There are advantages and disadvantages to using a Dutch Auction rather than the traditional underwriting method for an IPO.
Guided Response: Respond to at least two of your fellow students’ or instructor posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words and be respectful of others’ opinions and beliefs that differ from your own. Support your position by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post.
COLLAPSE SUBDISCUSSIONRebecca Cline
Rebecca Cline
TuesdayAug 3 at 6:43pm
There are advantages and disadvantages to using a Dutch Auction rather than the traditional underwriting method for an IPO. A Dutch Auction is used to discover the price of stock. “The auctioneer starts with the highest asking price and lowers it until it reaches a price level where the bids received will cover the entire offer quantity” (Dutch auction – understand how a dutch auction ipo works, 2020). Due to the fact that setting a price for an IPO can be difficult, the Dutch Auction method can reduce the increase from the offer price and the opening price of the offering. Another advantage of the Dutch Auction method is that it helps protect the company as well as the underwriters from having to sell an overabundance of shares at a low rate (Dutch auction – understand how a dutch auction ipo works, 2020).
The company that I have chosen to evaluate the IPO for was Airbnb. The company went IPO on December 9, 2020. The initial price was $68.00 (Osborne, 2020). At the end of the first day trading, the stock price was $146.00. that is an increase of 115%. By the end of the 10th day of trading, the stock price was at $163.02. At the end of 30 days of trading, the price was $148.30 (Airbnb, Inc. (ABNB) STOCK historical prices & data, 2021).
The total amount of the offering was $47 billion. The total number of shares offered were 51,323,531. The underwriters of the Airbnb IPO were compiled of co-leads Morgan Stanley and Goldman Sachs, as well as numerous other major investment banking firms. The fees for the IPO were 3.5% (McCormick, 2020).
The success of the IPO for Airbnb has not been felt all around. For Airbnb, the success was felt tremendously. In just a few hours after the company went public, the stock prices rose from $68 to $147 per share (The Airbnb IPO was a huge success. What does this mean for you, the host?, 2020).). The increase in price per share lead to the company being valued at over $100 billion. This is more than the largest 3 hotel brands in the world combined (The Airbnb IPO was a huge success. What does this mean for you, the host?, 2020). For the view of the underwriter, the IPO was a success as well. With the increase of the price per share, the value of the company increased. Due to the fact that the underwriters were able to secure the IPO at $68 per share, but were able to trade them at $147 within hours means that the IPO was a success for them. As for investors, the IPO may not be seen as such a success. Unless the investors were able to purchase the stock at the IPO rate of $68, the shares have not gained much value. As of 08/03/2021, the price of Airbnb stock is $145.65, which is lower than the price of the stock at the end of the first day trading. The highest the stock has reached was $216.84 on February 11, 2021. The lowest the stock has reached was $132.50 on May 17, 2021. The stock has maintained a value close to that of the value it reached on it’s first day of trading. When investors are looking at success of stocks, they are looking for stocks that are going to continuously grow, which Airbnb stock has not done.
Resources:
Airbnb, Inc. (ABNB) STOCK historical prices & data. Yahoo! Finance. (2021, August 4). https://finance.yahoo.com/quote/ABNB/history/.
Dutch auction – understand how a dutch auction ipo works. Corporate Finance Institute. (2020, August 4). https://corporatefinanceinstitute.com/resources/knowledge/finance/dutch-auction/.
McCormick, E. (2020, December 10). Airbnb IPO: Airbnb opens at $146 per share, soaring 114.7% above IPO price. Yahoo! Finance. https://finance.yahoo.com/news/airbnb-shares-open-for-trading-initial-public-offering-ipo-coronavirus-pandemic-183858304.html.
Osborne, C. (2020, December 10). Airbnb IPO public Debut: $68 per share, valuation OF $47 billion. ZDNet. https://www.zdnet.com/article/airbnb-ipo-public-debut-68-float-with-a-valuation-of-47-billion/.
The Airbnb IPO was a huge success. What does this mean for you, the host? Syncbnb. (2020, December 17). https://www.syncbnb.com/blog/the-airbnb-ipo-was-a-huge-success-what-does-that-mean-for-you/#:~:text=Airbnb%20shares%20were%20initially%20scheduled,market%20cap%20of%20%2447%20billion.
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