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Can some kind soul please explain to me why popping on the first day is considered to be a good thing? Isn't the company leaving the money on the table for inve
by abhinai 8y ago
Can some kind soul please explain to me why popping on the first day is considered to be a good thing? Isn't the company leaving the money on the table for investment banks and their rich clients if they do not sell their shares at an optimal price?
- SpicyLemonZest 8y agoThe window immediately after IPO is the first reliable source of information about how much the general public actually wants to buy Lyft stock. So if shares jump 21% upon gathering that information, it doesn’t necessarily mean the IPO price should have been 21% higher.
- sidr 8y agoThat's exactly what it means. Nobody wants to buy Lyft stock. People only want to buy Lyft stocks at particular prices. Turns out the equilibrium price was 21% higher than the offering price.
- mLuby 8y agoI agree it's leaving money on the table for the company, but I believe that investment banks' rich clients get to buy at the IPO price, so the "pop" is an immediate bonus for those clients. Bad for the company (which would hope for 0% pop) but good for the banks and their clients. I imagine that for companies not using banks, there's less incentive for this?
- iandanforth 8y agoYou are correct. This is why Google went with the dutch auction IPO. However the underwriters (banks) that manage the IPO desire a pop to make the venture worth while and thus have actively cultivated the idea that popping is a signal of value.
- cjeane 8y agoPrivileges of running the IPO. The bank needs to leave upside room for its "best" customers. The company wants to be fully booked and raise as much as possible. It's a balancing act for both sides, with non perfect information.
- clairity 8y agothe other thing to note is that a 10-20% pop is entirely due to that kind of institutional backscratching, rather than an indicator of underpricing. if the principal underwriter can't put a syndicate together to pop the IPO that much, they're not worth their fees. it's a standard part of the game now.
- soVeryTired 8y agoI think part of it is that the pop generates goodwill among the big players, making it easier for the company to tap the markets in the future. But it's fair to argue that a pop means that some money was left on the table.
- hinkley 8y agoIt's also past success as a predictor of future returns. Every bit of information about stocks contains that disclaimer. Probably because everyone ignores that disclaimer... If some group who does underwater IPOs tries to get you to sign up to back their next IPO you won't return their calls.
- zaphirplane 8y agoBuying good will for 4 billion, that’s a lot of waste cause no one is paying you that when you are in trouble and need it What I’m trying to say is your hypothesis is not correct
- soVeryTired 8y agoThey sold 32.5 million shares at $72 apiece, raising $2.3 billion. If you really believe that the 'true' price was the first transaction on the open market, then they left about $400m on the table, not four billion.
- schintan 8y agoexplained well by matt levine here: https://www.bloomberg.com/opinion/articles/2017-03-03/snap-s-pop-and-hedge-fund-charisma https://www.bloomberg.com/opinion/articles/2017-03-03/snap-s...
- whatok 8y agoDefine "optimal price" and how is that price discovered pre-IPO?
- megablast 8y agoThey still own a lot of shares.