Alibaba Shows That Chinese Firms Can Leave IPO Money On The Table As Well As US Firms

from the not-such-a-good-thing dept

There's lots of buzz today about how China is experiencing a dot com bubble similar to what the US faced a while back, with the news of Alibaba.com's first day pop on the Hong Kong Stock Exchange. The stock nearly tripled after debuting, which is the type of thing that gets lots of press. Yet, once again, people seem to be missing out on the simple fact that this first day pop means the company left a lot of money on the table. The bankers who brought the stock out mispriced the offering by 3x apparently. Pricing certainly isn't an exact science -- and it's perfectly reasonable to slightly underprice the offering to lower some of the initial risk, but to underprice a stock so badly is not a good thing. Effectively, Alibaba could have raised 3x the amount of money they got, with no additional dilution. Instead, it raised 1/3 the money, and the other 2/3 went to Wall Street folks who flipped the stock quickly. While this does mean that Alibaba can now raise more with secondary offerings (assuming the price stays up), it still looks like the company left an awful lot of money on the table.

Filed Under: first day pop, ipos
Companies: alibaba, yahoo

A Look At How Much VMware Left On The Table

from the ipo-madness dept

Back during the dot com bubble when startups with no track record were going public on a regular basis with huge first day pops in stock prices, it got many people thinking that such first day jumps were a good sign. In fact, some companies bragged about having the largest first day jump. We haven't seen much of that lately, but it may be coming back after VMware's public offering. VMware shares priced at the top of their range at $29/share, but opened this morning at a whopping $52/share. VMware, of course, was supposed to have been one of the potential hot IPOs in the class of 2004, but decided to accept a buyout offer from EMC instead. This turned out to be a great decision, as the company has grown a tremendous amount under EMC, and today's IPO is for a much more substantial VMware than we would have seen three years ago.

However, since there are plenty of folks who probably weren't around during the last bubble to learn this lesson, it's important to remind everyone why first day stock pops like VMware's are not a good thing, and certainly not something worth bragging about. The difference in price is actually an indication of how much money VMware left on the table. Yes, the company raised nearly a billion dollars by selling shares at $29, but it missed out on the money it could have taken if the shares had been priced closer to the $52 the market has clearly valued its shares at. In other words, it sold all those shares at about 55% of what the market valued the company at. Not such a great thing to brag about now. Of course, there are some advantages to having the first day pop. It does act as a PR mechanism, and it certainly does bode well for VMware if they want to sell more shares to raise more money. However, right now, it certainly looks like the company left approximately $750 million on the table that was snapped up by those trading the stock, rather than the company itself.

Filed Under: first day pop, ipos
Companies: vmware