Opciones Binarias arauca: ¿Cuándo Cambian Las Opciones Después De Ipo

¿Cuánto tiempo después de la IPO se pueden negociar las opciones?

¿Qué sucede cuando las opciones sobre acciones volátiles comienzan a operar? ¿Y por qué no puede conectar su propia volatilidad implícita en un comercio? Abordamos estas y otras preguntas en el Foro de Opciones de este fin de semana.

Sigue enviando tus preguntas sobre opciones, con tu nombre completo, a optionsforum@thestreet. com.

Opciones de negociación sobre nuevas emisiones

Las acciones de Tibco Software (TIBX) comenzaron a operar el 14 de julio. Las opciones de Tibco comenzaron a operar el 28 de julio.

Esta es la primera opción comercial que comenzó dentro de dos semanas de una oferta pública inicial que he notado. ¿Cuáles son las condiciones que los creadores de mercado suelen buscar para iniciar la negociación de opciones sobre un patrimonio en particular? ¿Hay más que leer en un inicio tan rápido de la opción de comercio en esta reciente OPI de Tibco?

Sobre esta cuestión, consultamos a Michael Bickford con la División de Mercados Derivados y División de Investigación de la Bolsa de Valores de Estados Unidos (también un fanático de los Medias Rojas y por lo tanto un alma fuerte). De inmediato señaló que Tibco es un "spin-off de Reuters (RTRSY), y hay diferentes reglas para el comercio de opciones de spinoffs que para IPOs".

La Comisión de Valores e Intercambio permite a los intercambios de opción mirar hacia atrás en el volumen de negociación de la empresa matriz y utilizarlo para la comparación histórica; Es por eso que se permite que los spinoffs tengan opciones más rápidas que las IPOs regulares, dice Bickford.

Para una salida a bolsa directa, "depende de la rapidez con que la empresa cumpla con el volumen de operaciones y otros criterios". En cuanto a los creadores de mercado, "no deciden cuándo comienzan las opciones de negociación. Cada intercambio tiene un proceso para decidir la selección de valores. Hemos aquí en la Amex tenemos un comité de los miembros del piso y puestos de negociación, vamos a través del universo de las empresas elegibles Hay un montón de ellos y decidir si debemos el comercio de ellos Aunque hay un montón de opciones, un montón de acciones no comercian activamente, por lo que es difícil hacer un mercado de opciones profundas y activas para ellos.

Gracias, Mike. Aquí está la esperanza Boston consigue el punto del wild-card.

Opciones Trading Volatile

¿Podría usted explicar por favor qué sucede cuando las opciones primero se enumeran en una acción bastante volátil? Tome Healtheon (HLTH), por ejemplo. El Amex comenzó a listar opciones con huelgas en 25, 30 y 35. Tanto está pasando con esa acción. Los cierres patronales están terminando, millones de acciones nuevas pueden ser negociadas, etc.

Es un juego de adivinanzas, incluso para los profesionales. Sin embargo, los grandes márgenes de los precios son a menudo la característica más obvia de una opción sobre acciones volátiles.

Llamamos a Brent Houston, vicepresidente de mercados de capitales en su nuevo trabajo, desarrollando operaciones de opciones para Datek Online en Edison, N. J. Su respuesta:

Se remonta a la volatilidad implícita. Frank, usted toma la volatilidad histórica de la acción subyacente (la cantidad que la acción ha subido o bajado sobre una base porcentual anualizada), luego aplique eso a los modelos clásicos de precios de opciones para determinar su precio teórico. Los dos modelos más conocidos son Black-Scholes y Ross-Cox.

Desde sus días de negociación en el Pacific Exchange. Houston recuerda a sus amigos en la planta de negociación "que han negociado Yahoo! (YHOO) y Amazon. com (AMZN) que hacen la extensión de 2 puntos de ancho, incluso cuando es una opción de $ 8, en parte porque la acción se movería tan rápido, que didn 'T tienen tiempo para comprar las acciones y cubrir las opciones que acaba de negociar Si usted mira casi todas las acciones de Internet, por ejemplo, que iba a pasar.

Con el tiempo, idealmente, la acción comienza a establecerse, y los comerciantes clavan el porcentaje de volatilidad que conectan a un precio de las opciones. "A medida que las acciones comienzan a cotizar más normalmente y con liquidez, entonces los spreads deberían reducirse para los precios de las opciones", añade.

¿Consejo? "No entraría en una orden de mercado" para una nueva opción, volátil. "Elige un precio que te sientas cómodo y no sigas persiguiéndolo. La opción podría volver al precio que buscabas".

Conecte su propia volatilidad implícita

No he podido encontrar intermediarios en línea que me permitan ingresar una orden del siguiente tipo: compre 150 IBM (IBM) con un 35% de volatilidad implícita.

Ahora sé que el modelo de opción de todo el mundo es ligeramente diferente, de modo que mi volatilidad implícita del 35% podría ser volatilidad implícita del 36% (diferentes suposiciones de tasas de interés, inclinaciones de volatilidad, etc.). Pero seguramente debería tener la capacidad de decir, "Comprar la llamada de 150 IBM a X% del precio de las acciones subyacente".

Y mientras busque un servicio que nunca encontraré, ¿hay algún corredor en línea que acepte órdenes de propagación (es decir, ofrezco $ 7 por el spread de $ 150 a $ 170), y no me obligue a poner en Dos órdenes, (compra 150 llamada, venta 170 llamada), dejando posible para mí ser ejecutado en una pierna, pero no la otra?

Respuesta corta a la pregunta No. 1: "No se puede hacer - al menos no ahora", dice Houston de Datek.

Pero, obviamente, Tony, eres lo suficientemente sofisticado de un comerciante para saber que si estás preocupado por la volatilidad escogerás tu precio, añade. "Se puede usar el modelo de Ross-Cox y el modelo de Black-Scholes, cada uno de ellos calcula de manera diferente, desde el punto de vista del intermediario, sólo nos interesa el precio real de esa opción", dice. "La volatilidad implícita no existe a menos que la opción esté cubierta con acciones, por lo que si sólo está comprando una opción, todo lo que está haciendo es especular sobre la dirección pura." Lo que crea la volatilidad implícita es cuando se protege la opción con acciones subyacentes , Eso es lo que hacen los creadores de mercado ".

Así que, a menos que esté haciendo algo más complicado que una simple opción, realmente no necesita preocuparse por la volatilidad, añade Brent.

Él explica las razones por las cuales: "Si el creador de mercado se está vendiendo y el cliente está comprando que la llamada de IBM, por ejemplo, el creador de mercado vende la llamada y lo cubre con acciones. Los clientes compran la llamada y espera que la acción suba. El cliente hace dinero en la opción, y el creador de mercado gana dinero en la posición de acciones largas. "

Digamos que el cliente cierra esa posición con ese mismo creador de mercado y vende la opción con un minuto a la expiración. "No hay una volatilidad implícita en el precio, todo es un valor intrínseco", señala Houston. "De repente, el creador de mercado está comprando la opción de nuevo a la volatilidad cero. El cliente hizo dinero en el precio del cambio de opción, el fabricante de mercado hizo dinero en la disminución de la volatilidad", para que él o ella puede comprar de nuevo de El cliente a un precio inferior a lo que se vendió.

Si usted está preocupado por la volatilidad, debe ser porque está ejecutando una estrategia comercial, como una compra-escritura (que es donde un cliente compra una llamada y vende la acción). "Póngase en una orden de compra-escritura, comprar 10 llamadas, digamos, y vender acciones contra ella a un precio específico. Tony, puede determinar ese precio mediante el uso de Opciones de la Caja de Opciones de Chicago Toolbox Toolbox, conectando la volatilidad y llegar a El valor teórico al precio de acción específico. "

En cuanto a la pregunta No. 2, Houston recomienda visitar el sitio web de Preferred Capital y descargar el software para operaciones con spread. (Como siempre, TheStreet. com no endosa, sonríe o frunce el ceño en cualquier software o sitios Web. Y, como de costumbre, con opciones, caveat emptor).

TSC Options Forum tiene como objetivo proporcionar información general sobre valores. Bajo ninguna circunstancia la información en esta columna representa una recomendación para comprar o vender valores.

¿Cuánto tiempo después de un ipo hacer comercio de opciones. Top 10 corredores de opciones binarias en todo el mundo. www. selectproducts-usa. com

¿Cuánto tiempo después de un ipo hacer comercio de opciones & # 8211; Juegos de la bolsa de descarga

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Empresa que va a IPO? Cuatro cosas que cada empleado debe considerar

La especulación corre rampante que AirBnB, Arista Networks, Caja, Dropbox, Evernote, Gilt, Kabam, Opower y Square (todos en nuestra lista de 100 empresas privadas para las que debería trabajar) son los próximos a anunciar.

Si usted trabaja en una de estas empresas hay cuatro cosas que usted necesita para empezar a pensar:

1. El ejercicio de sus opciones sobre acciones antes de la OPI 2. Gifting algunas de sus acciones a la familia o las organizaciones de caridad 3. Elaboración de un plan para vender stock post-IPO liberación de bloqueo 4. Decidir cómo se gestionará el producto de la venta de su stock

Ejercitar sus opciones sobre acciones antes de la salida a bolsa

La mayoría de las empresas ofrecen la oportunidad a sus empleados para ejercer sus opciones sobre acciones antes de que estén plenamente investidos. Si usted decide dejar la empresa antes de ser totalmente adquirido, entonces su empleador compra de nuevo sus acciones no adquiridas a su precio de ejercicio. El beneficio de ejercer sus opciones temprano es que usted comienza el reloj en calificar para el tratamiento a largo plazo de las ganancias de capital cuando viene a los impuestos.

Sí impuestos; El gobierno quiere su corte de su nueva riqueza después de todo.

Ahora, con el fin de calificar para el tratamiento de ganancias de capital a largo plazo, aka una reducción en sus impuestos, debe mantener su inversión por lo menos un año después del ejercicio y dos años después de la fecha de concesión, por lo tanto, iniciar el reloj tan pronto como posible.

