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If it stays at $46, that's a gigantic fuck up. They left a billion dollars on the table, and that's borderline breach of fiduciary duty. Of course, we have to
by arjunnarayan 13y ago
If it stays at $46, that's a gigantic fuck up. They left a billion dollars on the table, and that's borderline breach of fiduciary duty.
Of course, we have to wait and see what it settles at, and it's a little premature to heap scorn just yet. But the initial reaction is it looks like they overreacted to the Facebook IPO debacle (in my book, Facebook did the best thing possible for the company and extracted as much value as possible from the public markets --- and the value buyers didn't get screwed, given that a year later it's trading at ~20% above the IPO price.).
- davidw 13y agoCan someone who knows about these things explain why no one else does auctions like Google did? I mean, these guys are supposed to be about markets, right, so why the heck is the price decided by some kind of "central committee"?!
- joezydeco 13y agoI think the Google IPO was a bit unique where they kind of gave Wall Street the finger and said "we'll do it our way, thanks". They pissed off a lot of bankers but I don't think Sergey and Larry really cared. Haven't seen a situation or company like that since.
- Robin_Message 13y agoI have no actual idea, but I saw a comment the other day to the effect that: Choosing a good price is a) hard, because of the due diligence, and b) expensive, because if you chose wrongly, you lose money (in an auction, this is called the winner's curse.) So the cost of estimating the price before the shares are on the market needs to be priced in to the initial sale price. Probably doesn't explain a 100% jump though, but in regard to the rich supposedly supporting free markets, I will remark that people's ability to be for things when they are applied to other people, and against them when applied to themselves, never ceases to amaze me.
- antirez 13y agoI don't really know these things but as far as I can tell what Google did was something really unpopular that only what Google used to be could do: they only allowed the "right" VCs to invest to their conditions, and they were not interested to the reaction of bankers and alike, and everybody wanted the Google shares. Twitter was nowhere in such a kind of predominant position given that is in a weaker situation (it is not clear if it will ever make enough money to justify even the IPO initial price).
- nikcub 13y agoGoogle's auction didn't work, they marginalized wall st. and the banks ended up rigging the bidding. While it only popped 20% on opening day, the stock was up 4x in a matter of months.
- davidw 13y agoWhen you say "didn't work", what do you mean? "Rigging the bidding" sounds like a big deal - where is this covered?
- pbreit 13y agoBecause it works MUCH better. Google could have made much more money on its IPO if it used a sales team.
- lnanek2 13y agoThere's a lot of fuck up IPOs then. I know I got double my money pretty quick on the VMWare IPO and the Visa IPO, just buying as soon as they went public and selling at a peak after news.
- mikeash 13y agoYes, there are. If you were able to do that, that means that VMWare and Visa both got screwed out of billions of dollars. And of course, little guys can't get in right at the IPO price. That's reserved for big players. By systematically underpricing IPOs, the finance folks make billions of dollars for their friends at the expense of the companies they're supposed to represent.
- vdaniuk 13y agoPlease provide extraordinary proof for the extraordinary claim that tech IPOs are rigged to transfer shareholder value to the banks managing or participating in the OP.
- colinbartlett 13y agohttp://www.nytimes.com/2013/03/10/opinion/sunday/nocera-rigging-the-ipo-game.html http://www.nytimes.com/2013/03/10/opinion/sunday/nocera-rigg... http://www.forbes.com/sites/roberthof/2011/11/04/groupon-soars-in-ipo-process-still-rigged-after-all-these-years/ http://www.forbes.com/sites/roberthof/2011/11/04/groupon-soa... http://www.fool.com/investing/general/2011/11/15/this-is-why-ipos-are-rigged-against-you.aspx http://www.fool.com/investing/general/2011/11/15/this-is-why...
- vdaniuk 13y agoThat was informative, thanks.
- mikeash 13y agoVirtually every IPO is priced such that the market price is substantially higher than the offer price. This unquestionably transfers money from the market to those who are allowed to buy at the IPO price. That they are designed to do that seems like a reasonable conclusion from the fact that it happens over and over again. Furthermore, when an IPO is priced such that this does not happen, such as with Facebook, it's criticized and called out as a disaster even though they sold all the stock they wanted to issue and made much more money for their company than they would have otherwise.
