
Square jumps in market debut - petethomas
http://reuters.com/article/idUSL3N13E45620151119
======
chollida1
A couple of interesting things about the IPO. A Lot more the trades happening
are tagged as coming from trade reporting facilities, which means they were
crossed/filled by internalizes, than is normal.

This usually means retail flow( regular folks) using E-Trade, Ameritrade,
Interactive Broker, Scott Trade, etc to buy/sell shares. These firms get paid
to send their orders to HFT firms who fill the orders internally(ie not on an
exchange) and then use trade reporting facilities to notify the markets of
these orders.

Also supporting this thesis is the number of small and odd lot trades.

So you could argue that main street likes Square more than Wall street.

With the market down and Match.com's IPO popping less, this is a very good
opening for them.

Having said that, the real test for most new stocks is 6 months out when
they've had 2 reporting quarters, options start to trade and short interest
numbers( a measure of how many people want to short the company) start to have
some validity.

Question to anyone more informed than me......

Do squares late series investor's liquidation preference kick in at the IPO
opening price or the vwap price through the day?

If it's the former, then the late stage investors are going to get a great
double dip of getting a huge increase in shares due to the ipo price being
below their strike and get the benefit of this pop.

Maybe late stage investors aren't as dumb as people around here have been
claiming lately?

~~~
exelius
Yeah; this happens a lot with big tech IPOs. Typically they will spike on day
1 with lots of individual investors buying in to the hype train. I would
expect to see Square drop precipitously over the next week/month as the
professional investors can make money by pushing the valuation down, then
it'll stabilize somewhere near the IPO price in 6-12 months. Company
fundamentals have very little to do with share price in the first year or two
of an IPO; it's almost entirely psychological.

And nobody's been claiming that late-stage investors are dumb; in fact quite
the opposite. Late stage investors tend to be very large, professionally
managed equity funds - they are as savvy as investors get, and they're strong-
arming early stage investors into unfavorable liquidation preferences. They're
also the type of investor to have media / analyst contacts they can use to
push down the IPO price knowing that it's going to pop. The discussion with
late stage investors is really "the fact that late-stage investors are sucking
up a disproportionate share of the profits from unicorn exits is endangering
the VC investment model".

~~~
chillydawg
None of what you just said has any basis in reality. If you really did know
all of that, you would have spent every penny you have a) buying the stock at
IPO and b) selling it tomorrow and then immediately shorting it and waiting.

~~~
justinv
It's incredibly difficult to short an IPO within the first 30 days because the
SEC requires the underwriter to wait at least 30 days to lend out shares for
shorting.

So then you'd have to get a retail or institutional investor who JUST
PURCHASED shares to lend them to you to short.

In which case, why would they bother buying them in the first place.

~~~
scurvy
This isn't entirely true. If you hold securities in a margin account, your
broker can lend the shares out to another client of theirs to short. You have
no say in the matter. It's up to your broker to balance the number of longs vs
shorts internally. But you can most definitely short on day one. I've done it
and my account balance only has 1 comma in it.

If the short to long ratio gets too close, they will close out shorts or try
to borrow from other clearing firms so that they don't end up naked. Early on,
most firms will just close the short.

~~~
prostoalex
> This isn't entirely true. If you hold securities in a margin account, your
> broker can lend the shares out to another client of theirs to short. You
> have no say in the matter.

I don't think what you said is 100% true either. Charles Schwab brokerage
definitely asks before lending out, advertises the interest the borrower is
willing to pay on the loaned shares, enrolls the willing lender into Schwab
Securities Lending Fully Paid Program, and then buys an insurance policy from
Lloyd to cover counter-party default. All of this is done via FedEx letters
and hand-written signatures.

Sounds like some brokerages don't ask and keep the fees and accrued interest
to themselves, which is shady. ETFs and mutual funds don't have to ask
anybody, of course, and usually pass on revenue from securities lending to
their customers via lower fees.

