Traders most likely. They only sold around 10% of the shares in the IPO creating a fairly low float. Low-float stocks are prone to explosive moves which was likely what the underwriters wanted. If the stock can gain momentum and drift higher over the comings months, it will be much easier to place a larger secondary and collect the money the company needs.
Might you or anyone else know how big their float was on the IPO? Wouldn't the market punish the stock if they went back to the markets for a secondary offering too soon? For that matter what would even would be considered too soon? If they were to sustain their current loss rate wouldn't they have to return to the market sooner than later? Or are there some other instruments available to them that would be preferable to a secondary offering so soon after the IPO?
Buying shares at the IPO hoping for an immediate profit means that you are betting that the underwriter has underpriced the shares. That seems unlikely.
The investment bank sells a lot of shares to its own preferred clients. If the price then drops (because the initial offering price was too high) those preferred clients lose money.
So the bank has every incentive to price it low, and usually does. So when the market goes even lower, we know that the IPO was done out of desperation and that early investors who had influence over the IPO price were eager to dump some or all of their positions.
One day is too soon to know for certain that this happened. But if the price is still down a week or two later then it probably did.
I'm guessing purchasing all those shares drove the price up, too. Might've been the whole point in buying up that many shares when the IPO was teetering.
When a company does an IPO, they hire an underwriter that guarantees that they'll sell a specific amount of stock at a specific price. So the company knows how much money they'll raise by the time the first day of trading arrives.
I'm guessing there was some pretty big performance (possibly profit) incentives for the founders and they knew they had no chance of hitting them. So their next option to cash everyone out and make a ton of $ was IPO.
No, see the link in the comment below. If the shares go up, the underwriter can close his short position by buying a number of shares from the IPO company, at the IPO price (which is below the market price), therefore effectively profiting.
Rumor was they had a weird liquidation preferences in that round, which made it more like debt. Something like a 2x floor and 3x cap. Not sure how that resolves in an IPO though.
The undrewriters don't always come out doing so well. Take a look at the Facebbok IPO as an example. They didn't end up selling all of the stock that was issued in the IPO and had to buy up stock back from the market at elevated prices in order to keep the stock from plummeting on the first day. They still made money but not what they expected.
As for the insider vs outsider. In order to issue an IPO, a number of stocks are agreed to be issued. These stock either come from the company issuing more shares and diluting the value to current stock holders and the company receives the money from the new share purchase, or the stock holders offer up some of their stock to be sold in which case they receive the money. I believe is usually mix of the two. The current stock holders don't offer all of their shares up. Just enough (I believe this is set by the SEC) to enter the market.
The underwriter assumes a large risk and for the portion of the stock that goes through them to market, they are paid the $20 difference ($26 to $46). As well they facilitate the actual sale of the shares. This is not an easy task (again see the technical issues with the Facebook IPO).
So in the end the 11 rounds of investors get $26 for some of their shares, in order for the rest of them to be worth $46 or now $50. They are also now allowed to sell those remaining shares on the open market. Something they were not able to do before the IPO.
No one is getting screwed here. There is a very big pie, and everyone, from the first investor to the undrewriter, gets a piece.
That depends on the kind of float, you can float in three different ways: emit new stock, sell existing stock, a combination of those two. Any new stock emitted will have the bulk of the funds (minus fees and all that) deposited in the company, selling existing stock will have the bulk of the funds deposited with the existing share holders.
It isn't rare for there to be a lock-up period before existing stock holders are able to sell their shares on the market to avoid people dumping stock they know is worth less than the float price. This is because there is a fair chance that those closely involved with the company have a better long term view on what the company will do than the market so it takes a while to get any post float surprises to be priced in. That's one reason why IPOs tend to be tricky to price: overprice and the stock will drop after the float and those that bought the IPO will feel burned, underprice and you're leaving money on the table.
From what I remember, IPO prices tend to aim about 15% below what the market value should be. It's a big incentive to get the big players (institutional investors) to get in on the IPO and get the stock moving. Pretty sure Square might have offered a deeper discount to make the offering look successful.
Regardless of the actual prevalence of that strategy, I don't think we'll have a meaningful narrative about Square's IPO until the market has it for at least a few days.
> The percentage of companies sold in U.S.-listed IPOs has overall come down over the past 20 years, though not dramatically, according to Dealogic figures. From 1995 to 1997, the average company sold 36% of its shares to the public. In the last three years, the average was 27%.
> This year, 27.7% of shares have been sold in the average IPO. That is up slightly from last year, when 27.3% of shares were floated in IPOs.
Somebody chose to pay the IPO price. Nobody could've offered to buy at that price, or interested parties could wait for the price to fall (if the party felt the IPO price was unreasonable). Typically, the underwriters will ensure there's interest at a given price range, prior to the listing. The demand was there.
I place some blame on the companies (and it is their responsibility to list potential risks in their public filings), but also it's somewhat the fault of buyers who scooped up millions/billions dollars worth of shares at sky-high valuations.
But classic econ 101 would also say that if the above was true, then everybody who thought the shares were worth only $15 (plus spread) would sell, resulting in share price dropping back to around $15.
I think you're wrong. My reasoning is simple. If the IPO investors thought that the company was worth less than $24 (e.g. $16), they would have sold already, and the price would have dropped. If they thought the company is worth $24 (or more), they would have bought the IPO at any price between $16 and $24 (minus spread) as well.
Really, the only argument for under-pricing the IPO is as a favor to the banks/hedge funds. But the question is, did the banks ever return the favor?
AFAIK the underwriters typically don't buy and sell the stock themselves - but offer it to their clients, who can buy the shares at the IPO price instead of the opening price. The underwriters then charge a fee based on the size of the IPO.
reply