- joezydeco 13y agoI believe you have the logic backwards here. Facebook was the fuckup because they priced correctly and all the buddies of the underwriters didn't make bank on the IPO. Twitter is back to the old system and nobody will be complaining this time around.
- nhangen 13y agoI suppose it depends on who you are trying to please. If you are Twitter, it's a major loss. If you give a shit about bankers (most of us do not), then you win.
- joezydeco 13y agoBut the bankers come up with those magical "buy/hold/sell" recommendations that everyone else listens to and panic-sells when their advice says so. Or "oops, they missed our magically predicted revenue by one penny per share". It's all part of the game.
- AsymetricCom 13y agoWhich says to me that bankers are probably still holding a lot of TWTR. If that doesn't change short-term, it could poison the social network.
- joezydeco 13y agoI believe going public poisons any company. CEOs change their vision from long-term to insanely short-term. Gotta make those quarterly numbers or they're screwed. There have been a few exceptions to this, Apple being the most famous one. Facebook was on the same track but the SEC rules about share ownership forced their hand.
- davidw 13y agoAmazon has pretty weird numbers, and is public.
- raganwald 13y agoCan you say for a fact that if they priced at $46 that people would have bought at $46? Markets are highly irrational.
- Tyrannosaurs 13y ago> Markets are highly irrational. That depends which recent Nobel Memorial Prize winner you believe.
- pyre 13y agoWhich one claims that all actors in a market have perfect information?
- icebraining 13y agoI'm guessing parent's talking about Eugene Fama, who shared the prize with Robert Shiller. He doesn't actually claim the markets have perfect information, just that the price always reflects all available information. In essence, you can't "beat the market" consistently, assuming you have the same information.
- cheald 13y ago> assuming you have the same information Which you don't, since Goldman Sachs is always a few milliseconds ahead of everyone else. Given that almost everyone else out there is going to be trading on information that has already been consumed and acted upon by privileged parties, the markets may as well for all intents and purposes be irrational.
- generj 13y agoIn this world of quant-bots, I don't know how anyone can argue that we have a fully rational market. My understanding is that much of the progress in economics has been merging economics with psychology to identify rational failures.
- robertgaal 13y agoI now little about the stock market, so I'm not sure why you're upset but it sounds important! :) Anyone care to elaborate?
- Tyrannosaurs 13y agoThe owners of Twitter prior to the flotation have basically sold a chunk of what they owned on the stock market. To do that they needed to put a value on those shares. Determining that price is pretty tricky but through one mechanism or another they settled on $26 a share. The fact that people are now willing to buy them for $46 a share suggests that they basically sold them at too low a price (arguably $20 a share too low). In doing so they've lost out on a fair bit of money. Establishing a value ahead of the flotation is difficult and often companies will err on the side of caution (that is sell slightly cheap) to make the sell off look like a success, but I think it's being suggested that this gap is too big to just be that and that some of the previous owners may be unhappy that they've lost out.
- pfortuny 13y agoI understand what you mean by "they lost out a fair bit of money". However, that is not exactly true. They have failed to gain that (admittedly huge) chunk of dollars but they have lost nothing: the have the same money they started with and they never had any more than that. You only lose when you start with X and end up with X-Y, for positive Y. They have probably missed the opportunity to gain more but that is their mistake (if it is a mistake).
- hyperpape 13y agoWell, two days ago, they owned n shares of assets that were sellable for $46 a share. Now they have n * 26. They lost out, just as if I took your $20k new car and gave you $10k, you'd have lost out even though you have more cash.
- pfortuny 13y agoDid that information exist two days ago? Because if it did not exist, then there was no real $46 value. No REAL market (which is the place where information on value is) implies no monetary value (or a worthless one). What happens is that they did not guess (and this is an important term, there is no inherent value in a guess) TODAY'S market's expectations correctly. But that has little to do with true monetary loss or gain. Of course, their expectations today might be crushed. But personal expectations and hopes are not valuable as shares are.
