Square probably has solid fundamentals but a mixture of factors has caused this problem in which they find themselves: bad performance of other tech IPOs so far this year and the nature of its CEO's job. The performance of other tech IPOs this year has left a bad taste in the mouths of the public markets. Jack Dorsey is also the CEO of Twitter and is not fully committing to either Square or Twitter. I think they'll do fine but unfortunately I'm not the market.
Square’s IPO Terms Put Valuation Below Latest Funding Round
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Re: Square’s IPO Terms Put Valuation Below Latest Funding Round
#22Earlier quoted context omitted.
Facebook was a great example of this pattern. EDIT: See https://en.wikipedia.org/wiki/Initial_public_offering_of_Fac... . It lost about half of its value before it started its ascension to today's valuation.
Except that it's almost tripled in price?
Yes, but before it tripled in price, it actually lost almost half its value.
https://en.wikipedia.org/wiki/Initial_public_offering_of_Fac...
Re: Square’s IPO Terms Put Valuation Below Latest Funding Round
#23I am not surprised. Majority of tech IPOs in past year are trading below or near IPO prices. The investors in public market have learnt from the past. Most of these companies are coming to public market later when most of the upside has already been squeezed by private investors. Most IPOs come across nothing more than offloading to greater fools. Buying at IPO makes no sense. Wait till prices stabilize after the IPO…
Facebook was a great example of this pattern. EDIT: See https://en.wikipedia.org/wiki/Initial_public_offering_of_Fac... . It lost about half of its value before it started its ascension to today's valuation.
Facebook's IPO flopped because of a glitch in the nasdaq where orders weren't being filled for hours and then multiple orders were being filled. It was not because investors didn't like the stock
Re: Square’s IPO Terms Put Valuation Below Latest Funding Round
#24I am not surprised. Majority of tech IPOs in past year are trading below or near IPO prices. The investors in public market have learnt from the past. Most of these companies are coming to public market later when most of the upside has already been squeezed by private investors. Most IPOs come across nothing more than offloading to greater fools. Buying at IPO makes no sense. Wait till prices stabilize after the IPO…
Facebook was a great example of this pattern. EDIT: See https://en.wikipedia.org/wiki/Initial_public_offering_of_Fac... . It lost about half of its value before it started its ascension to today's valuation.
Personally, I think that Mark made a great move with the IPO. It's really silly to have an IPO at price $x, when it's well-known that the price will jump to $y > $x on the first day of trading. It's basically a reward for the elite, for the investors that have enough capital to be approached by the underwriting investment banks. It's money that most companies leave on the table, but Mark played it optimally.
Re: Square’s IPO Terms Put Valuation Below Latest Funding Round
#25Earlier quoted context omitted.
Except that it's almost tripled in price?
Yes, but before it tripled in price, it actually lost almost half its value. https://en.wikipedia.org/wiki/Initial_public_offering_of_Fac...
So buy at IPO with options? In FB's example that'd have performed particularly well eh?
Re: Square’s IPO Terms Put Valuation Below Latest Funding Round
#26Can't read the full article without registering. Any alternative source?
try this https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&c...
Hmm, didn't work for me. Try this one:
https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web...
Re: Square’s IPO Terms Put Valuation Below Latest Funding Round
#27To me it makes sense that post-IPO market cap would be lower than private valuation. Investors in public companies are well known for having short-term interest: "we want growth in every metric, and we want it next quarter." Anyone who has worked for a public company has felt this pressure.
VC, PE, etc. arguably incorporate more information about potential future (2 year, 3 year, 10 year) growth than public investors.
Maybe we should stop comparing the two valuations so equally?
Re: Square’s IPO Terms Put Valuation Below Latest Funding Round
#28I am not surprised. Majority of tech IPOs in past year are trading below or near IPO prices. The investors in public market have learnt from the past. Most of these companies are coming to public market later when most of the upside has already been squeezed by private investors. Most IPOs come across nothing more than offloading to greater fools. Buying at IPO makes no sense. Wait till prices stabilize after the IPO…
That seems a bit circular.
If there is no value left to get out of a company then the company is worth nothing. If there is value to be got, then there is some correct price. We might disagree on the price but if there are any future profits the company has a price.
Re: Square’s IPO Terms Put Valuation Below Latest Funding Round
#29Earlier quoted context omitted.
Facebook was a great example of this pattern. EDIT: See https://en.wikipedia.org/wiki/Initial_public_offering_of_Fac... . It lost about half of its value before it started its ascension to today's valuation.
Personally, I think that Mark made a great move with the IPO. It's really silly to have an IPO at price $x, when it's well-known that the price will jump to $y > $x on the first day of trading. It's basically a reward for the elite, for the investors that have enough capital to be approached by the underwriting investment banks. It's money that most companies leave on the table, but Mark played it optimally.
Huge mix of incentives here. I agree with you from a financial perspective, but it's just more complicated (for all kinds of dumb reasons).
A) Publicity. Do you want good headlines or bad headlines from the IPO?
B) Secondary sales: It's kind of silly, but if / when you go to sell more shares the people who have made money are more likely to buy (against all logic) because some of them think of the money they made as a cushion against losses.
C) Banks want to please their customers. Think of this as part of the fee for the IPO. Typical underwriting fees are 7%, but they could be 10%, all arbitrary, but they basically charge some extra points that they choose to give to their clients in the form of IPO allocation for continued business.
D) Those same banks in (C) might be the people who help the executives moves large blocks of stock in the future (not easy to sell 10 million shares of a company without having large price impact). Executives in particular want a good relationship with their underwriters and if they're too aggressive on price they might not get it.
Agreed that none of these are super compelling, especially for a very long-term owner like Zuckerberg.
Re: Square’s IPO Terms Put Valuation Below Latest Funding Round
#30I am not surprised. Majority of tech IPOs in past year are trading below or near IPO prices. The investors in public market have learnt from the past. Most of these companies are coming to public market later when most of the upside has already been squeezed by private investors. Most IPOs come across nothing more than offloading to greater fools. Buying at IPO makes no sense. Wait till prices stabilize after the IPO…
That seems a bit circular. If there is no value left to get out of a company then the company is worth nothing. If there is value to be got, then there is some correct price. We might disagree on the price but if there are any future profits the company has a price.
I guess it depends on how much it'll cost to access those profits. It might turn a profit if it receives another $500mn in cash to keep operations running. But what if it can't, and it needs another $1bn worth of runway to reach it? There's always the hope of a profit down the road, but taken to the extreme, $1 of profit down the road in 10 years isn't worth the $10bn it'll take to get there (I know this is a very extreme example).