Price Cost Twitter Cash but Gave It Credibility • Hacker News Board

Re: Price Cost Twitter Cash but Gave It Credibility

#11

Post by nsiemsen » Sat, Nov 09, 2013, 6:42 AM UTC

Tarang wrote: post #10

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]

This article [1] says that Twitter shares traded as high as $32/share on private markets prior to the IPO.

[1] http://america.aljazeera.com/watch/shows/real-money-with-ali...

Re: Price Cost Twitter Cash but Gave It Credibility

#12

Post by chrislipa » Sat, Nov 09, 2013, 6:53 AM UTC

pbreit wrote: post #9

chrislipa wrote: post #3

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 of…

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 o…

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.

Re: Price Cost Twitter Cash but Gave It Credibility

#13

Post by phillmv » Sat, Nov 09, 2013, 7:34 AM UTC

chrislipa wrote: post #3

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 of…

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.

Re: Price Cost Twitter Cash but Gave It Credibility

#14

Post by pbreit » Sat, Nov 09, 2013, 8:00 AM UTC

chrislipa wrote: post #12

pbreit wrote: post #9

Earlier quoted context omitted.

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 o…

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 investo…

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).

Re: Price Cost Twitter Cash but Gave It Credibility

#15

Post by [deleted] » Sat, Nov 09, 2013, 8:28 AM UTC

chrislipa wrote: post #6

prostoalex wrote: post #5

Earlier quoted context omitted.

Investment bankers' job is to allocate tens of millions of shares. Individual investors trade in small 100-1,000 share lots. Having an individual trade close at $50.09 doesn't mean you'll be able to move tens of millions of shares at $50.09.

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 fou…

[deleted]

Re: Price Cost Twitter Cash but Gave It Credibility

#16

Post by rhizome » Sat, Nov 09, 2013, 8:34 AM UTC

MichaelGG wrote: post #4

>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…

Does it have to be anything more than a kickback?

Re: Price Cost Twitter Cash but Gave It Credibility

#17

Post by marvin » Sat, Nov 09, 2013, 9:43 AM UTC

So, what does people here think about Twitter's valuation? Aren't they basically a 22 billion dollar advertising company? I am agnostic in this regard (although perhaps a little skeptical), but I was wondering what others think.

Re: Price Cost Twitter Cash but Gave It Credibility

#18

Post by borplk » Sat, Nov 09, 2013, 11:09 AM UTC

As Twitter is becoming more popular a Twitter handle is becoming increasingly more like a phone number or email address and just like a phone number or and email address I wouldn't want it to be tied into one particular provider.

Re: Price Cost Twitter Cash but Gave It Credibility

#19

Post by pedrocr » Sat, Nov 09, 2013, 11:39 AM UTC

So according to the Times entrepreneurs should spend years building companies and VCs hundreds of millions funding them so that when (and if) they've built a successful company that can be IPO'd they can take 5% of the total market cap of the company and give it to some Wall Street insiders to get some "credibility".

Bankers are same folks that argue that they are adding efficiency to the market and thus deserve a big paycheck, and yet their IPO pricing maxim seems to be "guess a number and just make sure it's below the actual value so you don't anger the market". When Facebook tries to price it right (using the greenshoe to adjust) or when Google tries to do a reverse auction they get up in arms. Does anyone actually have a good argument for leaving in a margin for the investors in the IPO? This article's only attempt seems to be this:

"But it is also in Twitter’s long-term interest to remain in the good graces of institutional investors that believe in the company and will continue to invest. After all, based on fundamentals alone, it was hard enough to justify valuing Twitter at $18.3 billion, based on $26 a share, let alone $31.8 billion, based on $45.10."

This to me reads like "they need to bribe the market so they'll keep putting money in Twitter".

Re: Price Cost Twitter Cash but Gave It Credibility

#20

Post by lvryc » Sat, Nov 09, 2013, 12:10 PM UTC

marvin wrote: post #17

So, what does people here think about Twitter's valuation? Aren't they basically a 22 billion dollar advertising company? I am agnostic in this regard (although perhaps a little skeptical), but I was wondering what others think.

Google is a 350 billion dollar advertising company...