ipo presentation
TRANSCRIPT
SnapchatIPO pricing strategy recommendations
San Francisco | June 24th, 2015
First day returns in recent social media and internet IPOs
73%
109%
64%
79%
109%
41%
Twitter Linkedin Yelp Zillow Splunk Trulia
73%
109%
64%
79%
109%
41%
Twitter Linkedin Yelp Zillow Splunk Trulia
$1.5 bn $79 m$444 m
Money left on the table in social media and internet IPOs
$48 m
$287 m$63 m
Asymmetric
Information
Information Revelation
Adverse Selection
Behavioral
Explanation
Investor Sentiment
Information Cascade
UnderpricingOffer Price << Closing Price
Why do shareholders leave money on the table?
Ask Investors!
How can we determine the offer price?
Negative Information
Positive Information
Will investors reveal or conceal their private information?
Negative Information
Positive Information
Bribe Investors!Underpricing
Will investors reveal or conceal their private information?
Informed Investors
Rational
Select only attractive IPOs
Uniformed Investors
Irrational
Indifferent in IPO selection
IPO Demand
What about demand?
Negative Returns
Leave Market
Non-Negative Returns
Stay
No Underpricing Underpricing
What will uninformed investors do?
Why do shareholders leave money on the table?
UnderpricingOffer Price << Closing Price
Asymmetric
Information
Information Revelation
Adverse Selection
Behavioral
Explanation
Investor Sentiment
Information Cascade
Offer Price
Fundamental value
Closing Price
Un
der
pri
cin
g fo
r as
ymm
etri
c in
form
atio
nU
nd
erp
rici
ng
du
e to
b
ehav
iora
l bia
ses
IPO End first day
Asymmetric information cannot explain the degree of underpricing
109% first day return
Offer Price
Closing Price
Un
der
pri
cin
g fo
r as
ymm
etri
c in
form
atio
nU
nd
erp
rici
ng
du
e to
b
ehav
iora
l bia
ses
IPO End first day
Positive Information Cascade
Cascade starts
Cascade unfolds
How to increase irrational exuberance:
• Low initial offer price
• Higher liquidity by broader dispersion of shares
Fundamental value
Closing Price
Fundamental value
Offer PriceN
ega
tive
un
der
pri
cin
g d
ue
to b
ehav
iora
l bia
ses
Un
der
pri
cin
g fo
r as
ymm
etri
c in
form
atio
n
IPO End first day
Negative Information Cascade
Cascade starts
Cascade unfolds
Unexpected increase in shares sold from insiders
Negative signal
Do shareholders really leave money on the table?
Obtain Fair ValuationActivate positive
Information CascadeCreate Sufficient
DemandCapture Positive
Market Sentiment
Successful IPOIPO
Underpricing
Thank You