Las ganancias de capital a largo plazo son preferibles a los ingresos ordinarios (la forma en que se caracteriza su ganancia si usted ejercita y vende sus acciones dentro de menos de un año) porque podría pagar una tasa impositiva mucho más baja (23,8% 43,4% de la renta marginal ordinaria máxima tasa de impuestos federales).

Las ganancias de capital a largo plazo son preferibles a los ingresos ordinarios porque usted podría pagar una tasa impositiva mucho más baja

Generalmente hay un período de tres a cuatro meses entre el momento en que una compañía presenta su declaración de registro inicial para que se haga pública con la SEC hasta que sus acciones coticen públicamente. Esto es seguido por un período durante el cual se prohíbe a los empleados vender sus acciones durante seis meses después de la oferta debido a bloqueos de suscriptores. Por lo tanto, incluso si usted quería vender su stock que sería incapaz de por lo menos nueve a diez meses a partir de la fecha de su empresa archivos para ir a público.

Doce meses no es un tiempo largo para esperar si usted piensa que las acciones de su empresa es probable que el comercio por encima de su valor actual de mercado en los dos o tres meses post-IPO bloqueo de liberación.

En nuestro puesto, ganar estrategias de capital riesgo para ayudarle a vender acciones IPO Tech. Presentamos la investigación propietaria que encontró la mayoría de las empresas con tres características notables negociadas por encima de su precio de IPO (que debe ser mayor que su valor de mercado actual). Estos factores incluyeron el cumplimiento de su guía de beneficios antes de la salida a bolsa en sus dos primeras llamadas de ganancias, un crecimiento consistente de ingresos y márgenes en expansión.

Una vez más, la investigación mostró que sólo las empresas que exhiben las tres características negociadas después de la salida a bolsa. Basado en estos hallazgos, sólo debe ejercitarse temprano si está altamente confiado en que su empleador puede cumplir con los tres requisitos.

La desventaja de ejercer sus opciones antes de tiempo es probable que de inmediato debe impuestos mínimos alternativos (AMT) y no puede estar seguro de la salida a bolsa va a suceder, por lo que corre el riesgo de que usted no tendrá la liquidez necesaria para pagar el impuesto . Su pasivo de AMT es probable que represente al menos el 28% de la diferencia entre su precio de ejercicio y el valor de su acción en el momento del ejercicio (afortunadamente su AMT es compensado con su último impuesto de ganancia de capital a largo plazo para que no pague dos veces ). Su valor de mercado actual es el precio de ejercicio establecido por su consejo de administración en sus más recientes subvenciones de acciones. Las juntas actualizan este precio de mercado frecuentemente en el momento de una OPI, así que asegúrese de tener el último número.

Le recomendamos que contratar a un planificador de bienes para ayudarle a pensar en esto y muchos otros problemas de planificación de bienes antes de una oferta pública inicial

¿Por qué? Porque esto asegura que tomará la menor cantidad de riesgo de liquidez.

Por ejemplo, si tuviera que ejercer tres meses antes de la presentación para asegurarse de beneficiarse de las tasas de ganancias de capital a largo plazo inmediatamente después de bloquear la liberación, corre el riesgo de que la oferta se retrasa. En ese caso, usted deberá impuestos sobre la diferencia entre el precio de mercado actual y el precio de ejercicio sin ningún camino claro en cuanto a cuándo es probable que obtener algo de liquidez que se puede utilizar para pagar el impuesto.

Considere la posibilidad de donar algunas de sus acciones a la familia o organizaciones benéficas

Si usted piensa que su acción es probable apreciar considerablemente IPO del poste entonces dándole algo de su acción a los miembros de la familia antes del IPO permite que usted empuje mucho de la apreciación al recipiente y limite los impuestos que usted es probable que deba.

En pocas palabras, le recomendamos que contratar a un planificador de bienes para ayudarle a pensar en esto y muchos otros problemas de planificación de la propiedad antes de una oferta pública inicial.

Si bien esto puede parecer morboso, es realmente una cuestión de ser realista, después de todo nada es más seguro que la muerte y los impuestos.

Un plan de bienes básicos de una empresa de buena reputación puede costar tan poco como $ 2.000. Esto puede sonar como mucho, pero es una cantidad relativamente pequeña en comparación con los impuestos que puede ser capaz de ahorrar. Un planificador de bienes también puede ayudarle a establecer trusts para usted y sus hijos que eliminará posibles problemas de sucesión si algo desafortunado sucede a usted o su cónyuge (y hacerlo puede ser visto como otro regalo para el resto de su familia).

... considerar la contratación de un contador de impuestos para ayudarle a pensar a través de los impuestos asociados con diferentes enfoques de ejercicio temprano

En el caso de que no planea hacer un regalo que usted debe considerar la contratación de un contador de impuestos para ayudarle a pensar a través de los impuestos asociados con diferentes enfoques de principios de ejercicio.

Nos damos cuenta de que muchos de ustedes actualmente usan el Impuesto Turbo para hacer sus impuestos anuales, pero la tarifa modesta que incurrirá para un buen contador será más que pagar por sí misma cuando se trata de tratar con opciones sobre acciones y RSU (ver un ejemplo del tipo de Consejos que debe buscar en tres maneras de evitar problemas fiscales cuando se ejercitan opciones). Para más detalles sobre cuándo debe contratar a un contador de impuestos por favor, lea 9 Señales que debe contratar a un contador de impuestos.) Este es un área donde usted no quiere ser centavo sabio y libra tonto.

Estamos encantados de proporcionar recomendaciones para los contadores de impuestos y planificadores de bienes para nuestros clientes que residen en California si nos envía un correo electrónico a support@wealthfront. com.

Desarrollar un plan post-IPO-lockup-release para vender acciones

Hemos escrito una serie de publicaciones en el blog que explican por qué sería bien servido para vender acciones de acuerdo a un plan consistente post-IPO. En nuestra experiencia los clientes que piensan esto antes de la salida a bolsa en general son más propensos a realmente seguir a través y vender algunas acciones que aquellos que no tienen un plan preconcebido y reflexivo.

El Valle está repleto de historias de empleados que nunca vendieron una parte de su stock después de la salida a bolsa y, en última instancia, terminó con nada. Esto es porque ellos o bien sentían que sería desleal o creían tan fuertemente en la perspectiva para su compañía que no podían traerse a vender.

En nuestra experiencia los clientes que piensan esto antes de la salida a bolsa en general son más propensos a vender realmente algunas acciones que aquellos que carecen de un plan preconcebido y reflexivo.

Es casi imposible vender su acción al precio más alto absoluto, pero usted debe todavía invertir el tiempo para desarrollar una estrategia que coseche la mayor parte de las ganancias posibles y le permitirá alcanzar sus metas financieras a largo plazo.

Si usted está en una posición para conocer los resultados financieros de su empleador ante el público en general, entonces se le puede requerir participar en un "plan 10b5-1". Según Wikipedia, SEC Regla 10b5-1 es un reglamento promulgado por los Estados Unidos Securities Y la Comisión de Intercambio (SEC) para resolver una cuestión pendiente sobre la definición de operaciones con información privilegiada. Los planes 10b5-1 permiten a los empleados vender un número predeterminado de acciones en un tiempo predeterminado para evitar acusaciones de abuso de información privilegiada. Si se le requiere participar en un plan 10b5-1, entonces necesitará tener un plan pensado antes de la liberación de su empresa IPO lockup.

Decidir cómo administrará los ingresos de la venta de su acción

Las empresas que han presentado recientemente para publicar son una de las mejores fuentes de nuevos clientes para los asesores financieros. Nuestros amigos en Facebook solía quejarse incesantemente sobre "los trajes" alineados en su vestíbulo que sólo estaban allí para tomar su dinero. Si es probable que valga más de $ 1 millón de sus opciones de acciones, entonces será muy perseguido. Deberá decidir si desea delegar la gestión de los ingresos que genera de la venta definitiva de sus opciones / UAR o si desea hacerlo usted mismo.

Hay una gran variedad de opciones si está interesado en delegar. En última instancia, tendrá que el comercio de honorarios vs servicio, ya que es poco probable que usted será capaz de encontrar un asesor que ofrece una gran cantidad de explotación de la mano con las tasas bajas.

Tenga cuidado con los asesores que promueven productos de inversión única como la investigación ha demostrado que es casi imposible superar el mercado.

El Valle está repleto de historias de empleados que nunca vendieron una parte de su stock después de la salida a bolsa y, en última instancia, terminó con nada.

Para ayudar a educar a los empleados sobre las mejores prácticas en administración de inversiones, creamos lo que se ha convertido en una presentación Slideshare muy popular. Explica la Teoría de la Cartera Moderna; El enfoque de inversión ganador del Premio Nobel favorecido por la gran mayoría de inversores institucionales sofisticados, y explica cómo puede implementarlo usted mismo. También proporciona los antecedentes necesarios para ayudarle a saber qué preguntas hacerle a un asesor si desea contratar uno.

Prevenido vale por dos. Si usted trabaja en una de las muchas empresas que es probable que vaya a público en el próximo año, a continuación, tomar algún tiempo fuera de su apretada agenda para considerar las cuatro actividades descritas anteriormente puede hacer una gran diferencia a su salud financiera en el largo plazo.

Nada en este artículo debe interpretarse como una solicitud, oferta o recomendación para comprar o vender ningún valor. Los servicios de asesoría financiera sólo se proporcionan a los inversores que se convierten en clientes de Wealthfront. Los posibles inversores deben consultar con sus asesores fiscales personales sobre las consecuencias fiscales basadas en sus circunstancias particulares. Wealthfront no asume ninguna responsabilidad por las consecuencias fiscales para cualquier inversionista de cualquier transacción. El rendimiento pasado no es garantía de resultados futuros.

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Si usted es propietario de un negocio, dar a sus empleados opciones sobre acciones antes de una oferta pública inicial (OPI) podría potencialmente ayudar a su negocio.