~~~
scurvy
Are you sure that's not only for cash accounts. Pretty much every margin
account agreement I've ever seen says that they can lend out your holdings
without your explicit consent or that acceptance of the agreement is explicit
consent.

Cash accounts are different creatures.

------
mikeash
This seems to be a pretty common thing. Why don't IPOs use some sort of
auction structure to discover the right price at the time of the IPO, rather
than setting a price up-front and trying to figure out the optimal number
ahead of time?

~~~
ryw90
Google used a Dutch auction in their IPO. But then again they are pretty
obsessed with auctions. There is some research on auctions for IPOs, e.g.
[http://www.nber.org/papers/w16214](http://www.nber.org/papers/w16214), that
suggests they are too complex for investors.

~~~
evanpw
And Google still had a 15% first-day pop, which is just about the normal size
for a traditional bank-run IPO.

~~~
chillydawg
It absolutely it not normal. If there was ALWAYS a 15% pop, then IPO prices
would be 15% higher.

~~~
tveita
It's not a given that a stock that just popped 15% trades the same as a stock
that was offered at a 15% higher price in the first place.

------
marcusestes
The financial press has spent the last two weeks lambasting them for a
valuation that was essentially a down round from their last private financing.
I'm sure they were aiming for a small pop, but 60% does make it look like they
left money on the table and that they might have taken some of the heat off
the criticism around the discounted valuation.

They just needed to get the deal done ([http://avc.com/2015/11/getting-the-
deal-done/_](http://avc.com/2015/11/getting-the-deal-done/_).

------
stanfordkid
They didn't per-se leave money on the table. The 60% pop is for shares that
are actively trading. The actively traded amount is much much less than the
amount that was taken in by institutional investors that would agree to hold
the stock for an extended period of time.

~~~
cowsandmilk
Side question on this: Are there ever efforts to have varying lock-up periods
for different institutional investors? So there is a multi-stage gradual
introduction of more actively traded shares?

~~~
prostoalex
Yes, for example, FB [http://www.thestreet.com/story/11666479/1/heres-the-
rest-of-...](http://www.thestreet.com/story/11666479/1/heres-the-rest-of-
facebooks-lock-up-schedule.html)

------
btilly
The proper conclusion is that Square raised a lot less money than it could
have raised, and investment bankers are very happy with the cream they are
skimming off the top for their friends.

A pop makes for a good headline. But really it is a terrible deal.

~~~
adventured
That's not necessarily accurate if the pop today is being caused by average
public investors. As someone else noted, it would mean main street likes the
stock more than Wall Street.

~~~
btilly
How not accurate?

The half about investment bankers and their friends being happy is guaranteed
to be accurate because they bought low and now get to sell high.

As for the other half, it is theoretically the job of Wall St to figure out
what main street will like. However Wall St makes money by being bad at that
job. Is there any wonder that they are consistently terrible at it?

------
wslh
It is weird that I can't find neither the SQ symbol or SQUARE in Google
Finances but it is available on Yahoo.

~~~
jonknee
Not that surprising, IPO days are weird for that sort of thing. It will show
up here:
[http://www.google.com/finance?q=NYSE%3ASQ](http://www.google.com/finance?q=NYSE%3ASQ)

~~~
mcpherrinm
In my experience, stocks never show up immediately after IPO on google
finance. I always end up using Yahoo to watch the price for the first few
days.

~~~
jonknee
It's really a shame that Google has abandoned Google Finance. Seems like a
pretty low-cost high-reward vertical for them (advertising to people who care
about financial markets is lucrative).

------
pkaye
So they basically left money on the table?

~~~
chimeracoder
These days, you "have to" leave money on the table, or your IPO is deemed a
"failure" (see: Facebook).

~~~
uptown
What would you rather have ... less money but CNBC and the internet calling
you a huge success, or more capital available to run your business but CNBC
and today's internet echo chamber calling you a failure. I'd choose the
latter.

------
vskr
It is truly amazing how bankers always get away with this kind of incompetent
non-sense. Every single time a stock sees a "jump", it is because those
"analysts" did a poor job in evaluating stock price. And company going IPO is
leaving money on the table, which is stolen by those greedy (too polite a term
for bankers) bankers.

