Say that the initial offering is for 10 million shares at $20 a share. Then the price pops to $30. That $30 share price is based on a much smaller net influx of investment. It does not follow that you could have sold 10 million of shares at that price. The $20 price is a discount that is needed to make the market clear a very large number of shares, all at once. Furthermore, the pop to $30 only happened because retail investors know that the institutions buying into the IPO are reputable, long-haul investors like Fidelity, who will not be dumping the stock immediately. So if you don't have Fidelity and other reputable investors putting in money at $20, you will never get the pop to $30. And because of their size and reputation and relationships, institutions like Fidelity will be able to command discounts, like any big buyer can. The IPO-ing company generally needs Fidelity much more Fidelity needs to buy the company's stock. Thus Fidelity can command the discount.
> ..retail investors know that the institutions buying into the IPO are reputable, long-haul investors like Fidelity, who will not be dumping the stock immediately.
From the article: "The first trade was 15% of all of the shares offered during the pricing."
Institutional investors "consistently flip a much larger
percentage of the shares allocated to them than do retail customers."[1]
Yeah, there were people screaming bloody murder in the news at the time, but to me it seemed like they were the rare ones who did it correctly. Unless your idea of "doing it correctly" is a wealth transfer to institutional investors.
In addition to the NASDAQ breaking the morning of the IPO, I think most of the disappointment lies with the stock falling by ~20% within a week of the IPO. Facebook both dramatically increased the number of shares available and the price at which their IPO shares were offered, and then fell completely flat out of the gate.
I definitely side with the companies more than investment banks in this scenario, and if you assume it was priced $5 too high, FB saw an extra $2.1B from setting the price 'too high'. Given that their price has doubled since then, I think most investors have forgiven them for their sins.
Say that the initial offering is for 10 million shares at $20 a share. Then the price pops to $30. That $30 share price is based on a much smaller net influx of investment. It does not follow that you could have sold 10 million of shares at that price. The $20 price is a discount that is needed to make the market clear a very large number of shares, all at once. Furthermore, the pop to $30 only happened because retail investors know that the institutions buying into the IPO are reputable, long-haul investors like Fidelity, who will not be dumping the stock immediately. So if you don't have Fidelity and other reputable investors putting in money at $20, you will never get the pop to $30. And because of their size and reputation and relationships, institutions like Fidelity will be able to command discounts, like any big buyer can. The IPO-ing company generally needs Fidelity much more Fidelity needs to buy the company's stock. Thus Fidelity can command the discount.