Question

"Wondering why so many companies have decided to make their initial public offering right now? The answer is simple: there's demand" (Otman 2019). There has been a surge of IPO's because of increasing innovation in technology. Take Uber for instance. Technology amongst motor vehicles under Tesla and Elon Musk will change the experience for private transportation drastically. Elon Musk has devised a plan where Tesla's auto-driving technology will eventually overcome the need for a legitimate driver. Although this is only a fantasy as of now, it seems inevitable in the near future. Uber's initial offering price was $45 per share in 2019 and now is down to under $31 due to the coronavirus outbreak. Before the pandemic, Uber had faced a low of $26.79 per share and a high of $40.72. Snapchat is another company that has faced issues after successfully releasing their IPO. After the first day of trading, Snapchat had closed the day at $24.50 but has been declining ever since. Snapchat hoped to reach the young audience on Facebook and Instagram and had succeeded in doing so, but what they lacked was an innovation. They've repeatedly attempted renovating designs of the application in itself and adopt new advertising measures but it backfired because it left users dissatisfied. As previously stated, the main principle for delivering a successful IPO is demand and the maintenance of it. Entering a large and growing market heightens the success rate of a company when releasing its IPO. Having that desirable product in a market that will give a competitive advantage will ensure a successful initial IPO.

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This is answer to this question Recently there has been a surge of IPOs – Snapchat, Carbon Black, Lyft, Huya, Uber (pending), etc. Were they successful and why? What does it take to have a successful IPO? I need response or comment to the answer

Answer 1

As said by a great man about valuation- "Price is what you pay and value is what you get". Unless the investor believes that they are getting higher value in exchange of the price, then that IPO is going to be in demand. Now here comes the bargain to get a desired value, which is basically realised by story. A story of your success and the future plans/strategies. When these IPOs were launched, they were basically first of their kind IPOs (UBER, Snapchat, etc) and everyone was talking about it, which evetually created a FOMO (Fear Of Missing Out) among the investors. And this FOMO effect sometimes lead to artifical demand. Due to which a common investor tend to ignore the fact that they are basically following the herd mentality. Startups with novel business ideas do get a first mover advantage too and that comes with a certainly higher level of risk and return characterstics. For Eg: Uber story was well sold but nobody evaluated the effect of global level pandemic on such an idea. Although the company was valued at a way higher P/E multiples (due to first mover advantage and demand) and that has basically shadowed its sustainabilty nature in the long term. Although the story was well sold, but the underdelivery of promise has played its part few months post its IPO. Now, consdering their current market value, these may not the successful investments but the IPO was successfully closed.