Una OPI es una "oferta pública inicial" De acciones para una corporación. En el mundo de las finanzas, a todo el mundo le gusta hablar.

El ejercicio de las opciones sobre acciones es cuando un inversor potencial decide aprovechar el contrato de opción original para comprar o vender.

A pesar de las consecuencias fiscales de la venta de la oferta pública inicial, o oferta pública inicial de acciones, por lo general hay un rendimiento bastante bueno para la venta de iniciados.

Una OPI, o oferta pública inicial, y VC, o capital de riesgo, se refieren a la inversión de acciones y métodos de generación de efectivo, pero son específicamente.

Una OPI es una oferta pública inicial de acciones, y generalmente incluye mucha fanfarria y anuncios sobre la compañía.

Los empleados a los que se concedan opciones de compra de acciones o acciones restringidas pueden adeudar impuestos sobre la renta en el momento de la concesión, cuando se recibe la acción y.

Un propietario de arranque buscando nuevos fondos y una mayor exposición puede buscar en una oferta pública inicial (IPO). Una OPI es la.

Una oferta pública inicial (IPO, por sus siglas en inglés) es el proceso mediante el cual una compañía vende sus acciones al público inversionista para la primera.

ReWalk Robotics (RWLK) se dispara el segundo día de negociación después de la IPO

NUEVA YORK (TheStreet) - Las acciones de ReWalk Robotics (RWLK) continuaron creciendo un 41,37% a US $ 36,19 el lunes en la mañana, el segundo día de operaciones del exoesqueleto después de su salida a bolsa el viernes.

La compañía fijó el precio de su oferta pública inicial de 3 millones de acciones a 12 dólares por acción. Originalmente se propuso ofrecer 3,4 millones de acciones en un rango de $ 14 a $ 16 por acción, pero disminuyó el tamaño y el precio de la oferta pública inicial.

ReWalk es una empresa israelí de dispositivos médicos que diseña y vende exoesqueletos que permiten a los pacientes con problemas de movilidad caminar.

STOCKS A COMPRAR: TheStreet Quant Ratings ha identificado un puñado de acciones que pueden ser TRIPLES en los próximos 12 meses. Aprende más.

Más de 5.4 millones de acciones habían cambiado de manos a partir de las 11:19 de la mañana.

OFERTA EXCLUSIVA: Vea la cartera de caridad de varios millones de dólares de Jim Cramer para ver las acciones que él y Stephanie Link piensan que podrían ser potencialmente GRANDES ganadores. Haga clic aquí para ver las explotaciones GRATIS.

Facebook IPO: ¡Opciones próximamente!

Optionsguy publicado el 17/05/12 a las 13:31

Brian Overby de TradeKing esboza algunos puntos para recordar si está interesado en contratar opciones de compra cuando estén disponibles en facebook después de la Oferta Pública Inicial (IPO).

Si todo va según lo planeado, Facebook se publicará el 18 de mayo. El precio de la OPI se estima en alrededor de $ 34 a $ 38 por acción que valoraría la empresa en más de $ 103 mil millones de acuerdo a este artículo de Wall Street Journal. Facebook determinará su precio final y presentará sus últimos documentos de IPO con la Securities and Exchange Commission el jueves por la noche, una noche antes de su primer día de negociación pública el viernes. Cuando se publique, Facebook operará en el Nasdaq bajo el símbolo "FB".

Compra de la acción una vez público

El comercio de una acción que acaba de llegar a estar disponible en el mercado público no es para los débiles de corazón y esto no es cualquier stock - es Facebook. While the offering price of the IPO may give some indication, the price once trading on the secondary market may be much different than the price of the IPO. The exchange will try to determine an opening price based on all the pending orders in the queue. The bottom line, expect the stock’s price to be very volatile in the opening hours of trading and remember volatility means both up and down price swings. Because of these potential wild swings TradeKing will not accept market orders on Facebook prior to the open. I must emphasize that all orders entered PRIOR to the open must have a limit price. A “limit” order will only be filled if someone is willing to trade at that price. In other words, if filled, it will have to be at that limit price or better, but there is no guarantee it will/can be filled. This is much different than a “market” order which guarantees the fill, but what is not guaranteed is the execution price. The most important thing to understand is that all limit orders are considered "or better" trades. If the trade can be filled at a better price when the trade gets to the exchange - it will be. For example, if you place an order to buy it at 50 and the price available when your order is presented to the public market is 41 that is where the trade should be executed. (Note: different brokers will have different rules regarding opening transactions in IPO so please check with your broker prior to trading.)

Summary: If placing a Facebook stock order at TradeKing

1) Orders can only be placed after the close Thursday, May 17th (after 4:02 pm ET). These orders will remain "Pending" until reviewed Friday morning, when the orders can be opened. A pending order CAN still be rejected. 2) All orders must be entered with a limit price. 3) The account must have cleared funds to be able to pay for all the shares at the stated limit price. FB will not be marginable to start and may remain on the 100% cash requirement for some time after the launch. 4) Also, the “limit order only” restriction may continue for a few days after the initial opening trade.

Options on Facebook?

Options WILL NOT begin trading on FB on day one with stock. The anticipated date for the listing of Facebook option contracts is May 29th, according to a press release put out by the International Securities Exchange (ISE).

Trading both puts and calls on FB will be tricky to start. There will most likely be wide bid/ask spreads on the option contracts until the market makers have some price discovery. To expand on that concept, the hardest job of the market makers in IPO option contracts is to get the implied volatility (IV) number correct for each expiration available. This is because there is not much historical stock price data to go off of. So this normally means the difference between the asking price for an option may be artificially higher than the bidding price. This usually occurs to help compensate for the risk of getting this IV number wrong. This can increase the overall cost to the traders that want to invest in these options.

Also, outright buyers of puts and calls will want to be weary of a possible implied volatility crunch on the options after the first week of trading. Market makers will most likely spike up implied volatility in general to begin with, and you can get burned if the stock settles down quickly thereafter. You should also be aware that buying put and call options can result in the loss of 100% of your investment, should FB go against you. Learn more about long puts and long calls here. Trading options on highly publicized IPO stocks is tempting, but it is very important to understand that there are many forces in play with the pricing and trading of the option contracts besides the volatile movement of the stock price. You’ve been warned!

Learning from Groupon’s IPO

In an article posted November 4th on CNN Money it announced Groupon’s Initial Public Offering and the projected price of $20 per share. The high water mark of the stock was $31.14 and is now trading as of this writing around the $12.50 mark. Many expected the volatility in Groupon stock price to settle down by now and it just hasn’t happened. Another important note is that GRPN has been in a "hard to borrow" state for most of its life because of all of the short sellers. If a stock remains hard to borrow due to high levels of short selling, it usually inflates put prices vs that of calls. Now past performance does not guarantee a future result and Facebook is definitely a much larger and more talked IPO than Groupon.

Bottom line is with IPOs you never know what may happen to the stock price and that is even more true when it comes to option contract prices.

Regards, Brian Overby TradeKing's Options Guy www. tradeking. com Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options available at http://www. tradeking. com/ODD.

Brian Overby currently holds no positions in any mentioned securities.

El comercio en línea tiene un riesgo inherente debido a la respuesta del sistema y tiempos de acceso que pueden variar debido a las condiciones del mercado, el rendimiento del sistema y otros factores. Un inversionista debe entender estos y riesgos adicionales antes de negociar.

Si bien la volatilidad implícita representa el consenso del mercado en cuanto al nivel futuro de la volatilidad de los precios de las acciones o la probabilidad de alcanzar un punto de precio específico, no hay garantía de que este pronóstico sea correcto.

El contenido, las investigaciones, las herramientas y los símbolos de acciones u opciones son sólo para fines educativos y ilustrativos y no implican una recomendación o solicitud para comprar o vender un valor en particular o para participar en una estrategia de inversión en particular. Las proyecciones u otra información con respecto a la probabilidad de varios resultados de inversión son hipotéticas por naturaleza, no están garantizadas por exactitud o integridad, no reflejan los resultados reales de la inversión y no son garantías de resultados futuros.

La documentación de apoyo para cualquier reclamación hecha en este puesto será suministrada a petición. TradeKing ofrece a los inversionistas autodirigidos servicios de corretaje de descuentos y no hace recomendaciones ni ofrece asesoramiento financiero, legal o fiscal.

Posted by optionsguy on 05/17/12 at 01:31 PM

Are IPOs available to short sell immediately upon trading, or is there a time limit that must pass before short sales are accepted?

The quick answer to this question is that an IPO can be shorted upon initial trading, but it is not an easy thing to do at the start of the offering. En primer lugar, usted tiene que entender el proceso de IPO y venta en corto.

Una oferta pública inicial (IPO) ocurre cuando una compañía pasa de ser privada a ser negociada públicamente en un intercambio. The company and an underwriting firm will work together to price the offering for sale in the market and to promote the IPO to the public to make sure there's interest in the company. Generally, shares in the company are sold at a discount by the company to the underwriter; the underwriter then sells it on the market during the IPO. Cuando un inversor de venta corta, que esencialmente toma prestado una acción y la paga en el futuro. If you do this, you're hoping the price of the stock will fall because you want to sell high and buy low. For example, if you short sell a stock at $25 and the price of the stock falls to $20, you will make $5 per share if you purchase the stock at $20 and close out the short position.

To be able to short a stock, you usually need to borrow it from an institution such as your brokerage firm. Para que te lo presten, necesitan un inventario de este stock. Here's where the difficulty can arise with IPOs and short selling: an IPO usually has a small amount of shares upon initial trading, which limits the amount of shares that can be borrowed for shorting purposes. El día de la salida a bolsa, dos partes principales tienen inventario de la acción: los suscriptores y los inversores institucionales y minoristas. Según lo determinado por la Comisión de Bolsa y Valores. Que está a cargo de la regulación de IPO en los EE. UU. los aseguradores de la salida a bolsa no están autorizados a prestar acciones de venta corta durante 30 días. Por otro lado, los inversores institucionales y minoristas pueden prestar sus acciones a los inversores que quieren cortocircuitarlos.

