Craft marketplace Etsy just made its public debut.
The stock opened at $US31 per share after its initial public offering priced at $US16 per share last night. In early trade, the stock was trading above $US34 per share, more than double this initial offering price.
In its IPO, the company offered 16.7 million shares to investors, and by pricing shares at $US16 raised just under $US287 million.
Clearly, however, this price undersold investor demand by a bit, and had the company priced its IPO at $US31 per share, it could raised $US517 million.
In other words, the company just missed out on an easy $US230 million.
But not really.
The process of pricing an IPO is complicated, and you can’t really say that just because demand when the stock came to market was met at a higher price than where the offering priced that the company “missed out” on this money.
When you’re building a book for the IPO, you want to balance market demand with a reasonable valuation for the company, and if an offering is priced too high, some investors could quickly bail on the stock and the company could be unhappy with the bankers that ran the offering (meaning they might not hire them again).
And in the case of Etsy, a tech startup with a lot of employees that will have stock options vest over the coming months and years, a stock priced too high that gets shunned by the public market will make their holdings less valuable over time.
So, you’re not going public just to get the highest possible valuation. And you can’t totally bash a company for potentially leaving a little bit of cash on the table. But when a stock more than doubles after trading, some people will ask that question.
Which is sort of fair. But also not exactly.
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