Airbnb

[Simpo Two]

So today we learn that this company launched in the US and its share price more than doubled in a day.

Sitting on this side of the pond I naturally think, as we probably all did, 'A piece of that would have been nice'.

Would there have been any way for a private UK investor to have bought shares at/near the opening price and walked away at the end of the day with 100%+ profit? Or is it too US-centric or impossible for some legislative/technical reason?

https://www.ft.com/content/a1c5cc26-b224-470a-84fe...

ETA: Re the link - if not subscribed to the FT, google for 'airbnb' and scroll down to 'Airbnb soars on debut in latest IPO bounce | Financial Times'.

Edited by Simpo Two on Friday 11th December 10:54

[NickCQ]

Simpo Two said:

Would there have been any way for a private UK investor to have bought shares at/near the opening price and walked away at the end of the day with 100%+ profit? Or is it too US-centric or impossible for some legislative/technical reason?

Buying at the opening price wouldn't have helped - it opened already 2x up. You would have needed to be in the pre-IPO allocation, which is reserved for large investors that meet the selling bankers on the roadshow and can anchor the issue.

The basic trade-off is that these early investors sacrifice price discovery and liquidity but in return get in at a discount. That discount (the first day 'pop') is meant to be 10-20% but in some cases the bankers turn out to have underestimated the valuation and the investors in the initial book make a killing.

Some tech companies have switched to so-called 'direct listings' to short cut bank underwriting fees and this early investor discount (e.g. Spotify).

[Simpo Two]

Thanks for the reply.

NickCQ said:

...it opened already 2x up.

This is the weird thing about markets. Theoretically they operate between fixed times - for peasants like me - but all sorts of background 'trading' seems to go on when they're closed. Most unfair!

[supersport]

It is interesting watching and living through an IPO.

The company I work for IPO'd two years ago on the NYSE. It was all very exciting and dull at the same time.

When the bell goes there is this auction bit where the starting prices are settled before the stock become available on the open market. The process takes a couple of hours, and then hopefully it is off and running.

So unless you are an employee or a banker, there is no way to get in on the auction bit and you have take what comes when they get opened up.

I suspect for met it was a once in a lifetime experience as I don't supposed I will be in another company that does the same. It was quite a party as it started at lunchtime here

[NickCQ]

Simpo Two said:

Thanks for the reply.

NickCQ said:

...it opened already 2x up.

This is the weird thing about markets. Theoretically they operate between fixed times - for peasants like me - but all sorts of background 'trading' seems to go on when they're closed. Most unfair!

it doesn't mean that - if the first trade of the day is 2x the closing price then that's what the tape will show. There was no opportunity to buy/sell beforehand.

Just like a stock can open significantly up/down if there is news overnight when the market is closed. No-one is actually able to buy on the news and sell into the gain, it's just a windfall for whoever held at close the previous day.

[NickCQ]

supersport said:

When the bell goes there is this auction bit where the starting prices are settled before the stock become available on the open market. The process takes a couple of hours, and then hopefully it is off and running. So unless you are an employee or a banker, there is no way to get in on the auction bit and you have take what comes when they get opened up.

Even putting a bid in for the auction is too late to get in at the headline 'IPO price'. Wherever the auction clears is what the first trade of the day gets printed (the crossing trade), in AirBnB's case this was still up 2x from where large investors anchored the raise.

When the firm I worked for IPO'd we all got little NYSE bells delivered to our desks.. cute toy but annoying approximately 30 seconds later

[Simpo Two]

NickCQ said:

it doesn't mean that - if the first trade of the day is 2x the closing price then that's what the tape will show. There was no opportunity to buy/sell beforehand.

Perhaps my use of the word 'trading' was wrong. I meant 'stuff'.

So someone is basically saying 'I'll give you £2 for that thing on sale at £1'?

[supersport]

NickCQ said:

supersport said:

When the bell goes there is this auction bit where the starting prices are settled before the stock become available on the open market. The process takes a couple of hours, and then hopefully it is off and running. So unless you are an employee or a banker, there is no way to get in on the auction bit and you have take what comes when they get opened up.

Even putting a bid in for the auction is too late to get in at the headline 'IPO price'. Wherever the auction clears is what the first trade of the day gets printed (the crossing trade), in AirBnB's case this was still up 2x from where large investors anchored the raise.

When the firm I worked for IPO'd we all got little NYSE bells delivered to our desks.. cute toy but annoying approximately 30 seconds later

The office lead had a giant hand bell, every time we saw someone we knew on the TV he rang the bell. It got very loud as the beer flowed.

[NickCQ]

Simpo Two said:

So someone is basically saying 'I'll give you £2 for that thing on sale at £1'?

I think the point is that it's not "on sale" for £1. The share price chart shows the last executed trade rather than an asking price.

[anonymous-user]

The numbers are truly mind-boggling. At moments like this I'm glad that I leave the "investment decisions" to paid managers. Not unlike Tesla entering S&P500. If you add together the profits of AirBnB and Tesla you're still heading backwards at considerable speed!

Do the markets look frothy to me? Darned right they do. A recent investor must surely be temped to take some profits. Long termers will hang in there for the ride.

[anonymous-user]

If you were on the receiving end of the (large) bill from advisers who told you to set the ipo price at $68 when the market said $146 at the first chance it could, how much of the fee would you want refunding?

[Royal Jelly]

JPJPJP said:

If you were on the receiving end of the (large) bill from advisers who told you to set the ipo price at $68 when the market said $146 at the first chance it could, how much of the fee would you want refunding?