However, only a limited amount of shares would probably be available on the market as the company would've just started trading publicly and the shares may not have been completely transferred. Además, podría haber una falta de voluntad entre los inversores para prestar sus acciones a cabo para ser vendidos a corto.

Por lo tanto, si bien hay obstáculos reglamentarios y prácticos para hacerlo, todavía es posible vender acciones cortas en una empresa el mismo día en que la empresa se vuelve pública.

(For more on the topic of short selling, check out our Short Selling tutorial. For more on IPOs, see our IPO Basics tutorial.)

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If You Invested Right After Netflix's IPO (NFLX)

Netflix Inc. (NFLX ) is an Internet television network giant that provides worldwide users with Internet streaming of TV shows and movies. Netflix also provides its customers with DVD-by-mail membership services. Since its humble beginnings as a mail-order movie and TV show delivery service in 1997, the company has gone public, and as of June 30, 2015, has a year-to-date return of 92.31%. An investment of $990 on Netflix's initial public offering. or IPO, date of May 23, 2002 and a $1,000 reinvestment when it was trading at $5 would have generated over $400,000 after stock splits.

How Much Money You Would Have Made if You Invested in Netflix

If you invested $990 right after Netflix's IPO, assuming you purchased each share of Netflix at its IPO price of $15, you would have 66 shares. Netflix did not continue higher; instead, it traded in a downtrend until early October 2002, where it hit a low of $4.85. Assume instead of selling Netflix for over a $10 loss per share, you invested another $1,000 at $5 per share. Another $1,000 investment would have allowed you to purchase 200 more shares before fees and expenses. You would have 266 shares at an average price of $7.48 per share, or ($15 * 66 shares) + ($5 * 200 shares) / (200 shares + 66 shares). This is before Netflix announced its two-for-one stock split and seven-for-one stock split.

2004 Two-for-One Netflix Stock Split

On Feb. 11, 2004, Netflix closed at $71.96 per share. On Feb. 12, 2004, Netflix issued a two-for-one stock split. so those 266 shares would double to become 532 shares. On Feb. 12, 2005, Netflix closed at $37.30 per share. The investment of $1,990 would have been worth $19,843.60, a return on investment, ROI, of 897.17%.

Thereafter, Netflix had its ups and downs. However, shares of Netflix topped $700 per share and hit a high of $711.45 on July 14, 2015. At Netflix's all-time high, the investment of $1,990 would have been worth $378,491.40, an ROI of 18,919.67%. Netflix closed at $702.60 per share on July 14, 2015. After Netflix hit a new all-time high, it was set to report its earnings for the quarter ending May 2015. The company reported earnings per share, or EPS, of six cents, which surprised analysts' estimates of five cents.

2015 Seven-for-One Netflix Stock Split

The day after Netflix reported its quarterly earnings and hit a new all-time high, the company was also set to issue another stock split, this time, a seven-for-one stock split on July 15, 2015. On July 15, 2015, your 532 shares would become 3,724 shares. On the date of the stock split, Netflix closed at $98.13 per share. The total position yields was $365,436.12 at the close, which was a decrease of $13,055.28 from the high on July 14, 2015.

However, from July 15, 2015 through July 17, 2015, Netflix increased by $19.75 from $98.13 to a high of $117.88 on July 17, 2015. Over the course of two days, the total position yields was $438,985.12 at the high, an increase of $73,549 since July 15, 2015.

Present-Day Value From a Netflix IPO Investment

As of July 24, 2015, Netflix closed at $109.34 per share. If you had a high risk tolerance and were able to stick through the wild ride and reinvested your money, you would have a return on investment of 20,361.42%, or ($109.34 * 3724 shares) - ($7.48 * 266 shares) / ($7.48 * 266 shares). Your total investment of $1,990 would have been worth $407,182.16 at the close of July 24, 2015.

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How To Trade an IPO

An IPO is a stock that has just started trading after an initial public offering. New stocks with up to nine months of trading history are generally considered IPOs. An IPO can present a significant profit opportunity, as virtually every winning stock --- from Google to Bidu to Apple --- was an IPO at one time, but trading IPOs presents significant risks.

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How Much Money Do I Need to Invest in an IPO?

How to Calculate IPO

Review IPO filings and calendars to identify IPOs that interest you. Various websites such as Yahoo! Finance or Renaissance Capital provide comprehensive listings of upcoming IPOs.

Determine the date on which an IPO will be released and start trading.

Watch how an IPO opens for trading. An IPO opening above where it was priced suggests strong demand for the stock from retail investors and possibly more upside.

Follow the stock for a few hours without placing an order. After an initial advance caused by overly enthusiastic retail investor buying, the stock may begin to sag as flippers start selling. A flipper is an IPO investor who got shares in an IPO allocation and will sell, or flip, it on the first day of trading for a quick profit.

Place a buy order after the stock comes back from an initial decline and makes a new high for the day.

Sell when you have a decent profit. Few IPOs go straight up: Most usually begin to form a base after a few days of trading.

Come back to the IPO three to six months after it has started trading. IPOs often form three - to six-month bases after they're first released; it's safer to buy them after they break out of a first base. Additionally, IPOs usually have six-month lockup periods during which insiders aren't allowed to sell their shares. Insider selling often depresses an IPO price, so it's safer to buy after a lockup expiration, when all the insiders who wanted to sell have done so.

Fast Answers

Initial Public Offerings: Lockup Agreements

Lockup agreements prohibit company insiders—including employees, their friends and family, and venture capitalists—from selling their shares for a set period of time. In other words, the shares are "locked up." Before a company goes public, the company and its underwriter typically enter into a lockup agreement to ensure that shares owned by these insiders don’t enter the public market too soon after the offering.

Los términos de los acuerdos de bloqueo pueden variar, pero la mayoría evita que los iniciados vendan sus acciones por 180 días. Los bloqueos también pueden limitar el número de acciones que se pueden vender durante un período de tiempo designado. Las leyes de valores de los Estados Unidos exigen que una empresa que usa un bloqueo divulgue los términos en sus documentos de registro, incluyendo su prospecto. Some states require lockup agreements under their "blue-sky" laws .

Si está considerando invertir en una empresa que ha realizado recientemente una oferta pública inicial, debe determinar si la empresa tiene un bloqueo y cuando expira. This is important information because a company’s stock price may drop in anticipation that locked up shares will be sold into the market when the lockup ends.

To find out whether a company has a lockup agreement, contact the company’s shareholder relations department to ask for its prospectus or obtain it online through the SEC’s EDGAR database. There are also free commercial websites that track when companies’ lockup agreements expire. The SEC does not endorse these websites and makes no representation about any of the information or services contained on these websites.

The Deal: For Yahoo. Is Alibaba IPO a Blessing or Curse?

NEW YORK ( The Deal ) -- Yahoo!'s (YHOO - Get Report ) purchase of social media-cum-web browser developer Rockmelt on Aug. 2 marks the 21st acquisition since Marissa Mayer became CEO of the Internet company last year.

The parade of deals, which includes the high-profile $1.1 billion purchase of photo site Tumblr . is certainly impressive. Besides lending prestige to Yahoo because of the company's increasing association with hip startups, the dealmaking has lifted Mayer's stature with the likes of hedge fund Third Point CEO Daniel Loeb, who agitated for change at Yahoo two years ago and is now rattling Sony Corp.'s cage.

To be sure, Mayer's style has helped the Sunnyvale, Calif.-based Yahoo's image, but the warm glow enveloping the company's stock comes primarily from its 24% stake in Chinese e-commerce developer Alibaba Group . which is gearing up for an initial public offering. Yahoo's shares jumped 10% after its July earnings call, when the company provided more transparency into numbers from Alibaba and Yahoo! Japan.

"They are a proxy for investing in the Alibaba IPO, in some respects," SNL Financial analyst Seth Shafer said.

The Alibaba IPO will mean billions of dollars in cash for Yahoo. UBS analyst Eric Sheridan suggested in a July report that the Alibaba stake is worth about $20.4 billion before taxes.

But an Alibaba IPO will also raise substantial questions for Yahoo.

The first, and most obvious, decision is what to do with the money. Yahoo could well spend much of it on dividends or buybacks. The deeper question is how Yahoo can replace the growth that Alibaba provides, and whether Mayer will change the company's approach to M&A to boost the top line.

Yahoo has regained cachet with employees and investors during Mayer's tenure as CEO. Witness the 10,000 resumes per week Yahoo receives, as well as the stock's jump to nearly $30 from about $15.70 in the 12 months that she's been leading the company.

Mayer's acquisitions haven't produced growth yet, although that hasn't been the immediate goal. After all, most of them have been small. But what Mayer wants to do is build Yahoo's talent pool. The first woman engineer at Google (GOOG - Get Report ). Mayer has often been making "acqui-hires" that annexed talent rather than assets. With Rockmelt, for instance, Yahoo is shutting down the target's website.

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How does an IPO work, from an employee's perspective? October 7, 2007 12:22 PM Subscribe

How does an IPO work from an employee's perspective?

Say you work for a company that will be going public. You are fully vested in 50% of your options.

When the company goes public, is there a waiting period before options can be exercised?

What kind of tax implications can you expect?

For example, say I have 3000 options with a $2 strike price. Company goes public, and 2 months later the stock is trading at $20. If I exercise the options, I net $54,000. How much of that will be taxed?

Is the tax based on current income level? Or is this some kind of capital gains scenario?

Are they non-qualified stock options or incentive stock options? Very different beasts in regards to taxation. posted by smackfu at 12:49 PM on October 7, 2007

You are taxed on the full gain as short term capital gains. Which I'm pretty sure will just count as ordinary income for tax purposes. Which means you'll either have to come up with cash for the taxes or sell some stock to pay for the taxes. The company handling your options probably has an option for a "cashless exercise" where all the stock is sold immediately after exercise, the taxes paid and you get the rest minus any fees they charge. posted by jefftang at 12:50 PM on October 7, 2007

IANAFA - but I just went through this, basically.

