Hi, I was going through news articles on twitter and have couple of doubts on below statements made.Can someone please help me understand this better.
In total, Twitter left $1.524 billion "on the table," the $1.325 billion from the original IPO allotment, and the $199 million on the second tranche awarded to the banks. All told, Twitter raised $2.03 billion ($1.76 tranche from the first tranche and $270 million from the Wall Street allotment). Hence, it paid around $1.5 billion to raise $2 billion, an effective fee of 75%
What does the writer mean by "paid around $1.5 billion"...its just the profit which didnt come twitter's way...right?
if Twitter had put the $1.35 billion into cash on its balance sheet rather than effectively spent it on the IPO, it would have a lot more money to spend on building its business (and its market cap would be over $1 billion higher).
Can somebody please explain what does the writer means by this.
Source Article
http://finance.fortune.cnn.com/2013/11/08/twitter-ipo-investors/
Basically, what the author is saying is that the grossly UNDERpriced the Twitter IPO given that it popped 70+% almost immediately. By not setting a higher price (they set it at $26 and if jumped to $45 almost immediately, actually even hit $50 for a few minutes), they left a lot of cash on the table.
They could have sold the same % of the company and brought in an additional ~$1.5 billion. This of course, if overly simplistic since it's not easy to set the price and market expectations...look at the Facebook IPO - most would argue that was a disaster since the stock tanked pretty fast (the opposite problem), so they didn't leave any $ on the table.
I'm pretty sure the hype around FB was also pretty insane, but leading up to the IPO there were plenty of missteps and the execution by NASDAQ, etc...point being, Twitter / Goldman saw what happened to FB / MS and decided to set the original range at a "reasonable" level.
I say "reasonable" in quotes, because even at $14/share, you could argue this is absolutely bubblishish. At $40/sh, this is just laughable.
All of the social media companies are overvalued (LinkedIn and FB are trdaing near ~17-18 REVENUE)...Twitter? oh, only trading at 46x revenue ... :-)
Come on people. How this stock only dropped 7% today is INSANE.. We need a ~50% drop or more for there to be any sanity in this world.
This author calling the $ they left on the table a "fee" is kind of ridiculous - it was priced aggressively at $26, they just didn't know investors are complete morons and would pay over $40 for shares....oh, that and the fact that we are in the midst of QE - 4EVA!!!
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