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Evaluating Ipo And Find The Appropriate Offer Price

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Company: LinkedIn
Background of the company:
LinkedIn, an online networking company had its initial IPO valued at a range of $32 to $35 a share. Given its gained interest by investors, they start to dissect its three distinctive revenue streams; advertising, tools for recruiters, and a premium subscription. Being the only social media company to go public at that time, its initial week, investors invested heavily in its opening day. The price range for the day went from an $83 opening price, to a peak of about $123 during late morning trading and finally saw it close at around $94.
It is always a challenge to evaluate IPO and find the appropriate offer price. At this case too, many measures and methods play a vital role. Usually IPO …show more content…

According to 123jump.com, after seeing potential gains in such a low estimate of its initial stock price, analyst later valued the range of the initial price to be $42 to $45 a share.
2. Projected and Actual Offering Prices:
According to Arjun Dave in an article he wrote on www.123jump.com, the underwriters were originally planning to sell the shares at $32 each, later increasing the offer price to $35 a share. At the very last moment, on May 17th, 2011, they decided to raise the initial public offering price to $45 per share; raising its capital to as much as $406 million, and its stock market value to reach $4.25 billion. Surprisingly, the first day opening price went up to $83 per share. The day closed with the adjusted closing price of $94.25 per share.

3. Daily Aftermarket Performance

Although the company’s IPO started off very well, it didn’t keep up its pace during the first three weeks. The adjusted closing price fluctuated, mostly downwards, and within three weeks, the adjusted closing price dropped to $72.83, a reduction of 22.73% from the first day’s adjusted closing price.

From the table below, we can see that the investors started selling the shares after the very first day which might be due to a very high return on investment (109.44%), and also they started dumping the shares even more after the first day because they were pessimistic about the growth of the company’s share price.

There were several indicators that investors

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