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Why go public (IPO) on wall street - 5/23/2011 8:28:19 AM   
MrRodgers


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Status: offline 		LinkedIn just went public Thursday. It started out to be $32/share but interest was so high, it quickly went to $45/share. It hit the market running and reached a high of $122+.

Now I ask this...why did LinkeIn go public ? It was obviously making a profit, had money to advertise to grow and expand. So why did LinkedIn need to go to wall street and go public ?

It was simply so the founders could get rich...that's all. Yes a few lucky ones who got in and got out Thursday made a ton of money but what about the rest ?

To the extent your mutual funds or retirement funds got in and didn't get out in time...you lost money. Having fun yet ? Wall street exists for and benefits only the investor class...not society at large.Oh and now LinkedIn is suppose to be worth over $8 Billion. Watch for a precipitous fall. I am thinking of going short on her ass.


< Message edited by MrRodgers -- 5/23/2011 8:31:46 AM >
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RE: Why go public (IPO) on wall street - 5/23/2011 8:32:34 AM   
willbeurdaddy


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Status: offline 		No, they didnt have the capital to expand as rapidly as the market is. Very simple. You can't sell something that the market doesnt believe is properly priced. The goal of everyone who starts a business is to get rich. BFD.

< Message edited by willbeurdaddy -- 5/23/2011 8:33:42 AM >

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RE: Why go public (IPO) on wall street - 5/23/2011 8:57:45 AM   
samboct


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Status: offline 		Actually, the people who are getting rich are the bankers who either underpriced the stock to begin with (let's see how it does in the longer haul) or the people who got in and made a quick double getting out. The founders may or may not be getting rich- often they have to give up so much of their own shares, that they won't have that much in terms of a percentage of the company- and their shares may be restricted so that they have a lot of paper money, but no cash. The founders may not be able to sell much of their stock- that's typically what happens in an IPO.

Given that LinkedIn is only turning $15m/yr profit, I've been scratching my head on this one. Exactly how are they supposed to expand further? Advertising?

Sam

< Message edited by samboct -- 5/23/2011 8:59:11 AM >

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RE: Why go public (IPO) on wall street - 5/23/2011 9:20:12 AM   
DarkSteven


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Status: offline 		There are two reasons to go public.

1. When the company is private, the people who own shares in it have something of theoretical value. Once it goes public, the value becomes real. 'Becoming rich' oversimplifies it. It's more like giving their assets liquidity.
2. As Willbe said, it's a huge cash infusion to the company.

Say you spent three years working 80 hour weeks and being broke because all the company's revenues were being plowed back into the company. Then you're given the chance to get several million for the company you built, and the opportunity to hire professionals to work alongside you and drop you down to 60 hours per week.

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RE: Why go public (IPO) on wall street - 5/23/2011 9:27:08 AM   
xssve


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quote:

ORIGINAL: willbeurdaddy

No, they didnt have the capital to expand as rapidly as the market is. Very simple. You can't sell something that the market doesnt believe is properly priced. The goal of everyone who starts a business is to get rich. BFD.
Not, firms that wish to expand generally issue bonds, stock is almost exclusively a form of management compensation through the sale of stock options, although smaller firms and start ups may well use some of it it to cover operating costs - it's a quick way to raise cash, and with dot coms, an IPO can be a sign they're struggling to make ends meet, cover payroll, etc., as much as it might be to cash in on success, gotta watch that.

The price of a stock doesn't directly represent the profitability of a firm, it represents the belief of the people buying the stock that the firm will be profitable, and the stock will go up - profitability will generally affect the rating of a stock, but the stock price itself represents supply and demand - for the stock.

It's easier if you think of it as a separate product entirely from whatever else a firm produces: LinkedIn for example, produces a social networking site, for which they presumably make some profit from subscriptions services, advertising, whatever it is, all this means is now they offer stock as well, the price of which reflects demand for that that stock, irrespective of how profitable the company is, which only affects expectations of whether the stock is hot or a dog, i.e., investor confidence will usually remain high if a firm remains profitable, if they start lagging the market, investor confidence will drop with it, sell order will go out, and the stock price will fall.

It's like a casino, or the racetrack, only instead of betting on horses you're betting on how profitable a given firm will be.

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RE: Why go public (IPO) on wall street - 5/23/2011 9:30:53 AM   
willbeurdaddy


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quote:

ORIGINAL: xssve

quote:

ORIGINAL: willbeurdaddy

No, they didnt have the capital to expand as rapidly as the market is. Very simple. You can't sell something that the market doesnt believe is properly priced. The goal of everyone who starts a business is to get rich. BFD.


