[chrislipa]

Maybe I'm fundamentally missing something, but I have a very hard time seeing why Twitter should care all that much about how much their stock 'pops' at open. Sure, they should care deeply about the price it settles at, because that's how they'll attract talent in the future and bases how they'll price future offerings, but the actual amount of pop itself? I don't see it.

This gem from the article:

>Should a stock offering maximize value for the companies selling shares, for the investors looking to gobble those shares up or for early employees and funders? And why are investors buying the shares — because they love the company’s fundamentals or because they sense a good deal?

This is a ridiculously false dichotomy. In any efficient market, sellers are trying to raise the price as far as the demand will bear, and buyers should be willing to purchase up to their estimated value of the company, taking into account their risk tolerance. Price should be a tug-of-war between these actors.

The way I see it, there's only two possibilities:

1) Pre-IPO Twitter thought there was a realistic risk of not fully selling the shares they put up if they raised the price.

2) Twitter purposefully got less money in a fair market trade than they could have.

And (2) seems totally insane to me for a rational actor. (1) seems plausible; apparently these things are hard to price.

[pbreit]

I don't understand what you're asking. The IPOing company cares about the pop because if it is big, it means they could have gone at a higher price and pocketed more cash. The "optimal" pop is probably around 10-30% given that pricing is difficult and you want to make sure there's a bit of a rise.

Auctions sound good in theory but don't work very well (see Google). You generally want some banks selling the crud out of the offering and committing to the company.

[chrislipa]

But that's a counterfactual. Once the pop occurs, the company could not have gone with a higher price and pocketed more cash. A rational actor should make the best decision they can make given the information they have at the time, place their bets, and take their chances. The article clearly made it seem like having a pop (as differentiated from having a higher stock price) was a favor that Twitter was doing investors, and that somehow this favor would be repaid by market at large via some mechanism that's totally mysterious to me. I'm honestly really baffled that this meme gets repeated so much, and I'm open to explanations.

Dutch auctions do sound good in theory, and I'm aware of what happened with Google's: a 17% pop, which left some money on the table, but much less than Twitter did. Google's stock did abnormally well in the months following, but it's hard for me to divine how much of this had to do with the IPO mechanism. In any case, I think a sample size of one is probably not enough to draw much of a conclusion one way or the other.

[pbreit]

I still don't really understand what you are wondering. If we're talking about post-pricing, then, yes, Twitter can't make more money (actually it can because of the over-allotment which of course would only get exercised if the price goes up; another reason to hope for upward movement).

Twitter was clearly playing the whole thing conservatively and aagreed to a price that was probably low (hindsight to some, foresight to most).

There's some incentive so appease the banks as they historically do play a meaningful role going forward as related to M&A and fundraising.

The Google IPO was lousy not because it only popped 18% but because the auction format severely depressed the whole thing. Google inexplicably got pretty much the same result as Twitter ($1,8b on a $23b valuation) despite being an order of magnitude more impressive (I like Twitter).

[phillmv]

One of the articles listed below quotes the notion that without a pop the stock "looks bad", which sounds insane to me.

It sounds like an a posteriori justification of the status quo for playing on Wall St, to me.

I recall a lot of hand wringing in the press when FB IPO'd but their market making bank wasn't able to score anything out of it precisely because it was accurately priced. The more I read about this, the smarter, more incredible of a negotiator I think Zuckerberg is.