Price Cost Twitter Cash but Gave It Credibility

This is an interesting theory. I'm not sure I understand it fully. But since the company pared back its offer (and likely will sell again via 2nd offering) it certainly is good to leave the impression that some 'value' will be left on the table for public shareholders. Whether or not its all a mind and pr game, versus something more actually tangible, is perhaps beside the point. And I suppose that is what the title is meant to convey. Here is one critical bit of context:

But no Twitter insiders sold stock as part of the offering, so their shares, valued at as little as $17 just a week ago, are now worth more than $40 a share. With the shares still at least 60 percent above the initial offering price, Twitter’s insiders must feel rather pleased with how the offering was executed.

>Twitter and its banker, Goldman Sachs, widely miscalculated demand for the stock

>Those who were able to secure an allocation of shares recognized an instant 73 percent gain

Doesn't sound like miscalculation.

I am confused why this seems to happen, though. I'd have to assume that the people at Twitter have access to more information and advice than I could possibly hope to understand. Even so, they choose to not use an auction or anything, but let GS make a huge amount for themselves and choice customers. There must be some reason these companies' allow their IPOs to be managed that way.

I also do not quite understand how "winning the good graces of the market" means anything. Unless they're suggesting that Twitter is planning on tens of millions of more shares in the future, and hoping a good IPO leads to even higher "long term" share price.

In the case of FB: If FB stock had stayed at $20 or so, would that really affect FB? It'd be less than fantastic for employees and other shareholders that had options or shares, but would it hurt FB the company itself?

But it sort of does imply that. Here's the reasoning -- There's a liquid market of a lot of shares trading hands at $40+. Anybody who bought a share at $26 knows he or she can sell today for $40+. To a first approximation, choosing not to sell at $40 has roughly the same effect as choosing to buy at $40. If the price is supported at $40+, that's at least very suggestive evidence that enough buyers could have been found at that price in the first place.

Sounds good to me; it seems quite believable that major investment banks would use their positions as trusted advisors to encourage IPO'ing companies to use strategies that benefit the bank. That's what happens you use interested parties as your experts.

The press also seems to cover the stock market mostly as a casino, not as a money-raising or social capital-allocation mechanism. So stock rises==good, drops==bad. So the FB IPO "failed," even though the so-called failure mode actually raised Facebook more cash to expand its business than most alternative outcomes would've.

I don't get these articles. Using Facebook as an example is terrible! Just because Facebook didn't go up on its first day as much as twitter did doesn't mean they left money on the table.

Twitter IPOd at a much much higher price than those traded on private markets before the IPO. Facebook on the other hand went to almost the same price as on private markets. [1]