A general reading of an IPO is that a strong price increase through the offer is a success. We should read that in a completely different way. A price erosion in which those who achieve more than the market price after a sale are a success. You know, they sell something.
Think about it for a moment:
Lyft's shares (NASDAQ: LYFT) soared on Friday as Silicon Valley's first major IPO of the year sparked fierce investor demand for a new wave of technology listings.
The taxi company app was valued at up to $ 30 billion (GBP 23 billion) as stocks gained 21% in their market entry.
The IPO's success will open the floodgates for companies such as Uber, Pinterest, Airbnb and Slack to test appetite for investors over the coming months with an unprecedented array of core listings.
If you sell something, would you rather sell $ 21 billion, Lyft's valuation for the IPO? Or for 30 billion dollars the rating after the pop?
Now think about paying just 7% of the money collected for the sale to the people who made the sale to you. And you find that they have sold it today for 30% less than it's worth tomorrow?
You will not be very happy; You might even think that's a bit of a failure.
It works the other way too. If Lyft earned that $ 30 billion in new money, no matter the combination of the company's new stock and those of its senior shareholders, it dropped to $ 21 billion. Then you would say that your bankers worked very well for you, you would have earned 30% more yesterday than it is worth today. Their fee of 7% was well earned.
The obvious point is that success or failure, as defined by those who sell the stock, is the opposite, the opposite of what is success or failure for us when we buy them.
OK So far this is just a linguistic and logical complaint. It is, however, important what will happen in the upcoming pipeline of IPOs. We actually have Uber (UBER), Pinterest (PINS), Slack (SLACK), Airbnb (AIRB) to come. And believe me, her version of success is the way I say it. Higher is better, no pop is better. It's even better to sell at a higher price than prevailing after the IPO.
So what will apply to the pricing of these other tech IPOs? At least it's a lot closer to a full review, right? You'll be able to say, Hey, look at the Lyft-Pop, we should sell to a higher multiple, at the top end of the range. Since our own interests are reversed, this means that they all represent a much smaller agreement for us.
This is one of the oddities of this IPO market. The mere fact that we buyers have performed well means that the next few are less likely to be worthwhile. Just because, as it should be obvious, but the language and logic are not given, our interests as buyers are diametrically opposed to those of the people who make the sale.
That Lyft had decent pop means that we should be more than nothing less, skeptical of ratings for future tech IPOs.
Disclosure: I have no positions in the named shares and I do not intend to initiate positions within the next 72 hours. I wrote this article myself and it expresses my own opinion. I can not get any compensation for it (except from Seeking Alpha). I have no business relationship with a company whose warehouse is mentioned in this article.