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Portal Player's huge IPO pop: So 1990s

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."


Matt... how do you reconcile Google's IPO price of $85 with its immediate run up to nearly $200?

Most commentary I've read indicates that Google /wasn't/ successful in that regard... rather, it was successful only in democratizing the process (i.e., you and I could have actually bought shares at the IPO price).

Tony Gentile on November 22, 2004 1:44 PM
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I was talking about a first-day pop of 50 percent, which Google certainly didn't have. You raise a good point, though, and perhaps I shouldn't have mentioned Google because it is such an exception in so many ways. Remember, the market turned truly bearish in the week prior to Google's IPO, and then there was the banker frustration with Google that didn't help (on my flight to London yesterday, sat next to a Morgan Stanley broker who said Google didn't provide any sales commission, and enforced a bunch of other restrictions, giving him no desire to tell clients to buy Google). I digress, but end result was market forced Google to price lower. It wasn't a deliberate underpricing. Even then, Google didn't pop that much on the first day. And one could argue Google's huge potential, and also risk of failure, have been behind Google's huge roller-coaster ride since. You mention $200, but it's down to $167 today.

Matt Marshall on November 24, 2004 5:20 AM
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