Not, firms that wish to expand generally issue bonds, stock is almost exclusively a form of management compensation through the sale of stock options, although smaller firms and start ups may well use some of it it to cover operating costs - it's a quick way to raise cash, and with dot coms, an IPO can be a sign they're struggling to make ends meet, cover payroll, etc., as much as it might be to cash in on success, gotta watch that.

The price of a stock doesn't directly represent the profitability of a firm, it represents the belief of the people buying the stock that the firm will be profitable, and the stock will go up - profitability will generally affect the rating of a stock, but the stock price itself represents supply and demand - for the stock.

It's easier if you think of it as a separate product entirely from whatever else a firm produces: LinkedIn for example, produces a social networking site, for which they presumably make some profit from subscriptions services, advertising, whatever it is, all this means is now they offer stock as well, the price of which reflects demand for that that stock, irrespective of how profitable the company is, which only affects expectations of whether the stock is hot or a dog, i.e., investor confidence will usually remain high if a firm remains profitable, if they start lagging the market, investor confidence will drop with it, sell order will go out, and the stock price will fall.

It's like a casino, or the racetrack, only instead of betting on horses you're betting on how profitable a given firm will be.




You are insane. Issuing bonds is the last resort to raise capital. Its a drain on cash flow and gives up first priority on assets of a company to outside interests. The only time a company would prefer loans over stock is if they are so unproven that they cant get a fair price for the stock.

Very good about the price of a stock....who ever said anything different?

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RE: Why go public (IPO) on wall street - 5/23/2011 11:53:41 AM   
DomKen


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Tech companies go public for numerous very good reasons. Often the initial investors use an IPO as a way to recoup their investment. Also many time high quality employees receive stock or stock options in lieu of more usual compensation. A company can raise capital that does not need to be repaid by going public.

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RE: Why go public (IPO) on wall street - 5/23/2011 1:45:31 PM   
xssve


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Status: offline 		Stocks are unstable WD, firms don't typically finance expansion with stock issues, unless it's a pretty small firm.

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RE: Why go public (IPO) on wall street - 5/23/2011 1:49:27 PM   
Fellow


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Status: offline 		B. Madoff: the Wall street is One Big Bonzi Scheme. The man knows what he is talking about.

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RE: Why go public (IPO) on wall street - 5/23/2011 1:52:32 PM   
Moonhead


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Status: offline 		If he knew what he was talking about, wouldn't he have got away with it instead of being sent down for a couple of centuries or whatever it was?

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RE: Why go public (IPO) on wall street - 5/23/2011 2:01:34 PM   
SilverMark


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Status: offline 		It was a great buy as an investor....if you sold it this morning!

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RE: Why go public (IPO) on wall street - 5/23/2011 2:42:07 PM   
willbeurdaddy


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quote:

ORIGINAL: xssve

Stocks are unstable WD, firms don't typically finance expansion with stock issues, unless it's a pretty small firm.



that is simply untrue.

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RE: Why go public (IPO) on wall street - 5/23/2011 2:43:40 PM   
MrRodgers


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quote:

ORIGINAL: SilverMark

It was a great buy as an investor....if you sold it this morning!

Well that is just it and I will use this to expand my point. Wilbe is correct however in that the original intent of selling stock was to raise debt free capital the advantages of which is obvious...debt free. Yes, yes capital used for expansion but...

...the assessment of a stock was historically in its PE ratio, i.e., price earnings which presumes competitive stock dividends to other forms of invesatment. The IRR calculation. For example a friend/banker told me that out of HS he worked at Riggs and told everybody to buy MaBell and hold it...period. No speculation just dividends and dividend growth and profits every year...a legislated monopoly, who could go wrong ?

There was in the past a requirement by the big board that a company wishing to go public had to be in business for at least 5 years and made a profit for 3 of those 5...not anymore.

What has happened now is with our 401K's, IRA's and the like, not to mention huge retirement funds, created 11,000 mutual funds who have plan administrators who direct a division of these into their...their selection of funds...not individual companies. These funds collectively almost automatically pump millions into these new IPO's too often...after-the-fact. If they get in at say 80-90 and do not get right back out, which they do not, when it falls which they most often do they take the hit.

So my problem now is that dividends from expanded earnings from my capital are almost never paid. MicroSoft didn't pay any dividends with billions on the books until when ? They didn't pay dividends until the tax was reduced to 15% and only because again...principals, management/investors could now collect huge money off their retained stock and pay the very favorable tax rate. Why ?