Every option agreement I've ever seen allows you to exercise at anytime even before it's public - and get this - even before it's vested. Your company's stock always has an official value (409A stuff). So say you have 3000 at $2, and the company is officially worth $10 per share now (before going public). If you exercised right now you would take a $8 per share gain as just straight income (even if the stock after going public fell down to $4 next year). If in 2 months the company went public and you sold them at $20. You would take another $10 per share straight income gain. Now, if you were to hold the exercised shares before selling for at least 12 months, and then sold at $20 that remaining $10 would be taxed at the long term capital gain rate (15%, I think). Also, AMT can figure into the picture in the above scenario, and you would need someone to look at your specific situation to figure that all out. posted by ill3 at 1:14 PM on October 7, 2007

Exercise your options as soon as you can, BEFORE it goes public. You have to pay a gain on the difference between what you paid and what the stock is worth AT EXERCISE, so presumably, the stock will be worth less and you will pay less if you do it now.

However, if you don't have the money to exercise, or if you can't afford to pay the tax at exercise, then you may have to wait until IPO and do the cashless thing jefftang mentions.

If you can exercise while the stock has a low value and you can afford to just pay the tax, all subsequent gains are long-term, which is taxed MUCH lower than short-term -- 18%, as opposed to your normal income tax rate. posted by Malor at 1:15 PM on October 7, 2007

While some of the folks above have good advice, please talk to your stockbroker and/or accountant before doing anything. Have whatever papers your company has given you about the IPO in front of you so you can answer questions they will ask.

And remember, not all IPOs are money-printing machines. For every Google there are several companies whose shares go nowhere. posted by ilsa at 1:58 PM on October 7, 2007

I'm not sure what kind of options they are. From reading the description of ISO on Wikipedia, it sounds right but I could easily be wrong.

So I understand right - is exercising is the act of buying and immediately selling the stock? Or just the buying part?

Then when it's sold, if my current tax bracket is 25% and I make $54,000 in short term gains, I owe $13,500 on the spot? Or does it go into my W-2 and I don't owe the money until April 15th?

If my company offers a cashless exercise, they will factor in the tax in my gains and would I'd end up with $40,500? posted by jbiz at 2:08 PM on October 7, 2007

Every option agreement I've ever seen allows you to exercise at anytime even before it's public - and get this - even before it's vested.

is there any way anyone could explain this further? what's the point of vesting dates if you can ignore them and exercise whenever you want? posted by drjimmy11 at 2:40 PM on October 7, 2007

Congratulations, you have options you think are valuable! If you stand to make more than $10,000 with your options you should hire an accountant to walk you through this. Tax issues around options are complicated, particularly ISOs, and Ask Metafilter is not a substitute for financial advice.

So I understand right - is exercising is the act of buying and immediately selling the stock? Or just the buying part?

Exercising is just the act of paying the strike price on the option to buy the stock. Exercising costs you money. Then you can sell the stock (subject to restrictions). Selling makes you money. You can also do a "same day sale" once the stock is publically traded, where you exercise and sell at the same time.

Where it gets tricky is you may pay taxes on both transaction, both the exercise and the sale. A common strategy is for people to exercise options as soon as they can afford to, in the hopes they then hold the stock one year and qualify for lower taxes via long term capital gains. But for NQs you pay income tax on the paper gain at the time of exercise, and for ISOs you may be subject to AMT on that paper gain.

If you manage exercising and holding stock correctly and all goes in your favour, you can save yourself 20% or more on your tax bill. If you get it wrong or things go badly you can stick yourself with taxes on 100% of the stock value even though you haven't made any cash yet. The stakes are high enough you need an accountant to give you professional advice.

When the company goes public, is there a waiting period before options can be exercised?

It depends on the option plan. Typically you can still exercise the option whenever you want, but you usually can't sell the stock for some period after the IPO. 180 days is common.

Company goes public, and 2 months later the stock is trading at $20. If I exercise the options, I net $54,000. How much of that will be taxed?

If you exercise and sell the stock in 2 months, you will owe short term capital gains (ie: income tax rates) on the $54,000 net. For NQs it's common that this tax burden goes on your W-2. Usually the income is subject to withholding at the time of sale, the broker will do the withholding for you. But all these details depend on the specific stock plan.

is there any way anyone could explain this further? what's the point of vesting dates if you can ignore them and exercise whenever you want?

Early exercise is a valuable right some ISO programs give employees. It has advantages in that it lets you start the long term capital gains clock ticking sooner. It has dangers with capital risk and taxes, and again you need a professional to walk you through it. But just because you early exercise doesn't mean you own the stock; if you leave your job before those shares vest you typically have to return them to your employer. posted by Nelson at 6:20 PM on October 7, 2007

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Wealth After an IPO Can Cause Employees to Go

Groupon Inc. began selling its stock Nov. 4 in an event that was far more successful than had been anticipated for the daily-deal company.

The Chicago-based company's initial public offering had the effect that the public has come to expect for Internet startups: Multiple employees became millionaires overnight, at least on paper. CEO Andrew Mason, along with a handful of investors, was an instant billionaire, at least temporarily.

Despite a quick drop in its per-share price—as of Dec. 7 Groupon was trading at $20.43, down from it's high of $31.14—the IPO also brought to light other people management issues faced by companies when their employees earn instant wealth. The company raised $700 million in the largest U. S. Internet IPO since 2004, when Google Inc. raised $1.7 billion.

"Google is one of the great American stories," says Scott Sweet, senior managing partner of IPO Boutique, a Lutz, Florida-based research firm. Sweet says Google was masterfully prepared before launching its IPO, with excellent management and a solid (and generous) employee compensation plan in place.

More than 900 of the Silicon Valley company's 2,300 employees at the time became instant millionaires. More than half of those instant millionaires were worth more than $2 million. Google's founders became billionaires.

And that was just on the first day, when Google shares were $85. Three years later Google shares peaked at just over $700 per share. That's about when Google looked around and noticed that a big chunk of its original employees, 100 of the first 300 people ever hired, had left the company, the San Francisco Chronicle said. Fabulously wealthy, they had resigned and moved on to new challenges—or perhaps to long, lazy days on new yachts—taking with them considerable institutional wisdom and culture.

Offering generous stock options is seen as a way to attract and retain key employees. But the newfound wealth can create problems for companies and their employees. As Google did, a newly created public company might witness the departure of many of its valued employees after their shares have vested (typically after six months).

Disparate levels of wealth among employees, according to their time of hiring and concomitant value of shares, may create friction or morale problems that could chip away at the company's core culture. To handle such post-IPO problems and help the company stay true to its values, Google appointed a chief culture officer.

On an individual level, employees who have suddenly gone from Joe Blow to King Midas may have serious problems coping with the change. It's called "sudden wealth syndrome," say wealth counselors Stephen Goldbart and Joan DiFuria of the Money, Meaning & Choices Institute in Kentfield, California, and authors of Affluence Intelligence .

"For some people, sudden wealth changes nothing," DiFuria says. "The opposite extreme is people who actually commit suicide. The money is just one more overload they can't deal with."

"The impact of money on people, whether they gain a lot of it or lose a lot of it, is powerful," Goldbart says. "The less prepared an individual is for a sudden liquidity event, the more impact it's going to have."

After its IPO, Google invited six wealth managers to make in-house presentations to their newly wealthy employees. Similar actions to help employees deal with sudden wealth are rarely carried out by other companies, Goldbart and DiFuria say.

That's with good reason, says Larry Schumer, a principal in compensation solutions in Buck Consultants' Boston office. "That's a privacy thing," he says. "Employees do what they want with their money. The HR department might offer some financial counseling, but they're not going to get involved with the wealth that people have."

A greater issue, Schumer says, is retaining employees once they've gained wealth. Brett Harsen, a vice president of Radford, a San Jose, California-based consulting firm for technology and life sciences human resources, agrees.

"When we're talking about employee retention and engagement, we all know that it's not just about compensation," he says. "There's also the opportunity to work on interesting projects and the opportunity to advance in the organization."

Harsen says the sudden growth of a company after it has gone public, coupled with a possible lapse in communication from management to employees, may leave some workers feeling confused and uncertain about their future with the company. No matter how wealthy an employee has suddenly become, he or she still needs a clearly defined road map for advancement.

"Make sure employees believe they have a career progression at the company once" the company is public, he advises. "Provide management training, career paths, put systems into place and tell employees how to move up the ladder. It's those kinds of questions that are sometimes left until after the IPO event because everyone's focused on making this a successful offering."

But if those job-related issues are neglected in favor of a money focus, he says, "It really is difficult to keep people in their seats. They don't know what the future holds."

Now that Groupon's gone public, Chicago-area Realtors may be champing at the bit. In California's Silicon Valley, experience has shown that after an IPO, luxury homes are in high demand. After all, the newly rich have to invest their money somewhere.

Susan Hauser is a freelance writer based in Portland, Oregon. To comment, email editors@workforce. com.

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When Facebook went public, the price didn't rise like a normal IPO. Normally, IPO's are priced so that there's a "pop" on the opening day. Instead the Facebook price fluctuated around the initial price and once support was removed, the price fell below the offering price.

According to the Wall Street Journal:

"As the deal's so-called stabilizing agent, Morgan Stanley could support the stock through a pool of Facebook shares known as a overallotment."

In this context, "support" means keep the stock price higher than it otherwise would be. I see how Morgan Stanley could keep the price lower by releasing more shares from an overallotment pool, but how can they "support" the stock price?

There are no "rules" about how the price should act after an IPO, so there are no guarantee that a "pop" would appear at the opening day. But when an IPO is done, it's typically underpriced. On average, the shares are 10% up at the end of the first day after the IPO (I don't have the source that, I just remember that from some finance course).

