Yeah, exactly. This is just one other thing to be outraged about. I’m surprised people here are defending it.
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There is no reason you can’t do a random lottery for an IPO at the IPO price rather than at the market price.
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This is a terrible comparison. In the AMEX example, it’s AMEX giving it’s own money to its best customers. In an IPO, it’s the underwriters giving other people’s money to it’s best customers. The former is fine, the latter is problematic.
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It’s like rich dude #1 selling his house to rich dude #2 for $1 million who then offers to sell it to you for $1.5 million. Then you go wtf rich dude #1, I would have been willing to buy it from you for $1.3 million since it is clearly worth $1.5million. And rich dude #1 goes, yeah, but I don’t want to interact with your plebe ass for any price.
Like it’s very insulting and strange but under no circumstances is rich dude #1 ripping you off or anything like that. It’s just very strange and weird.
fuck uber calls were such free money with the massive doordash increase
The problem is that it’s not rich dude #1 selling the house, it’s the underwriters. The underwriters are telling the public to fuck off in order to benefit their best clients (and at the expense of the company/IPO sellers).
The underwriters are essentially bribing company management to agree to a lower IPO price with the promise of including them in future IPOs. This part isn’t explicit, because it would be illegal, but if you check to see who’s getting IPO allocations, a lot of them are executives of companies that did their IPOs with the same underwriters.
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This is true to the same extent that there’s no reason Apple can’t sell iPhones for $200 less than they currently do. I mean, it is literally true, but why would you expect a for-profit corporation to just charitably give away money?
If you’re going to make the shares widely-available at a fair price to everyone, you’re probably going to follow Google’s lead and use a Dutch Auction, which means that the IPO process closely reflects the market price.
Amex is taking large fees from arguably captive merchants (generated from customer transactions) and distributing part of those fees back to the customers who generated them. Goldman Sachs charges large fees to its clients, takes large fees from arguably captive pre-IPO firms, and distributes part of those IPO fees back to clients in the form of IPO allocations.
Is it a better comparison to say that I shouldn’t be jealous when leon on 2plus2 writes a trip report of his comp’d casino visit where he gets free pours of Pappy Van Winkle, while I get a free t-shirt?
I’m not even sure who is ostensibly getting hurt by this process. The only plausibly harmed party is the corporation, since it’s not raising as much as it could in a theoretical world? It’s certainly not Joe Public investor or the firm’s employees (assuming they’re covered by a lockup provision). And there’s no way I’m going to believe that Goldman Sachs is getting fleeced by its uber-rich customers.
Company management and the other initial private investors are rich dude #1 and the underwriter is rich dude #2. If you want to add the initial buyers of the IPO, including management from previous deals, that can be rich guy #3. Regardless, the “losses” and inefficiencies are between them before the market determines the price the stock will be able available to the general public.
Isn’t that exactly what they are doing now? They are just giving away money to a select few rather than the market at large. Assuming you have an oversubscribed IPO - even if you’re going to limit sales to select clients, why not do a limited auction with them?
Goldman Sachs is not distributing back its’ IPO fees to clients. It keeps 100% of the IPO fees. The only thing it’s giving clients is the opportunity to get free money by buying shares at below their market price.
The harm is pretty much the exact same as in insider trading. The company is just giving a select group the opportunity to buy (or sell) its shares at a favorable price before the news comes out and the market adjusts. No one is directly harmed, they just missed out on the opportunity to similarly make favorable trades.
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So you admit that there must be quid pro quo if they’re offering the IPO way below value? I mean, why would you expect a for-profit corporation to just charitably give away free money?
Oh and btw the employees who own options or pre-IPO shares are totally getting screwed. They own a piece of the company, and the company is selling shares to raise money. They’re raising like 60% of what they could, and what they raise is owned by the shareholders. So the employees are included in those getting screwed. Some of their equity is basically being sold out from under them.
They are giving away some vig to the investment bankers and their buddies to polish up the turd so that they have a favorable market is my best guess.
I mean your thesis wasn’t that DoorDash was actually a fundamentally sound investment at the $35 billion valuation it was just that their would be dumb money chasing the turd meme stock and you would get in and out, correct?
Correct.
Rich guys #2 and 3 are doing the work so that you can be confident that DoorDash is not a massive, massive undeniably stinking turd like WeWork would have been had it gone public. Perhaps that your answer.
Isn’t that what they did? They lined up commitments with their IPO buyers at an initial range of $75-$85, subsequently raised that range to $90-$95, and finally priced it at $102.
I think one thing that’s missing is that these buyers have to commit to a price well in advance of knowing what public demand is going to look like. I may be happy to commit to buying shares at a locked-in price of $95, but I’m not going to bother making that commitment if I know that you’re just going to increase it substantially right before the IPO. That’s effectively writing a put option without receiving any premium.
I think what it ultimately comes down to is whether or not you believe the IPO market is competive. I do. Pre-IPO firm ABC can go to Credit Suisse or JP Morgan or whoever and compete on price. I don’t think an underwriter can just arbitrarily decide to price the IPO substantially lower than true value without the IPO firm pushing back.
I think the only way that they can get committed IPO buyers is to give them a price that offers a +EV. And that EV benefit is allocated to the people who pay the biggest brokerage fees.
This is a ridiculous overstatement. I’m taking these numbers as true, but they’re not going to be off by much: Doordash is raising $3.36 billion in cash to yield an implied market value of $32.4 billion. Let’s say that the true price is 70% higher, so they should have raised $5.71 billion selling the same shares. The net value they gave up is $2.35 billion, which is about 4-5% of what the company is worth (assuming that 70% increase is right).
Employees aren’t selling their shares as part of the IPO.
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For the record, just entered a short sale for 50 shares at $181 and got rejected because there are no available shares to borrow. Thought it would be fun to put my money where my mouth is.
Also, I’m a complete moron because I dorked up and thought it was priced at $81, not $181. I guess it’s good that it wasn’t filled - I didn’t intend to take a $9k joyride.
I agree you have to give some IPO discount to get commitments, it just likely does not need to be as large as it normally is. Nor does it need to be exclusive - maybe I’m remembering this wrong, but I have a recollection of being able to enter some IPO lotteries in the late 90s via my E*Trade account.
As to the underwriter increasing the IPO price, I don’t think the buyers are ever committed. If the u/w goes back and says now its $110, they could just back out and say not interested.
I think what it ultimately comes down to is whether or not you believe the IPO market is competive. I do. Pre-IPO firm ABC can go to Credit Suisse or JP Morgan or whoever and compete on price. I don’t think an underwriter can just arbitrarily decide to price the IPO substantially lower than true value without the IPO firm pushing back.
The problem here is that the interests don’t line up perfectly. The harm from an under-priced IPOs is to the company (plus any selling shareholders). The people making the decision about the IPO allocation/price is just executives and u/w, whose interests are not 100% aligned.
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I mean lol IPOs. C3 AI opens at $100 up 140%. Cool game we play here. I should’ve just been a scumbag banker.
This discussion made me consider buying some Tesla puts for fun. A $600 strike put expiring in January 2022 is trading at $168.
So to break even on that put, Tesla has to drop by more than 30% in a year. Yikes.
Tsla is more likely to hit $1000 than drop 30% at this point. The cult of Elon will keep pumping and if he pulls of a deal like that Twitter thread described… yeah about that.
we be drilling, maybe that was actually the top?