Dropbox jumps more than 40% in trading debut
cnbc.com
cnbc.com
What if instead, a giant silent auction occurred. All potential buyers would submit how many stocks and the price they want to pay for them, then the submissions could be sorted from most to least expensive and sold at that submission price until there are no stocks left. This would maximize the income for the founders/investors and achieve a market rate that is fair and accurate.
Here's a great article about it:
Spotify's Non-IPO Really Is Novel - https://www.bloomberg.com/view/articles/2018-01-04/spotify-s...
> Spotify AB has filed confidentially with the Securities and Exchange Commission to go public via a direct listing, in which it won't sell shares in an initial public offering but will instead just one day declare that it is public and let anyone who wants to trade its shares.
The article also explains why Google's case was more akin to a traditional IPO than Spotify's.
Generally speaking, the highest single price that clears the entire demand is best, and would result in bidders submitting their most honest and aggressive bids.
The problem with IPO "auctions" is not that they're at one price, but that they aren't really auctions at all. It's just a private negotiation wrought with many conflicts of interest. Dropbox, for example, had 25x more demand to pay $21 a share than actually traded. And instead of raising the price further to clear the market at a fair valuation, banks instead used this archaic matching system to give shares at below-market valuation to themselves and their friends in hedge funds.
That's why you'd use a second price auction, or similar structure - accept a list of buy offers (price + quantity of shares), sort by price, and then choose bids in order until you've raised all the money you want to. Charge all bidders the price of the lowest offer that you satisfied. I don't think there would be a 40% pop if they'd sold shares initially like that.
The reason people use this system is that it enriches the banks that recommend which system to use.
In other words, guessing—before a stock even IPOs—the equilibrium point said stock will arrive at once it does enter the market, is a https://en.wikipedia.org/wiki/Keynesian_beauty_contest.
An auction of this sort actually incentivizes the buyers to underbid their valuation, in the hope of getting a bargain. With a single good to be bought, the game theoretically correct way to run the auction is to award the good to the highest bidder, at the second highest bidder's price [0]. It's more complicated for an auction of stock, but closer to what they actually do.
If there were a way to make more money doing it, Google would be doing it already.
http://epicureandealmaker.blogspot.com/2013/09/go-ask-alice....
http://epicureandealmaker.blogspot.com/2011/05/jane-you-igno...
Some kind of Vickrey auction (https://en.wikipedia.org/wiki/Vickrey_auction) would probably be fairer.
In this example, I guess the bank handling the IPO talked to potential investors and then set what it thinks was a reasonable price, taking into account that, typically, the company doing the IPO wants the positive PR of a rising stock price. It seems they underestimated, as 40% is very steep.
So pre-IPO shareholders still get most of the upside. $250 million to the float, $2.2 billion to the rest of the shareholders.
It can still be a mispricing, but it isn't so drastically painful if you look at it that way.
The calculation for if it's better to sell the other 90% into a hot market would be: 40% of 10% is only 4%. So if the initial pop has a long term positive impact of 4.4% on the price, then the existing shareholders come out ahead.
It's debatable, but I think there are two sides.
The other misunderstanding is that a company splitting shares doesn't increase the value of your position.
It's not so bad.
Dropbox was worth $12b yesterday, just like it is today. And a few banks suckered Drew into screwing himself, his investors and his employees by selling shares at a $8b valuation.
[1] https://www.last10k.com/sec-filings/1372612/0001564590-18-00...
It does not benefit Dropbox directly in any way, it is literally $360M that could have gone to Dropbox but went to the bankers and their clients.
that's if they are able to liquidate those assets within a day without affecting market price.
If the stock price is lower after a year than IPO, you start feeling a lot of investor pressure. No one likes losing money and people take it as a sign that there are problems with your business.
http://epicureandealmaker.blogspot.com/2011/05/jane-you-igno...
However, to become the next giant, I would imagine they need to branch out and gain traction for tangential products. They've tried (dropbox paper) but not sure it has enough market share to make a dent just yet.
Off the cuff, I can see a few things that they can expand to from where they are:
1. Give better central visibility into tasks/action items created in Paper docs without having to open them.
2. In my opinion, they should attempt to purchase Remember the Milk. It's an extremely polished to-do system that IMHO would be well served as a rebranded Dropbox Todos/Tasks product. If that were to happen, then it would also become the ideal destination for tasks created within Paper. The ability to share task lists would also align nicely with shared folders.
3. Get into the voip fax space by allowing users to sign up for a number, route the documents to specific folders or select an existing dropbox document and fax it to a number.
4. Get into the Docusign/Ecosign/Rightsignature space by allowing a user to select a document and send it to people for signing. They already have all of the tools they need to make this work in terms of sharing and view tracking. They've also got built in version control, so all that's really needed is the interface to designate complete-able fields and actually go through with the signing. It might make more sense to acquire one of those.
5. 3-4 could very easily create tasks in the task system, with direct document links and the ability to auto-complete them once the document was viewed or the task was completed.
6. This one might be a bit more of a long-term stretch, but if they completed those steps they'd have a system that combined document management and task tracking...and at that point they'd be very well positioned to break into the BPM game for small businesses. I've believed for a long time that a more accessible BPM solution could be big...and if you've addressed the passing docs around with tasks, then tracking completion and responses part you've got 90% of the human interaction side of a BPM system covered. Maybe even just direct integrate with Camunda?
Too bad crystal balls are only a thing of fantasy, I remember seeing Google's post IPO stock price @ ~$81 and saying how absurdly over priced...oh well :)