A Tale of 3 Tech IPOs and the Punditry Narrative

When LinkedIn IPO'd in May 2011, underwriters priced the offering at $45 per share. The stock closed the day up 109%, at $94/share. Henry Blodgett at Business Insider quickly published an article entitled "Congratulations LinkedIn, You Just Got Screwed Out of $130 Million," bashing the underwriters for misreading demand and reaping immense profits for themselves at the company's expense. Blodgett wasn't alone in critiquing LinkedIn's underwriters, as the media and financial commentators worked into a frenzy about just how poorly the IPO was priced. Jim Cramer chimed in with his own fury over how the underwriters "juiced" the IPO.

As Facebook geared up for its IPO, to much enthusiasm, people were asking whether Wall Street would avoid doing what it did to LinkedIn (aka "robbing" them) by pricing the offering fairly. A "fair price" would enable the company itself to maximize its own proceeds. In response, Facebook was priced as aggressively as possible. It was priced so aggressively that Blodgett called the IPO "Muppet Bait" for how dangerous a proposition buying into Facebook was for retail investors. We all know what happened next. There were no buyers of the shares hitting public markets, and the stock instantly entered a tailspin dubbed the "Facebook Faceplant." Here the underwriters were accused of "botching" the IPO at the expense of retail investors.

Leading up to Twitter's IPO, the biggest question was "how could we avoid another Facebook?" (too many such links to pick one worth sharing). Twitter purposely wanted to temper enthusiasm and price its offering low enough to encourage long-term investors to buy shares. Sure enough, Twitter opened over 70% above the $26 offering price and the company similarly left boatloads of money on the table a la LinkedIn. In each subsequent tech IPO, the prior "victim" ended up reaping the rewards.

Across these three big IPOs, we have seen punditry complain about the underwriters, company insiders, and the exchanges, amongst others, without ever looking into the proverbial mirror.  The media whirlwind surrounding these events has created a narrative which permeates society. This narrative then influences the actors in the next scene to attempt to avoid the pitfalls of the prior narrative, only to fall victim to new problems seen one long cycle ago. Punditry continuously drives a vicious cycle of reactionary moves with commensurate media complaints and the same problems sadly repeat themselves over and again. All we have learned in all this is that the underwriters simply can't win a PR windfall with these IPOs (though they do make plenty of money), and punditry will inevitably find a villain and a victim to create a story at its leisure. 

Disclosure: No position in any of the stocks mentioned.