The IPO traded down. So what?

A few days ago, Uber (finally) IPO’d. On that day, the stock closed lower ($41.55) than it’s opening price ($45). The headlines were brutal — “bloodbath”, “disaster”, etc. But was it really?

I’ve bitched about this topic before (when Facebook IPO’d, for example), and I’ve always felt alone. All around me, the belief is that IPO’s must rise; otherwise, it’s bad for investors and bad for the company.

I guess I’ve just never understood the logic of punishing companies for what I would call intelligent marketing and perfect pricing (conversely, I don’t understand celebrating companies for a post-IPO “pop”). Companies go public to raise money and bring liquidity to existing investors. It’s your duty to existing shareholders to deliver returns on investment and not waste capital.

If I sold you a hat for $10, and you turned around seconds later and sold it for $15, I’d be mad at myself for giving up $5. I would be mad at myself for not correctly estimating demand for my product, and I would expect investors in my hat company to be mad that I had underpriced my product.

Yet, for some reason, bankers have convinced us that we should purposely undervalue our own equity when we go public. Completing a successful roadshow and extracting (temporarily) peak value is considered a sin. Why? This phenomenon is especially awful when you consider that most of the buyers on IPO day are day-traders who have no long-term belief in your company; they simply want to make a buck. So, in short, companies reward day traders and ‘friends and family’ with money that would otherwise go to the company’s existing investors and employees. I just don’t get it.

Worse still, this kind of thinking encourages the worst kinds of speculative trading; i.e. investing in a company not because you believe in it, but only because you can make a quick buck.

In the past, I’ve heard arguments about optics and market perception. I find that markets are, well, markets, and predicting them is next to impossible. I also find that what a stock does in it’s newborn days has very little bearing on the company’s ultimate performance (see the Facebook example again).

Someone please explain to me why we endorse and encourage this type of equity scalping?