It shouldn’t be a sign of success anymore to have a big first-day IPO pop of 50 percent-plus (see Reuters item below). Instead, a jump of more than say, 30 percent, should raise questions about the soundness of a company’s judgment. Why? If a company agrees to price its shares at $17, and then the stock trades at $28.50 — the company is losing out on huge amount of money it could have retained for its own operations. By selling its shares to bankers and their favorite clients for $17, and letting those people — who may have no loyalty to the company — turn around and sell shares for $28.50, the company is giving up $11.50. That shouldn’t be. Of course, you want to give investors an incentive to buy shares, and a 10 percent first-day pop is a fair. But Google showed the Dutch auction IPO — which lets the market price the shares — can work. Google wasn’t an exception, either. Several smaller companies have used the Dutch auction, and a product like PortalPlayer arguably has consumer appeal that would draw in buyers of its stock. The Santa Clara company develops semiconductors and software for personal media players such as Apple’s iPod.
NEW YORK (Reuters) – Shares of PortalPlayer Inc. (PLAY.O: Quote, Profile, Research) jumped as much as 62.4 percent in their first day of trading on Friday after the company’s initial public offering priced above the recently increased range. The company’s shares, which priced at $17 per share, rose as high as $27.61 and closed trading on the Nasdaq at $25.80 per share, a gain of $8.80, or 51.8 percent.
The company had originally filed for an offering in a price range of $11 to $13 per share, but on Wednesday raised their expectations to $14 to $16 per share. “There was a lot of positive buzz about this deal,” said Sal Morreale, who tracks IPOs for Cantor Fitzgerald in Los Angeles. “Is there over-exuberance in the stock? Probably…but there still seems to be some big buy interest.”