Snapchat priced its IPO at $17 per share on Wednesday, raising $3.4 billion. Then it opened Thursday at $24 per share and closed at $24.48. That’s a 44% gain for the select investors who bought into the IPO.
And that gain looks great…for new investors. But it also means that Snapchat could have sold its shares for a higher price!
If Snapchat priced its shares just a little higher at, say, $19 per share, they would have raised $3.8 billion, or $400 million more than the $3.4 billion they actually raised. And they still would have generated favorable publicity from the new investor gains of 29%.
So what happened? Snapchat originally proposed its IPO price range of $14 to $16 per share and then went above it, settling on $17 per share after strong appetite on the investor roadshow.
But what they clearly didn’t anticipate was the demand from the “retail investors.” You can probably blame the investment bankers on this one. It’s their job to help the company assess how it will do in the public markets.
They usually recommend some sort of first-day “pop,” the term for shares going up on the first day of trading. This is basically just to make a good first impression on the public. However, the banks often aim for closer to 20% than 40%.
So if Snapchat had $400 million more to play with, what would they do with it? They could use it for more hiring, acquisitions, research and development…Oops!
At least its IPO generated better publicity than Facebook’s.