~~~
remarkEon
-> It is truly amazing how bankers always get away with this kind of incompetent non-sense.

-> And company going IPO is leaving money on the table, which is stolen by those greedy (too polite a term for bankers) bankers.

Well, it appears both these statements can't be true. Bankers can't both be so
stupid so as to leave such amazing amount of money on the table...and then
also be so smart that they reap the rewards of significant underpricing.

------
tosseraccount
How much of the stock is publicly available? What is the corporate structure,
i.e. is this a one share, one vote set up?

~~~
ksherlock
"We have two classes of authorized common stock: the Class A common stock
offered hereby and Class B common stock. The rights of the holders of Class A
common stock and Class B common stock are identical, except with respect to
voting and conversion rights. Each share of Class A common stock is entitled
to one vote. __Each share of Class B common stock is entitled to ten votes
__and is convertible at any time into one share of Class A common stock. "

"After the completion of this offering, our existing stockholders will
continue to hold all of our issued and outstanding Class B common stock and
will hold approximately % of the combined voting power of our common stock. As
a result of their ownership, they will be able to control any action requiring
the general approval of our stockholders, including the election of our board
of directors, the adoption of certain amendments to our certificate of
incorporation and bylaws, the approval of any merger or sale of substantially
all of our assets, and certain provisions that impact their rights and
privileges as Class B common stockholders. See “Description of Capital
Stock.”"

------
yggydrasily
Yahoo finance says the market cap is only $340M, but all the articles leading
up to today said their valuation was going to be $2.5-3B.

Did they really only IPO less than 20% of the total company and keep the rest
private?

~~~
joshu
That isn't how it works. They create some new shares and sell them. The rest
of the shares are held by the current owners.

------
randomsearch
I gotta ask, why will Square succeed in a market that is surely going to be
controlled by device (phone/watch) manufacturers?

------
strongcrypto
From what I remember, IPO prices tend to aim about 15% below what the market
value should be. It's a big incentive to get the big players (institutional
investors) to get in on the IPO and get the stock moving. Pretty sure Square
might have offered a deeper discount to make the offering look successful.

Regardless of the actual prevalence of that strategy, I don't think we'll have
a meaningful narrative about Square's IPO until the market has it for at least
a few days.

~~~
noroom
What you remember from where?

~~~
strongcrypto
Financial coursework, not anything I can cite but this should work:
[http://www.crab.rutgers.edu/~yaari/Articles-PDF/IPO-
Hauser-Y...](http://www.crab.rutgers.edu/~yaari/Articles-PDF/IPO-Hauser-Yaari-
JLEweb.pdf). Estimates that this IPO discount is around 18.4% in the US.

"The price discount varies over time and across initial public offering (IPO)
mechanisms but remains economically significant everywhere. Span- ning 4
decades and 38 countries, Ritter’s (2003) survey of international studies
reports a mean first-day return (commonly equated with the offer price
discount, or underpricing) ranging from 5.4 percent (Denmark) to 257 percent
(China), with a median return of 20.7 percent...[the] U.S. mean return [was]
18.4 percent [from] 1960–2001"

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Bud
This is no surprise for anyone who is using Square Cash. Clearly the best
product on the market for its purpose.

~~~
natrius
It seems unlikely that they'll be able to transfer money for free
indefinitely. Their competitors hold on to balances for a reason: it's the
only way to build a sustainable business on top of free money transfers.

~~~
glass_of_water
Square Cash recently introduced the ability to send money w/ your credit card
(before it was just debit). Square takes 3% of those transactions. Also, I
think they charge 1.9% for non-personal use when sending money w/ a debit
card.

------
gchokov
Big shorting coming.