Also, after the IPO, the underwriter can be asked to support the trading of the share for a certain period of time. That is the so called stabilizing agent. They have few obligations like:

Providing liquidity to avoid strong price movement.

Supporting the price by buying the share below a certain level.

This price support in often done by a repurchase of some of the shares of poorly performing IPO.

EDIT: Informations about the overallotment pool .

When the IPO is done, a certain number of client buy the shares issued by the company.

The underwriter, with the clients, can decide to create an overallotment pool, where the clients would get a little more shares (hence "overallotment"), but this time the shares are not issued by the company but by the underwriter. To put it another way, the underwriter oversell and becomes short by a certain number of shares (limited to 15% of the IPO).

In exchange for the risk taken by this overallotment, the underwriter gets a greenshoe option from the clients, that will allows the underwriter to buy back the oversold shares, at the price of the IPO, from the clients. The idea behind this option is to avoid a market exposure for the underwriter.

So, after the IPO:

If the price goes down . the underwriter buys back on the market the overshorted shares and makes a profits.

If the price goes up . the company exercise the greenshoe option buy the shares at the IPO prices (throught the overallotment pool, that is, the additional shares that the clients wanted ) to avoid suffering a loss.

You are right, but that's a one sided view of the IPO. Even if the company wants as much money as it can . the investors wants returns for taking the risk of giving money to the company, that is why they are asking for a rebate during the IPO. Else they won't participates. If the price is already the right price then they will only benefits from the dividends, in such case, they are better off buying bonds. Also, if the price goes up, the company can still do SEO to gather more money. & Ndash; Mesop May 23 '12 at 8:01

Why Facebook won't start trading at the opening bell

Want to buy a share of Facebook? You'll have to wait an hour or so after the opening bell to do it.

NEW YORK (CNNMoney) -- The most hyped IPO of the year is here, but you won't be able to trade Facebook's stock right when the market opens at 9:30 on Friday.

That's because Facebook ( FB ) will trade on the Nasdaq exchange, which doesn't open up initial public offerings until a bit later in the trading session.

"It's not a delay or a problem, just a matter of style," said a source familiar with Nasdaq's process. "We want to have an IPO stand alone at its own special time."

The company in question -- right now, that's Facebook -- can decide when to debut and works with Nasdaq to set the time. Technically, an IPO stock could even start trading in the afternoon, as long as it's well before the closing bell at 4 p. m. ET.

But most recent Nasdaq IPOs have typically begun trading a few minutes before 11 a. m. ET. That's when Groupon ( GRPN ), Zynga ( ZNGA ) and Angie's List ( ANGI ) made their debuts.

Still, the opening times vary. For example, Splunk ( SPLK ) began trading on the Nasdaq at 11:20 a. m. on April 19. The next day, Proofpoint ( PFPT ) opened at 10:25 a. m.

A representative from Nasdaq declined to comment on what time Facebook's stock will open on Friday.

The trading site StreetInsider. com typically posts that information as soon as it's available. StreetInsider editor Lon Juricic says the site gets its timing information after Nasdaq releases it to traders in the morning.

How it works: On the morning that an IPO begins trading on the Nasdaq, the exchange starts a process called the "IPO cross." During that time, traders can submit buy and sell orders. The Nasdaq matches up those orders in real-time on its electronic marketplace -- a process that typically takes 40 microseconds or less.

Those orders can be entered into the system, but they aren't actually completed until the stock begins trading.

"It's really business as usual," a source close to Nasdaq said of the plans for Friday's trading. "Same policies, same procedures. This time there are just more questions because it's Facebook."

By comparison, the New York Stock Exchange starts trading IPOs soon after the opening bell. Recent IPOs LinkedIn ( LNKD ), Pandora ( P ), Yelp ( YELP ) and Annie's ( BNNY ) all began trading on the NYSE by 10 a. m.

-- CNNMoney's Hibah Yousuf contributed reporting.

Alibaba options expected to be listed on September 29: exchanges

NEW YORK Investors looking to hedge their bets or speculate on the direction of Alibaba Group's IPO-BABA. N stock after its expected public sale of shares on Friday, will be able to trade its options in two weeks, as U. S. options exchanges are expected to list contracts on the company.

The Chinese e-commerce company's options will be listed on CBOE Holdings Inc ( CBOE. O ) and International Securities Exchange Holdings' options exchanges on Sept. 29, pending the company's public sale of shares this week, the exchanges said on Tuesday.

International Securities Exchange Holdings operates two options exchanges, ISE and ISE Gemini, which through August handled about 14 percent of equity and index options contracts in 2014, according to OCC, formerly the Options Clearing Corporation.

CBOE said on Tuesday that it will be listing Alibaba options on the Chicago Board Options Exchange and the C2 Options Exchange once new options listing criteria are met.

The two exchanges together so far account for nearly 29 percent of trading in U. S. stock and exchange options in 2014, per OCC data.

On Monday, Alibaba Group Holding Ltd raised the price range on its initial public offering to $66 to $68, reflecting strong demand from investors for the year's most anticipated debut and potentially the world's largest-ever IPO.

Contract specifications for Alibaba options will be determined when the new listing is certified by OCC prior to trading, ISE said in a statement.

Typically, the other U. S. options exchanges would also offer these options at the same time as long as certain thresholds are met.

A spokesperson for BATS Options exchange, a division of BATS Global Markets, could not be immediately reached for a response on when they plan to list Alibaba options.

(Reporting By Saqib iqbal Ahmed; Editing by Bernard Orr)

Subject: Stocks - Initial Public Offerings (IPOs)

Last-Revised: 7 Nov 1995 Contributed-By: Art Kamlet (artkamlet at aol. com), Bill Rini (bill at moneypages. com)

This article is divided into four parts:

Introduction to IPOs

The Mechanics of Stock Offerings

The Underwriting Process

IPO's in the Real World

1. Introduction to IPOs

When a company whose stock is not publicly traded wants to offer that stock to the general public, it usually asks an "underwriter" to help it do this work. The underwriter is almost always an investment banking company, and the underwriter may put together a syndicate of several investment banking companies and brokers. The underwriter agrees to pay the issuer a certain price for a minimum number of shares, and then must resell those shares to buyers, often clients of the underwriting firm or its commercial brokerage cousin. Each member of the syndicate will agree to resell a certain number of shares. The underwriters charge a fee for their services.

For example, if BigGlom Corporation (BGC) wants to offer its privately - held stock to the public, it may contact BigBankBrokers (BBB) to handle

the underwriting. BGC and BBB may agree that 1 million shares of BGC common will be offered to the public at $10 per share. BBB's fee for this service will be $0.60 per share, so that BGC receives $9,400,000. BBB may ask several other firms to join in a syndicate and to help it market these shares to the public.

A tentative date will be set, and a preliminary prospectus detailing all sorts of financial and business information will be issued by the issuer, usually with the underwriter's active assistance.

Usually, terms and conditions of the offer are subject to change up until the issuer and underwriter agree to the final offer. The issuer then releases the stock to the underwriter and the underwriter releases the stock to the public. It is now up to the underwriter to make sure those shares get sold, or else the underwriter is stuck with the shares.

The issuer and the underwriting syndicate jointly determine the price of a new issue. The approximate price listed in the red herring (the preliminary prospectus - often with words in red letters which say this is preliminary and the price is not yet set) may or may not be close to the final issue price.

Consider NetManage, NETM which started trading on NASDAQ on Tuesday, 21 Sep 1993. The preliminary prospectus said they expected to release the stock at $9-10 per share. It was released at $16/share and traded two days later at $26+. In this case, there could have been sufficient demand that both the issuer (who would like to set the price as high as possible) and the underwriters (who receive a commission of perhaps 6%, but who also must resell the entire issue) agreed to issue at 16. If it then jumped to 26 on or slightly after opening, both parties underestimated demand. This happens fairly often.

IPO Stock at the release price is usually not available to most of the public. You could certainly have asked your broker to buy you shares of that stock at market at opening. But it's not easy to get in on the IPO. You need a good relationship with a broker who belongs to the syndicate and can actually get their hands on some of the IPO. Usually that means you need a large account and good business relationship with that brokerage, and you have a broker who has enough influence to get some of that IPO.

By the way, if you get a cold call from someone who has an IPO and wants to make you rich, my advice is to hang up. That's the sort of IPO that gives IPOs a bad name.

Even if you that know a stock is to be released within a week, there is no good way to monitor the release without calling the underwriters every day. The underwriters are trying to line up a few large customers to resell the IPO to in advance of the offer, and that could go faster or slower than predicted. Once the IPO goes off, of course, it will start trading and you can get in on the open market.

2. The Mechanics of Stock Offerings

The Securities Act of 1933, also known as the Full Disclosure Act, the New Issues Act, the Truth in Securities Act, and the Prospectus Act governs the issue of new issue corporate securities. The Securities Act of 1933 attempts to protect investors by requiring full disclosure of all material information in connection with the offering of new securities. Part of meeting the full disclosure clause of the Act of 1933, requires that corporate issuers must file a registration statement and preliminary prospectus (also know as a red herring) with the SEC. The Registration statement must contain the following information:

A description of the issuer's business.

The names and addresses of the key company officers, with salary and a 5 year business history on each.

The amount of ownership of the key officers.

The company's capitalization and description of how the proceeds from the offering will be used.

Any legal proceedings that the company is involved in.

Once the registration statement and preliminary prospectus are filed with the SEC, a 20 day cooling-off period begins. During the cooling-off period the new issue may be discussed with potential buyers, but the broker is prohibited from sending any materials (including Value Line and S&P sheets) other than the preliminary prospectus.

Testing receptivity to the new issue is known as gathering "indications of interest." An indication of interest does not obligate or bind the customer to purchase the issue when it becomes available, since all sales are prohibited until the security has cleared registration.

A final prospectus is issued when the registration statement becomes effective (when the registration statement has cleared). The final prospectus contains all of the information in the preliminary prospectus (plus any amendments), as well as the final price of the issue, and the underwriting spread.