None, surely? It’s a win for AirBNB - they’ve just doubled their market cap.

I would assume the advisors from Goldman/JPM or whoever were advising lose out because their fees will be heavily based on the initial price target? So, the advisors strike a balance - they’ve missed out on some ‘commission’, but priced it to sell.

Just pontificating - I have no clue how this works.

[chip*]

The lead sponsor charge a fixed percentage underwriting fee based on the total capital raised , so they actually penalised themselves for under pricing the shares. Lead sponsors alway have a tough job getting the valuation price right in order to get the deal done that would attract the investors. AirBNB stakeholders can't really complain as 1) the deal was fully underwritten by the lead sponsor so they were always going to receive £68 2) AirBNb paid a fixed u/w fee based on original valuation priced at £68 3) sitting on nice paper profit from new £168 price.

However, on occasions, some deal doesn't always go to plan, and the lead sponsor is left holding a chunk of shares worth less than the original valuation. To clear the book, the lead sponsor will probably place these remaining (discounted) shares on the market via a "block trade". Just like any any investments, everyone is happy when the market is on your side, but when it isn't, it can be quite sobering.

Edited by chip* on Saturday 12th December 11:26

[Simpo Two]

Watching a programme about the Dutch flower market I came across the concept of a reverse auction. The price starts high and ticks down; first bidder wins it at the indicated price. At first I thought 'That's stupid' but the more I thought about it, the better it made sense.

Maybe they should try that next time... it might shake things up a bit... we'll start at $500... $499... $498...

[Royal Jelly]

chip* said:

The lead sponsor charge a fixed percentage underwriting fee based on the total capital raised , so they actually penalised themselves for under pricing the shares. Lead sponsors alway have a tough job getting the valuation price right in order to get the deal done that would attract the investors. AirBNB stakeholders can't really complain as 1) the deal was fully underwritten by the lead sponsor so they were always going to receive £68 2) AirBNb paid a fixed u/w fee based on original valuation priced at £68 3) sitting on nice paper profit from new £168 price.

However, on occasions, some deal doesn't always go to plan, and the lead sponsor is left holding a chunk of shares worth less than the original valuation. To clear the book, the lead sponsor will probably place these remaining (discounted) shares on the market via a "block trade". Just like any any investments, everyone is happy when the market is on your side, but when it isn't, it can be quite sobering.

Edited by chip* on Saturday 12th December 11:26

Interesting, thanks. I didn’t realise that the lead sponsor underwrites the price and is effectively left covering the shortfall. That must have been huge in the case of Facebook?

[chip*]

U/w fee wise, every banks involved get their slice of the pie. I expect FB's underwriters offloaded their book to various sub-underwriters (subbies) e.g. other investment banks, who offloaded their book to various pension / fund managers e.g. Fidelity, Jupiter, Hermes, Baille Gifford etc..(some end up owned by you in your ISA/pension funds). However, due to the muted/depress market reception to FB, I expect the lead underwriters buying additional shares in the market to prop up the share price. No idea how much it costed the lead U/W, but such cost are never disclosed to the general public.

Edit to add on fees: Back in my days, apart from u/w fees, it was common to charge an additional advisory / success fee to cover the advisory services of the Investment Banker/Corporate Financier. Iirc, there was never a hard and fast rule to determine the fee, sometime it was a fixed fee on the deal size, and sometimes it was just a fixed figures as per the mandate. (or whatever you can get away with the client )

Edited by chip* on Saturday 12th December 13:15

[anonymous-user]

chip* said:

everyone is happy when the market is on your side, but when it isn't, it can be quite sobering.

That's very much the point. Nobody wants their shares to be in a market where a big chunk of shares goes unsold because the price would collapse - hence the underwiting process which guarantees getting all the shares away. Similarly there's significant stigma attached to shares which the market knows "were left with the underwriters".

As you have alluded to above there's a thing called "stabilisation" which the investment bank is allowed to do in connection with a new issue. Essentially it means they are allowed to manipulate the market buy buying and selling shares to balance supply/demand and suppress volatility. Under all other/normal circumstances that sort of conduct would be a serious criminal offence because it's directly manipulating the share price..

Insofar as some new issues go well and some go less well it's important for the underwriters to come out as winners on average. Otherwise they wouldn't be interested in getting involved at all.

[chip*]

rockin said:

chip* said:

everyone is happy when the market is on your side, but when it isn't, it can be quite sobering.

That's very much the point

Yep, sadly almost every retail investor is blinded by the good days and neglect to assess the full risk with any Equity holdings.

AirBnB share price is shooting up! Easy money, I will have some of that.
Tesla share price is shooting up! Easy money, I will have some of that
Woodford fund is shooting up / his past performance was excellent. Easy money, I will have some of that,...oops.

[R33FAL]

the conditions for equity markets are as good as they get.

every major central bank printing money to try resuscitate the "real" economy (which in turn gets invested into assets). as an example 20% of all US Dollars EVER PRINTED have come up since Feb this year.

Interest rates are awful so bonds are unattractive, so that money flows into equities. Finally, with no inflation, growth assets are more attractive than commodity assets (which protect against inflations)- or at least were until the vaccine came up.

In summary, these valuations are madness, but its just the greater fool theory at work- hoping the next guy will pay more

[rfisher]

Most of this thread is way beyond me, but a common theme would appear to be that we're in for a 'correction' pretty soon.