Archive of UserLand's first discussion group, started October 5, 1998.

Re: Salon IPO--bombed baddly.

Author:William Crim
Posted:6/24/1999; 3:14:41 PM
Topic:Salon IPO--everyone's missing the point
Msg #:7795 (In response to 7780)
Prev/Next:7794 / 7796

Since the whole Dutch Auction method was desiged to give Salon more money at its IPO when compared to the traditional method, it was a failure. 10-15 bucks a share is what it probably would have been offered at by a normal IPO.

When the big banks etc are offered a chance to buy into an IPO, they usually agree to certain rules(either established by law or custom). The bank agrees to sell them the stock on the condition that they don't play games with it for a while. This means there is no buying a million shares at IPO and then dumping the shares later when the trade-day rush drives the price higher. If Investment firms, investors, and banks pull that sort of crap, they are often excluded from other IPOs. The customers a bank sells IPO stocks to, usually buys large chunks. This reduces the pool for the average investors to invest in. This then drives up the stock price and the rising stock price attracts other investors.

With the Dutch auction, this won't happen. All the little investors will buy their few shares(10-10,000) and the stock price, due to the large availible pool of stock, doesn't budge an inch. Investors want to buy in when an IPO starts trading because IPOs usually increase in value. If you sell the stock at "market value", there is no increase, which actually keeps investors away because they see it isn't moving. You can't just look at IPO price. Future stock offerings are dependant on a high share price. Maintaining a high share price that comes with your average first few day increase in stock is easier than clawing your way up from "fair market value".

Think of it this way, if Furbies cost $300 noone would buy them. But if they cost $30 and every kid in America wants a Furby from a dwindling supply and people will pay $300 for one. I am sure the company who made Furbies got more attention and sales due to the fact that people wanted them so baddly that they were willing to pay $300. The company was assured a market for continued sales.(At least in the short term)

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