Facebook was a great example of this pattern.
EDIT: See https://en.wikipedia.org/wiki/Initial_public_offering_of_Fac.... It lost about half of its value before it started its ascension to today's valuation.
EDIT: See https://en.wikipedia.org/wiki/Initial_public_offering_of_Fac.... It lost about half of its value before it started its ascension to today's valuation.
A) Publicity. Do you want good headlines or bad headlines from the IPO?
B) Secondary sales: It's kind of silly, but if / when you go to sell more shares the people who have made money are more likely to buy (against all logic) because some of them think of the money they made as a cushion against losses.
C) Banks want to please their customers. Think of this as part of the fee for the IPO. Typical underwriting fees are 7%, but they could be 10%, all arbitrary, but they basically charge some extra points that they choose to give to their clients in the form of IPO allocation for continued business.
D) Those same banks in (C) might be the people who help the executives moves large blocks of stock in the future (not easy to sell 10 million shares of a company without having large price impact). Executives in particular want a good relationship with their underwriters and if they're too aggressive on price they might not get it.
Agreed that none of these are super compelling, especially for a very long-term owner like Zuckerberg.
B) Sure, but you want to encourage long-term investors, not short-term traders.
C) Sure, but how does Facebook benefit from that?
D) I'm pretty sure there's enough competition in the market that a single bank rejecting the block trade won't impact the final execution price too much.
In any case, the predicted price before the IPO was exactly the IPO price. That's fair. If your view was that FB has a lot to grow and the IPO price is too low, you would buy it. If not, you wouldn't. Back then, nobody knew its price is first going down a lot, and then up even more.
https://en.wikipedia.org/wiki/Initial_public_offering_of_Fac...
There are no Options trading on IPO's. Typically options start trading 3 months after an IPO.
Not that this would help with FB a whole lot since it'd have dropped a fair amount by the time you could buy options.
You need 7m publicly held shares outstanding (many IPOs don't do this, a lot of shares are controlled by underwriters and insiders who can't sell at the IPO) at least 2,000 shareholders and some minimum trade volume. There's a minimum share price too, but that doesn't effect IPOs.
The numbers I mentioned are in the Federal Register, but quite a while ago. The numbers are still current, though other parts may have changed:
NASDAQ glitches don't curse a stock for months at a time.
Edit: https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&...
Edit 2: Actually it looks like it took well over a year before the stock rebounded above IPO price.
Then they had a quarterly report that blew the lid off of mobile revenue and since then the stock has been a rocket. They executed mobile well and that's what the market was looking for.
They've only gotten stronger as Twitter has floundered after coming out strong. I do not have a position in Twitter but if they figure out how to add users (what Wall St. wants to see) they too will explode higher. They have said they do not expect any significant user growth this year and not until some time next year as new strategies get put in place.
If my wife starts using Twitter then I'll load up on the stock.
Rather in FB's case, there was a flood of order cancellations (in response to the news) entering the system that would reset the ipo book, preventing the ipo from going off.