Question

Initial public offering. On April 13, 2017, Yext Inc. completed its IPO on the NYSE. Yext sold 10,500,000 shares of stock at an offer price of $11 with an underwriting discount of $0.77 per share. Yext’s closing stock price on the first day of trading on the secondary market was $13.41, and 85,489,470 shares were outstanding. a. Calculate the total proceeds for Yext’s IPO. b. Calculate the percentage underwriter discount. c. Calculate the dollar amount of the underwriting fee for Yext’s IPO. d. Calculate the net proceeds for Yext’s IPO. e. Calculate Yext’s IPO underpricing. f. Calculate Yext’s market capitalization.

Answer 1

Given that,

Shares issued through IPO = 10,500,000 shares

Outstanding Shares post - IPO = 85,489,470 shares

Offer Price = $11

Underwriting Discount = $0.77 / share

Closing Stock price at end of first trading day = $13.41

a. Total Proceeds for Yext's IPO = No. of shares offered in IPO x Offer Price per share

= 10,500,000 shares x $11 = $ 115,500,000

b. Percentage Underwriter Discount = ( Underwriting discount per share / Offer price per share ) x 100

= ($ 0.77/ $ 11 ) x 100

= 7 %

c. $ amount of underwriting fee for Yext's IPO = No. of shares sold in the IPO x Underwriting discount per share

= 10,500,000 shares x $ 0.77

= $ 8,085,000

d. Net proceeds for Yext's IPO = Total Proceeds from IPO - Underwriting fees for the IPO

= $ 115,500,000 - $ 8,085,000

= $ 107,415,000

e. Underpricing of Yext's IPO

Underpricing occurs when a security's offer price is lower than the market price of the security on the first day of it's trade. In the above question, it is evident that the IPO has been underpriced. Had it been priced correctly, Yext would have garnered more proceeds from the IPO, than it has received now.

Thus underpricing is the difference between market price and offer price.

Therefore, Underpricing per share = Market Price at the end of first trading day - Offer Price

= $ 13.41 - $ 11 = $ 2.41

And, Underpricing of Yext's IPO = Underpricing per share x No. of shares sold on IPO

= $2.41 x 10,500,000 = $ 25,305,000

The proceeds of Yext's IPO would have increased by $25,305,000 had the IPO been priced correctly.

f. Yext's Market capitalization = Outstanding shares x Market price per share at the end of the trading day

= 85,489,470 x $ 13.41 = $ 1,146,413,792.70

Market Capitaization is essentially the Market value of all the outstanding shares of the company.