6 ms·

Morgan Stanley going to have to do a lot to stabilize the price over the coming days... On Uber's side, they sold at their $45 mark. However, seems this may ha

Morgan Stanley going to have to do a lot to stabilize the price over the coming days... On Uber's side, they sold at their $45 mark. However, seems this may have been a down round vs their last private funding round ($74.1BN pre-money vs $76BN last year).

rwmj 7y ago
I'm confused by this comment. Is it the underwriter's job to intervene in the market after the initial sale? I thought they simply guaranteed that all the initial shares are sold.
- justinv 7y ago
  Yes. The lead underwriter needs to stabilize the price post-IPO. When $unicorn_company IPOs, the underwriter actually sells more shares than the IPO company. If the price starts to drop below the originally listed price, the underwriter steps in to purchase these shares back at the IPO price to stabilize it. It's generally an optics play - how bad would it look if you as a bank, who wanted to continue to offer IPOs, listed a company and its stock price plummeted below IPO on the first day - obviously you didn't do a great job at valuing the company and building an adequate order book. https://www.investopedia.com/terms/s/stabilizingbid.asp https://www.investopedia.com/terms/s/stabilizingbid.asp
  - xenadu02 7y ago
    There's a limit to how much they can prop up the price though. If the market really hates the stock they won't be able to save it.
    - justinv 7y ago
      Yep. MS has around 27MM shares out there for stabilization pot IPO. Once they blow through that, it's the market's game.
      - rwmj 7y ago
        Wouldn't they buy shares to raise the price, indicating they need money rather than shares?
        b_tterc_p 7y ago
        Yes
    - b_tterc_p 7y ago
      Is there a measure of this? if you wanted to keep a price at a certain level, obviously you could buy endlessly at a current price while people sell at that price until you own everything. But let’s also assume some large proportion of players are reactionary, tending to sell when the price drops and buy more when the price rises. If you could show a sufficient demand at price A, then that large block of people would not sell their holdings because the price does not decline beyond A. Then, the economically rational actors have a dilemma because they believe the price should be B (where B < A), but powerful actors have shown it is unlikely to drop below A for all practical transaction volumes... it may make more sense to treat the true price as A. I guess what I’m asking is how much money relative to market cap is required to make the market accept an inflated price _without_ actually trading on it and losing money?

rwmj 7y ago

I'm confused by this comment. Is it the underwriter's job to intervene in the market after the initial sale? I thought they simply guaranteed that all the initial shares are sold.

justinv 7y ago
Yes. The lead underwriter needs to stabilize the price post-IPO. When $unicorn_company IPOs, the underwriter actually sells more shares than the IPO company. If the price starts to drop below the originally listed price, the underwriter steps in to purchase these shares back at the IPO price to stabilize it. It's generally an optics play - how bad would it look if you as a bank, who wanted to continue to offer IPOs, listed a company and its stock price plummeted below IPO on the first day - obviously you didn't do a great job at valuing the company and building an adequate order book. https://www.investopedia.com/terms/s/stabilizingbid.asp https://www.investopedia.com/terms/s/stabilizingbid.asp
- xenadu02 7y ago
  There's a limit to how much they can prop up the price though. If the market really hates the stock they won't be able to save it.
  - justinv 7y ago
    Yep. MS has around 27MM shares out there for stabilization pot IPO. Once they blow through that, it's the market's game.
    - rwmj 7y ago
      Wouldn't they buy shares to raise the price, indicating they need money rather than shares?
      - b_tterc_p 7y ago
        Yes
  - b_tterc_p 7y ago
    Is there a measure of this? if you wanted to keep a price at a certain level, obviously you could buy endlessly at a current price while people sell at that price until you own everything. But let’s also assume some large proportion of players are reactionary, tending to sell when the price drops and buy more when the price rises. If you could show a sufficient demand at price A, then that large block of people would not sell their holdings because the price does not decline beyond A. Then, the economically rational actors have a dilemma because they believe the price should be B (where B < A), but powerful actors have shown it is unlikely to drop below A for all practical transaction volumes... it may make more sense to treat the true price as A. I guess what I’m asking is how much money relative to market cap is required to make the market accept an inflated price _without_ actually trading on it and losing money?