- sc90 13y agoUnlike Facebook, none of Twitters employees and VC's are selling, so no internal pressure to grab every last dollar.
- the_watcher 13y agoThere was an employee lockup of Facebook stock, if I remember correctly, so Facebook employees were not selling. Please correct me if I misunderstood something.
- abat 13y agoThe lockup applies to shares on the open market after IPO. That doesn't preclude someone from participating in the IPO itself.
- the_watcher 13y agoGot it, thanks for explaining.
- habosa 13y agoMany Facebook shareholders sold at the IPO. Zuckerberg sold 30M shares and other large investors with huge allocations also sold some. It was calculated, not a free-for-all.
- blisterpeanuts 13y agoInteresting; how is it that employees are able to trade right after the IPO? I thought there was a waiting period for insiders.
- clauretano 13y agonot every employee is an insider. Public companies that issue stock to employees can limit the number of people that are made privy to non-public information about the performance of the company, such that some/many employees are allowed to freely trade.
- apaprocki 13y agoFrom the Bloomberg story, which sums it up: “The company did everything to secure the most cash for itself while leaving some money for the IPO buyers,” said Josef Schuster, the founder of IPOX Schuster LLC, a Chicago-based manager of about $1.9 billion. “You need a pop at the opening to leave a good taste with everyone. They did a pretty good job managing the whole situation.” http://www.bloomberg.com/news/2013-11-07/twitter-raises-1-82-billion-pricier-value-than-facebook.html http://www.bloomberg.com/news/2013-11-07/twitter-raises-1-82...
- mikeash 13y agoI was pretty sure that the financial companies demanded massive bribes in exchange for orchestrating an IPO, but it's still amazing to see it admitted in such a blatant fashion.
- brosephius 13y agoThere's no guarantee that all the IPO shares would have been placed at $46 (I'd doubt it).
- squidi 13y ago> borderline breach of fiduciary duty. Fiduciary duty to who? The shareholders that cashed in today are the same ones who are behind the IPO. You're trying to make it seem like some poor distant shareholder got screwed over, which is not true.
- brymaster 13y ago> borderline breach of fiduciary duty. That's not a real thing. http://skeptics.stackexchange.com/questions/8146/are-u-s-companies-legally-obligated-to-maximize-profits-for-shareholders http://skeptics.stackexchange.com/questions/8146/are-u-s-com...
- oijaf888 13y ago"breach of fiduciary duty" is a very real thing. (29 USC § 1109 specifically) In this case it has nothing to do with the link you posted. He means the contract that Twitter signed with the banks probably has language that says they will attempt to get the best possible price for the shares. The resulting pop shows that they did not do that.
- nkohari 13y agoNo, it doesn't. It would only be a breach of fiduciary duty if the underwriters knew they could price the stock higher, but intentionally decided not to. Something tells me they were expecting a pop, but not quite this significant.
- phonon 13y agoIsn't 29 USC § 1109 about corporate benefit plans? What does that have to do with general Director breaches of fiduciary duty (which is covered under state level business corporate law...)
- pbreit 13y agoIt's not that big a deal. TWTR will do a secondary which will close most of the gap. Popping over 30% is better than 20% or going down. Yes, they were conservative but I think that was prudent here. Maybe they could have gone up a few bucks. I wouldn't sweat it.
- jsmeaton 13y agoWhat's the problem with the stock prices remaining high? How is that leaving money on the table? I'm genuinely curious, and have no idea how these things work (if you feel like explaining it like I'm 5 - or directing me to a site that can). Edit: Unless you mean that twitter "sold" shares at $26, but the actual value was closer to $46 - meaning their investors nearly double their money, and twitter raise nearly half of what they could have?
- wrice314 13y agoI agree that Facebook did the best thing, that is raising the most money with the least dilution, though you can see culturally how downward pricing pressure and momentum has forced them to be much more focused on driving revenue than in the past. Revisiting the price in ~3 months will be a much better gauge of the accuracy.