and the market cap = # of shares * $ per share formula still holds, which is why many prefer to think about market caps rather than accounting units. But it's also the case that a firm issuing a share for the price of $15, increases book value of the firm by $15, and this directly offsets the resulting shareholder dilution. Arguing it was impossible to find buyers at 24 dollars a share is a bit silly, given that the market immediately did just that.
- harryh 10y ago
  Let's say that HarryCo, my own personal widget company, was IPOing. I'm selling 100 shares in the IPO. Goldman Sachs would like to buy 50 shares for $14 each. Morgan Stanley would like to buy 50 shares for $15 each. Barclays would like to buy 50 shares for $16 each. Citizen Bob would like to buy 5 shares for $24 each. So what happens? HarryCo IPOs at $15 (the maximum I can get to cover all 100 shares) and then immediately pops to $24 when Bob buys 5 shares from Morgan Stanley. I did not leave $900 "on the table" in my IPO because there wasn't enough demand to sell 100 shares at $24.
  - tomp 10y ago
    You missed the last part: > And then immediately crashes back to $16 because there are no other buyers willing to buy at $24. Which obviously didn't happen.
  - jldugger 10y ago
    A lot of your hypothetical hinges on GS / MS buying at 15 and holding at prices below 24. Which is a lot like saying they actually value it at 24, but were somehow allocated shares at a bid lower than that. IMO, Google did it right with the Vickrey / second price auction, and apparently this has been formalized OpenIPO: into https://en.wikipedia.org/wiki/OpenIPO https://en.wikipedia.org/wiki/OpenIPO If we assume that GS and MS have a reserve price of 24, as evidenced by the market open, then their strategic 15 and 16 bids do represent money left on the table.

gjem97 10y ago

There may be an effect there, but IMHO it would be a lot smaller than what we're seeing. As of 1:49, about 14.5 million shares have traded on the open market with an average price of about 25. Seems like there's healthy appetite for the shares far above the IPO price. It's troubling to think of the conflicts of interest that go into the pricing of an IPO. The company would like it to be as high as possble, holding the number of shares sold constant. Investment bankers would like to preserve their good relationship with the hoardes of potential IPO investors, and therefore would like the IPO price to be below the "true value" of the stock, to provide their clients with a nice short term return. Another interesting bit, is that most of the employees of the company going public actually care about the price of the stock six months from now when their lockup ends, so their incentives are not exactly aligned either. In short, the whole "big price pop on day 1 == good" idea needs to go away.

was_boring 10y ago
> Investment bankers would like to preserve their good relationship with the hoardes of potential IPO investors, and therefore would like the IPO price to be below the "true value" of the stock, to provide their clients with a nice short term return. Do you have a source for this? It was my understanding that the investment bankers want the IPO to be priced as high as possible because that's how they make their commission. See the potential windfall for JP Morgan on the Saudi Aramco IPO
- evanpw 10y ago
  Both are true. The bankers make more money on this deal the higher it prices, but they can't get the next deal done unless they're on good terms with investors.
  - dforrestwilson 10y ago
    This is correct. It is a balancing act between two conflicting parties.
- JDDunn9 10y ago