The clearing of a security for distribution does not indicate that the SEC approves of the issue. The SEC ensures only that all necessary information has been filed, but does not attest to the accuracy of the information, nor does it pass judgment on the investment merit of the issue. Any representation that the SEC has approved of the issue is a violation of federal law.

3. The Underwriting Process

The underwriting process begins with the decision of what type of offering the company needs. The company usually consults with an investment banker to determine how best to structure the offering and how it should be distributed.

Securities are usually offered in either the new issue, or the additional issue market. Initial Public Offerings (IPO's) are issues from companies first going public, while additional issues are from companies that are already publicly traded.

In addition to the IPO and additional issue offerings, offerings may be further classified as:

Primary Offerings: Proceeds go to the issuing corporation.

Secondary Offerings: Proceeds go to a major stockholder who is selling all or part of his/her equity in the corporation.

Split Offerings: A combination of primary and secondary offerings.

Shelf Offering: Under SEC Rule 415 - allows the issuer to sell securities over a two year period as the funds are needed.

The next step in the underwriting process is to form the syndicate (and selling group if needed). Because most new issues are too large for one underwriter to effectively manage, the investment banker, also known as the underwriting manager, invites other investment bankers to participate in a joint distribution of the offering. The group of investment bankers is known as the syndicate. Members of the syndicate usually make a firm commitment to distribute a certain percentage of the entire offering a nd are held financially responsible for any unsold portions. Selling groups of chosen brokerages, are often formed to assist the syndicate members meet their obligations to distribute the new securities. Members of the selling group usually act on a " best efforts" basis and are not financially responsible for any unsold portions.

Under the most common type of underwriting, firm commitment, the managing underwriter makes a commitment to the issuing corporation to purchase all shares being offered. If part of the new issue goes unsold, any losses are distributed among the members of the syndicate.

Whenever new shares are issued, there is a spread between what the underwriters buy the stock from the issuing corporation for and the price at which the shares are offered to the public (Public Offering Price, POP). The price paid to the issuer is known as the underwriting proceeds. The spread between the POP and the underwriting proceeds is split into the following components:

Manager's Fee: Goes to the managing underwriter for negotiating and managing the offering.

Underwriting Fee: Goes to the managing underwriter and syndicate members for assuming the risk of buying the securities from the issuing corporation.

Selling Concession - Goes to the managing underwriter, the syndicate members, and to selling group members for placing the securities with investors.

The underwriting fee us usually distributed to the three groups in the following percentages:

Manager's Fee 10% - 20% of the spread

Underwriting Fee 20% - 30% of the spread

Selling Concession 50% - 60% of the spread

In most underwritings, the underwriting manager agrees to maintain a secondary market for the newly issued securities. In the case of "hot issues" there is already a demand in the secondary market and no stabilization of the stock price is needed. However many times the managing underwriter will need to stabilize the price to keep it from falling too far below the POP. SEC Rule 10b-7 outlines what steps are considered stabilization and what constitutes market manipulation. The managing underwriter may enter bids (offers to buy) at prices that bear little or no relationship to actual supply and demand, just so as the bid does not exceed the POP. In addition, the underwriter may not enter a stabilizing bid higher than the highest bid of an independent market maker, nor may the underwriter buy stock ahead of an independent market maker.

Managing underwriters may also discourage selling through the use of a syndicate penalty bid. Although the customer is not penalized, both the broker and the brokerage firm are required to rebate the selling concession back to the syndicate. Many broke rages will further penalize the broker by also requiring that the commission from the sell be rebated back to the brokerage firm.

4. IPO's in the Real World

Of course knowing the logistics of how IPO's come to market is all fine and dandy, but the real question is, are they a good investment? That does tend to be a tricky issue. On one hand there are the Boston Chickens and Snapples that shoot up 50% or 100%. But then there is the research by people like Tim Loughran and Jay Ritter that shows that the average return on IPO's issued between 1970 and 1990 is a mere 5% annually.

How can the two sides of this issue be so far apart? An easy answer is that for every Microsoft, there are many stocks that end up in bankruptcy. But another answer comes from the fact that all the spectacular stories we hear about the IPO market are usually basing the percentage increase from the POP, and the Loughran and Ritter study uses purchase prices based on the day after the offering hit the market.

For most investors, buying shares of a "hot" IPO at the POP is next to impossible. Starting with the managing underwriter and all the way down to the investor, shares of such attractive new issues are allocated based on preference. Most brokers reserve whatever limited allocation they receive for only their best customers. In fact, the old joke about IPO's is that if you get the number of shares you ask for, give them back, because it means nobody else wants it.

While the deck may seem stacked against the average investor. For an active trader things may not be as bad as they appear. The Loughram and Ritter study assumed that the IPO was never sold. The study does not take into account an investor who bought an issue like 3DO (THDO - NASDAQ), the day after the IPO and sold it in the low to mid 40's, before it came crashing down. Obviously opportunities exist, however it's not the easy money so often associated with the IPO market.

Pfizer’s Zoetis Surges in Trading After $2.24 Billion IPO

Zoetis Inc. the animal-health company owned by Pfizer Inc. surged 19 percent in its debut after raising $2.24 billion in an initial public offering, pricing the shares above the proposed range.

The shares climbed to $31.01 at 4 p. m. New York time. Zoetis yesterday sold 86.1 million shares at $26 each, after offering them for $22 to $25.

“The stock was a no-brainer at the low $20s. In the mid - $20s, where they ended up IPOing, it was a good value,” said Mark Schoenebaum, an analyst with ISI Group Inc. who has a buy rating on the shares. If the price reaches the mid-$30s, “to get to upside value you need to assume they execute better than we have modeled,” he said in a video sent to clients.

The IPO has forced chief executive officers of other drugmakers to answer questions about divesting their animal health operations. The CEOs of Merck & Co. and Eli Lilly & Co. talked about their animal units on recent earnings calls and said they were happy keeping the businesses.

Pfizer offered about 17 percent of Zoetis in the IPO, the biggest in the U. S. since Facebook Inc.’s last year. The IPO price valued Zoetis at $13 billion, making it the largest public company of its kind and one of the few focused solely on medicines for animals. Pfizer could exchange the rest of its holdings in six to nine months, Schoenebaum said.

Pure Business

Zoetis is the first pure-play animal health company that’s been made available to investors, said Judson Clark, an analyst with Edward Jones & Co. “There was some question about how investors would view it -- early signs are that it’s favorable,” he said.

The Madison, New Jersey-based company’s shares are listed on the New York Stock Exchange under the symbol ZTS. The IPO was led by JPMorgan Chase & Co. Bank of America Corp. and Morgan Stanley.

Zoetis traces its roots to 1952 as a Pfizer unit and has made at least 10 acquisitions to become the largest animal-health business, with $4.3 billion sales in 2012 -- about 20 percent of the $22 billion market. The company is benefiting as people consume more protein, a trend likely to increase as wealth grows in emerging countries such as Brazil, China and India, said Marshall Gordon, of New York-based money manager ClearBridge Investments LLC.

It competes mainly with non-listed units of Merck and Lilly and companies such as Sanofi, according to Schoenebaum.

Merck’s View

Merck’s chief executive officer said he has no plans to break off the animal health unit.

“We are committed to the business,” Merck CEO Ken Frazier said today in a telephone interview. “We think it is a good business. It dovetails nicely with our human health business.”

While Zoetis’s 17 percent sales growth in 2011 outpaced all but Lilly’s animal unit, data compiled by Bloomberg show, Pfizer is parting with the company as part of CEO Ian Read’s strategy to concentrate on the drug business after losing patent protection for cholesterol pill Lipitor, the world’s best-selling medicine.

Pfizer sold its infant-nutrition business for $11.9 billion to Nestle SA last year. The drugmaker will likely use proceeds from divestitures for share buybacks. Read has said.

Trading Yahoo Into An Alibaba IPO

Heavy speculation exists that an Alibaba IPO will take place soon.

Yahoo will then be more freely judged independent of its Alibaba holdings.

The IPO will cause short-term turmoil in the stock.

It is no secret that when CEO Marissa Mayer took over search firm Yahoo (NASDAQ:YHOO ), the company was a mess. With shareholders not likely to forget the rejected purchase offer from Microsoft (NASDAQ:MSFT ) a few years earlier, returning investor confidence was a daunting task. Now as Yahoo and Mayer are looking down the barrel of the pending Alibaba IPO, investors should be asking themselves how shares are likely to react. After all, according to a Reuters Breakingviews Calculator. Yahoo's 22.5% stake in the Chinese e-commerce firm accounts for over half its market capitalization. With a market-determined value placed on the Alibaba shares, and accounting for the fact that Yahoo will be forced to sell about a quarter of its holdings in the IPO, Yahoo shares will be much more precisely reflective of investor sentiment.

The situation creates a series of competing pressures and possibilities that Yahoo shareholders will have to consider when deciding whether to buy, sell or hold. On the one hand, the fact that investors will no longer need to buy Yahoo to get Alibaba exposure, is negative for the stock. On the other hand, Mayer has been systematically improving Yahoo, and has returned search-related revenue to a growth state. Ultimately, while I like Yahoo shares over the long term, I would remain very conservative ahead of the IPO.

Depending on the tax treatment you assign to the sale of the IPO shares, Yahoo is likely to realize a cash infusion of over $5 billion. Mayer has promised to return not less than half of this cash to shareholders, given a real incentive to own shares, or lest hold those shares you already have. Mayer has demonstrated her savvy in spending cash - the $1.1 billion purchase of Tumblr gave the company social media cachet, although it did little to add to the bottom line. Critics worry that another cash infusion is likely to lead to more acquisitions that do little to improve the company's bottom line. In fact, it has even been suggested that Alibaba should simply acquire Yahoo and allow the company to serve a new purpose.

Does the Market Agree?