The reason is that stocks now merely are a means for principals to get rich, restrictions against which now are almost non-existent or allow some selling restricting only further selling. Wall street is about speculation in stocks, not income from dividends. Some principals consign their shares to the underwriters so as to prevent to much dilution of stock and to realize gains at the IPO. Some of them realized only $32 to $45 a share.

LinkedIn is in no way worth $8 Billion dollars and there will be no stock dividends to justify anything like that value.

I knew a guy who sold his AOL stocks as an employee. Soon as he owned them for more than a year and they hit $3million...he cashed out when he was laid off.

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RE: Why go public (IPO) on wall street - 5/23/2011 3:08:09 PM   
Musicmystery


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Status: offline 		The problem is that you're using THIS IPO to represent the entire stock market and even mutual funds as a block, and that's simply not a representative sample. Lots of prudent investors passed on this investment. So did mutual funds with conservative objectives.

Yes, some investors treat the market like a casino. Others are value investors. Hardly justifies your extreme claims.



< Message edited by Musicmystery -- 5/23/2011 3:10:08 PM >

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RE: Why go public (IPO) on wall street - 5/23/2011 3:56:22 PM   
EternalHoH


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quote:

LinkedIn
quote:

ORIGINAL: willbeurdaddy

No, they didnt have the capital to expand as rapidly as the market is. Very simple. You can't sell something that the market doesnt believe is properly priced. The goal of everyone who starts a business is to get rich. BFD.




Just what the hell is their 'market'?  A private sector big-brother database for professionals? A yuppie resume version of Facebook?

Privacy is dead, because we are giving it away.




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RE: Why go public (IPO) on wall street - 5/23/2011 4:03:17 PM   
DarkSteven


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quote:

ORIGINAL: xssve

Stocks are unstable WD, firms don't typically finance expansion with stock issues, unless it's a pretty small firm.



Backwards. 

Issuing stock is not an option for a small firm.  It's not an easy thing to do.  So they typically try for loans or go to venture capitalists.

Issuing stock, after the IPO, is done SOLELY for getting money, usually for financing.


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The small-breasted ones want larger breasts. The large-breasted ones want smaller ones. The straight-haired ones curl their hair, and the curly-haired ones straighten theirs...

Quit fretting. We men love you."

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RE: Why go public (IPO) on wall street - 5/23/2011 9:45:54 PM   
xssve


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The point I was getting to is that far from being at the center of it, a stock market is not even a necessary component of capitalism, it's superfluous.


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RE: Why go public (IPO) on wall street - 5/23/2011 9:56:33 PM   
Hippiekinkster


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Status: offline 		Mr. Rogers: "...the assessment of a stock was historically in its PE ratio, i.e., price earnings which presumes competitive stock dividends to other forms of invesatment. "

Dividends have nothing to do with the P/E ratio of a stock. Dividends are paid out of net income. Plenty of profitable companies pay no dividends, prefering to keep the income as Retained Earnings for future use.

The P/E ratio of a stock can be compared to the result of a Black-Scholes calculation for bond pricing.

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RE: Why go public (IPO) on wall street - 5/23/2011 10:03:05 PM   
xssve


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Status: offline 		One things that's been going on a lot the last decade is management letting a firm slide, basically fucking off, not making capital improvements, etc., so the firm becomes less profitable, the stock falls - they get together and buy up all the stock, take the firm private, then do all the things they should have been doing to make the firm profitable again, and have an IPO, and cash in - some firms have done that like Three or Four times.

Kind a reverse pump and dump, which was George W's game - he's left a long trail of investors screwed out of their capital invested his paper businesses.

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RE: Why go public (IPO) on wall street - 5/23/2011 10:36:54 PM   
MrRodgers


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quote:

ORIGINAL: Hippiekinkster

Mr. Rogers: "...the assessment of a stock was historically in its PE ratio, i.e., price earnings which presumes competitive stock dividends to other forms of invesatment. "

Dividends have nothing to do with the P/E ratio of a stock. Dividends are paid out of net income. Plenty of profitable companies pay no dividends, prefering to keep the income as Retained Earnings for future use.

The P/E ratio of a stock can be compared to the result of a Black-Scholes calculation for bond pricing.

You are completely wrong.

P/E ratio is defined as the price of the stock divided by the earnings (dividends) of a stock...period. Look it up. The comparison is the % return on capital as apposed to say T-Bills or CD's or whatever just as in any investment comparisons. Net income is defined as earnings per share, dividends are a portion of the profit paid out per share.

Whether or not any stock company pays any dividends is an individual corporate decision irrespective of any descriptions one puts on it.

As I wrote MS paid no dividends ever until the tax was lowered to 15% as political pandering to the investor class.



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