I just woke up so I'm not sure if I'm conveying my point well. My suggestion is that these factors can combine to create a short term unsustainable pricing situation. If Morgan Stanley believes in their heart of hearts that the stock won't be able to support more than a $50 price by Aug 1, they should be loathe to price at $80 and see it fall. This won't just kill their ability to get future offerings subscribed, but also can weigh heavily on the trading of the stock long term which could easily get in the way of any secondary offerings.
Besides, who can say that they actually could have floated the stock at $80? Just because some retail investors or momentum traders bought at $80-$100 on the first day doesn't mean they could have moved the whole volume of stock at that level, especially to some of their institutional clients. Just because you could potentially find one guy out there to buy one share of LNKD at $1000 doesn't mean it's a reasonable price for it or that you could find anyone to buy 100,000 shares at $1000 - but you could still get a print off of that one share transaction.
None of this is meant to say that I trust investment banking firms a lick, or I'm sure Morgan did the right thing here. I'm just trying to suggest that it's a much more complicated situation than the NYT and the Zynga sound bite might suggest.
> If Morgan Stanley believes in their heart of hearts that the stock won't be able to support more than a $50 price by Aug 1
I think it's a bit absurd that these prices aren't somehow determined by...say... a market rather than what a few guys at a bank "believe". Isn't that sort of the whole point?
> I think it's a bit absurd that these prices aren't somehow determined by...say... a market rather than what a few guys at a bank "believe".
All a market is is what the participants believe. LinkedIn was not forced to do this through Morgan Stanley. I am sure they shopped offers at all the big investment banks. There is a market for underwriting IPOs, and there is a market for the actual public shares after the offering.
This won't just kill their ability to get future offerings subscribed, but also can weigh heavily on the trading of the stock long term which could easily get in the way of any secondary offerings.
Wrong. Underpriced IPOs (almost all of them) have been welfare for well-connected friends-of-investment-wankers for quite some time. The idea that banks would have trouble allocating public offerings is laughable.
The claim that banks need to underprice IPOs for some systemic reason is laughable. It's a back-filling rationalization for spinning, which would otherwise rightly have bankers in federal PMITA prison.
I'm not going to disagree with you that there are bad things that go on with IPO allocations. But I think you misunderstand - I'm not saying investment banks are required to underprice IPO's to get them fully subscribed, but clearly they need to avoid over pricing the shares if they expect to keep selling them. I think you have a fundamental misunderstanding of the process if you believe that Morgan could consistently over price new offerings and subsequently see them fail/go under water and yet still be able to keep selling these over priced issuances to their clients and institutions.
Besides, who can say that they actually could have floated the stock at $80? Just because some retail investors or momentum traders bought at $80-$100 on the first day doesn't mean they could have moved the whole volume of stock at that level, especially to some of their institutional clients. Just because you could potentially find one guy out there to buy one share of LNKD at $1000 doesn't mean it's a reasonable price for it or that you could find anyone to buy 100,000 shares at $1000 - but you could still get a print off of that one share transaction.
None of this is meant to say that I trust investment banking firms a lick, or I'm sure Morgan did the right thing here. I'm just trying to suggest that it's a much more complicated situation than the NYT and the Zynga sound bite might suggest.