Pop, pop, pop, a story of the first day IPO pops

Wow, simply wow

this is the early stage startup craze taken to the public stage… Unless you’ve been living under a rock today,
you’ve probably seen the first trading day IPO pops:

  • Zoom was up 81% on the first trading day;
  • Pinterest was up 25% on the first trading day.

This reminded me of a tweet I made a couple of weeks ago, which went something like this:
IPO = it’s probably overpriced;
ICO = it’s certainly overpriced

It seems like the opposite is going on in the market right now, with the Zoom and Pinterest IPOs being heavily underpriced. IPO underpricing is nothing new of course, it’s actually a well-documented way in which the underwriters, the MS and GS of this world, get their cut. Historically though, you would see underpricing in the range of 8-10%, which is a far cry from what we’ve seen today.

The underpricing wasn’t so much of a surprise to me in the case of Pinterest. The 25% pop means that Pinterest is now priced slightly above it’s last mid-2017 Series H, currently trading at around $12.9bn.

The much more stunning case was Zoom, which has delivered a really impressive S-1 filing earlier this month, which really stole Pinterest’s show that day. Zoom delivered massive growth figures and P&L metrics. And Zoom really stole Pinterest’s show again today, with an IPO pop of 81%, which ended up valuing the firm at a stunning $16.7bn, well above Pinterest’s market cap. To put this into perspective: this is about 16x of it’s last private valuation. Compared to Pinterest, which took c. $1.5bn in VC funding, Zoom only took a total of c. $160m in VC funding, most of which came from the c. $100m Sequoia-backed Series C in 2017.

Now, this is clearly hype territory…and it may turn out that some of these tech assets are (by now) overpriced and take a massive hit after the IPO bells stop ringing.

Just a quick reminder from the Lyft IPO earlier this month. There, we saw a first day IPO pop of 21% and the share price has since dropped from almost 80$ a share to 59$ a share. Yesterday, Bloomberg even announced that there was a class-action from disgruntled IPO investors, claiming that Lyft exaggerated its market position in the US in the prospectus.

So we can look forward to a really interesting post-IPO trading of Zoom and Pinterest.

Ttyl,

Erasmus

Note: If you don’t like reading, I do voice recordings of these posts while walking on Sand Hill Road (not really SHR, but some busy street).

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