NEW YORK (Reuters Breakingviews) - For tech companies with headlines to fill and egos to please, details matter. One is how companies undertaking initial public offerings price their shares, and how they perform in their first day of trading. Pinterest and Zoom Video Communications have both priced their shares higher than the ranges provided earlier by their underwriters and management. When insiders already hold supervoting shares, though, leaving a bit less on the table is a gentle reminder of who calls the shots.
Pricing a new stock is hard when the market is awash with speculative froth – and even more so when IPO candidates are unprofitable. Companies like Pinterest, Zoom, ride-hailing app Lyft and soon-to-list Uber are being valued on potential rather than actual cash flows. That produces much bigger swings based on fickle sentiment. Some companies that have priced above their range continued to go up, like Grubhub. Others have had the opposite experience, like rival social network Snap.
In one sense it doesn’t matter, though, whether a debut is a cracking success or a washout. Trendy companies may be eclipsed by rivals over time, or find a second wind through adapting to new developments. Early dot-com listing TheGlobe.com popped over 600 percent on its opening day at the turn of the century, and died shortly after. In 2012, Facebook’s underwriters stepped in to keep the stock above the sale price after a botched listing. It has more than quadrupled since as Facebook’s internet ad business has boomed.
It is notable, however, that both Pinterest and Zoom have dual-class share structures giving minority investors little say in how the company is run. That’s already reason to be skeptical of how much care founders have for their co-investors. The lower a company prices its shares, the more it leaves on the table for future investors, and the more goodwill it will engender. The existence of supervoting structures means that goodwill matters less – and in a small way, more aggressive pricing reflects that.
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