While Yahoo shares have been range-bound over the last several months, not helped by revenues that fell from $1.134 billion to $1.084 billion in the second quarter on a year-over-year basis, they are up about 29% over the last year and 128% over the last two years. Against the backdrop of a bull market that has finally decided to take a small breather, likely waiting to see what action, if any, the Federal Reserve will take, Yahoo shares have seemed stagnant. The Alibaba IPO has the potential, therefore, to be a catalyst to get the stock moving again, regardless of the direction. Last week, Jon Najarian of OptionMonster reported unusual bullish activity on Yahoo shares; he pointed out that if the IPO is particular "hot," this could provide a real boost for shares, and at least one major investor is betting it will.

There are clearly directly competing forces around the Alibaba IPO that could drive Yahoo shares significantly higher or lower. Mayer's fans continue to believe in the long-term potential of Yahoo to return to greater relevance. Critics, however, voice a serious concern that with an Alibaba proxy no longer a pull for shares, Yahoo's appeal will be decreased. The IPO is expected sometime in the next month, and while I do appreciate Mayer's leadership - believing that Yahoo will continue to improve - heading into the IPO, I see shares as having risk that outpaces the upside potential. Holding a small Yahoo position into the IPO is a calculated risk, but I am not a buyer here, or until a clearer picture of the post-IPO Yahoo emerges.

Divulgación: El autor no tiene posiciones en ninguna de las acciones mencionadas y no planea iniciar posiciones dentro de las próximas 72 horas. El autor escribió este artículo ellos mismos, y expresa sus propias opiniones. El autor no está recibiendo compensación por ello (que no sea de Seeking Alpha). El autor no tiene relación de negocios con ninguna compañía cuyas acciones se mencionan en este artículo.

How to Determine the Value for Shares of an IPO

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IPO Lockup

IPO Lockup refers to the period of time after a company initially goes public during which company insiders are not allowed to sell company shares .

How it works (Example):

In an initial public offering (IPO) often receive stock or can exercise options and warrants that have been given during the non-public phase of the company's growth. The issuance of stock to employees during an IPO is usually staged in order to encourage investors to purchase shares in the company and to stabilize the stock price after initial entry into the market .

With the issuance of stock to employees, the company signals the market that the stock is worth holding. Sell-offs of the company's stock by key employees are not in the interest of the company. In addition, the company wants to keep the demand (and price) high for the stock. One way to do that is to limit the ability of company employees to sell shares on the market, usually for a period of 90 to 180 days.

Why it Matters:

During the long, hard, cash-starved period of growth in a company's climb towards an initial public offering. key employees often work for little cash in exchange for equity in the company. Valores. for these employees, represents the reward for putting in time and deferring their higher paychecks. Therefore, it is not surprising that employees would want to trade some of the stock for cash as soon as possible.

From the company's perspective, putting off that payday a little longer is in the best interest of the company and helps towards stabilizing the stock price or even sending it higher. Employees with company stock shares during an IPO Lockup need to wait until the end of the IPO Lockup period and hope that the company’s stock price will be favorable at that time.

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Alibaba launches biggest IPO in U. S. history

<p>Jack Ma, founder of Alibaba, smiles during the company's IPO at the New York Stock Exchange on Sept. 19, 2014, in New York.</p> Cerca

Alibaba (BABA ) is officially the biggest U. S. initial public offering of all time. When market makers at the New York Stock Exchange finally gave the OK for the shares in the Chinese e-commerce company to start trading Friday at 11:53. a. m. the opening price was $92.70.

The stock quickly jumped to $96.29, shooting up 42 percent from the $68 a share the initial public offering priced at last night and lifting Alibaba's market capitalization to $236 billion. That makes it more valuable than U. S. giants such as Facebook (FB ), which has a market value of $200 billion, Amazon. com (AMZN ), at $150 billion, and Citigroup (C ), $163 billion. Even Walmart (WMT ), the world's biggest retailer, is only slightly more valuable than Alibaba in market terms.

Alibaba raised $21.8 billion in the offering. The IPO is the biggest ever in the U. S. outpacing Visa's (V ) $19.7 billion initial stock sale in 2008, and General Motor's (GM ) $18.1 billion IPO in 2010. Agricultural Bank of China and Industrial & Commercial Bank of China raised $22.1 billion in 2010 and $21.9 billion in 2006, respectively, in listing their shares in Hong Kong and Shanghai.

Although demand for Alibaba shares was strong among large institutional investors, it remains to be seen whether retail investors will embrace what is, after all, a foreign company with little presence in the U. S. As of 1:21 p. m. ET, Alibaba shares, trading under the ticker symbol "BABA," were at $90.05, below the opening price, but still up 32 percent from the offer price. They ultimately closed at $93.89, a solid 38 percent higher.

"At its intended IPO price it looks like it was reasonably priced when compared to other companies of similar ilk," said Mark Luschini, chief investment strategist at Janney Montgomery Scott, noting that the broker-dealer did not plan to buy Alibaba shares today. "Now at its IPO price, it's less attractive than it was before from our viewpoint as value investors."

Luschini added that some investors may wait to see if Alibaba's stock prices comes down once the excitement dies down, noting that shares of Facebook and Twitter (TWTR ) slid after their IPOs.

Alibaba founder and executive chairman Jack Ma celebrates as the company's stock starts trading on the New York Stock Exchange on Sept. 19, 2014, in New York City. Cerca

The average one-day return in the first day of trading for IPOs bigger than $10 billion is 9 percent, according to an analysis from Dealogic. The biggest one-day gain was captured by Visa (V ), which jumped 28 percent in its first day of trading in March 2008. Alibaba might also get a lift from general market exuberance, given positive momentum after Scotland's vote to remain in the U. K. which settled some uncertainty in the global markets.

Still, Alibaba is facing some headwinds. Smaller U. S. investors aren't familiar with the company, given that the majority of its business is conducted in China. Critics have raised questions about governance issues. given that company insiders control Alibaba yet own only a small percentage of capital. The IPO also isn't for Alibaba Group itself, but for a different entity that owns an interest in it.

"Let's see what transpires in the next month, quarter and year," said Richard Peterson, senior director of global markets intelligence with financial research firm S&P Capital IQ. "In the market, sometimes initial euphoria gives way to reality soon thereafter."

Yet the size of the Chinese market, and its fast-growing middle class, is appealing to many stateside investors. The company, which handles 80 percent of all online shopping in China, makes money through transaction fees and online marketing.

Of course, regardless of how Alibaba's shares trade today, the real test will be whether it can deliver on American investors' high hopes in the long term.

-- Alain Sherter contributed to this report

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Artículos & gt; Business > Initial Public Offerings - How They Affect Companies and Investors

Initial Public Offerings - How They Affect Companies and Investors

Initial Public Offerings (IPOs ) are the first time a company sells its stock to the public. Sometimes IPOs are associated with huge first-day gains; other times, when the market is cold, they flop. It's often difficult for an individual investor to realize the huge gains, since in most cases only institutional investors have access to the stock at the offering price. By the time the general public can trade the stock, most of its first-day gains have already been made. However, a savvy and informed investor should still watch the IPO market, because this is the first opportunity to buy these stocks.

Reasons for an IPO

When a privately held corporation needs to raise additional capital, it can either take on debt or sell partial ownership.

If the corporation chooses to sell ownership to the public, it engages in an IPO. Corporations choose to "go public" instead of issuing debt securities for several reasons. The most common reason is that capital raised through an IPO does not have to be repaid, whereas debt securities such as bonds must be repaid with interest. Despite this apparent benefit, there are also many drawbacks to an IPO. A large drawback to going public is that the current owners of the privately held corporation lose a part of their ownership. Corporations weigh the costs and benefits of an IPO carefully before performing an IPO.

Going Public

If a corporation decides that it is going to perform an IPO, it will first hire an investment bank to facilitate the sale of its shares to the public.

This process is commonly called "underwriting"; the bank's role as the underwriter varies according to the method of underwriting agreed upon, but its primary function remains the same.

In accordance with the Securities Act of 1933, the corporation will file a registration statement with the Securities and Exchange Commission (SEC). The registration statement must fully disclose all material information to the SEC, including a description of the corporation, detailed financial statements, biographical information on insiders, and the number of shares owned by each insider. After filing, the corporation must wait for the SEC to investigate the registration statement and approve of the full disclosure.

During this period while the SEC investigates the corporation's filings, the underwriter will try to increase demand for the corporation's stock. Many investment banks will print "tombstone" advertisements that offer "bare-bones" information to prospective investors. The underwriter will also issue a preliminary prospectus, or "red herring", to potential investors. These red herrings include much of the information contained in the registration statement, but are incomplete and subject to change.

An official summary of the corporation, or prospectus, must be issued either before or along with the actual stock offering.

After the SEC approves of the corporation's full disclosure, the corporation and the underwriter decide on the price and date of the IPO; the IPO is then conducted on the determined date. IPOs are sometimes postponed or even withdrawn in poor market conditions.

Actuación

The aftermarket performance of an IPO is how the stock price behaves after the day of its offering on the secondary market (such as the NYSE or the Nasdaq ). Investors can use this information to judge the likelihood that an IPO in a specific industry or from a specific lead underwriter will perform well in the days (or months) following its offering. The first-day gains of some IPOs have made investors all too aware of the money to be had in IPO investing. Unfortunately, for the small individual investor, realizing those much-publicized gains is nearly impossible. The crux of the problem is that individual investors are just too small to get in on the IPO market before the jump. Those large first-day returns are made over the offering price of the stock, at which only large, institutional investors can buy in. The system is one of reciprocal back-scratching, in which the underwriters offer the shares first to the clients who have brought them the most business recently. By the time the average investor gets his hands on a hot IPO, it's on the secondary market, and the stock's price has already shot up.

Investor Research

Although it is difficult to get in on the ground floor of an IPO, there are still ways individual investors can make money on the IPO market. For one, full-service and online brokerages are increasingly offering IPO shares to their customers.

Unfortunately, these shares tend to be reserved for clients with the largest balances (usually $100,000 and up), and are thus out of the reach of many investors. Furthermore, most brokerages will not allow investors to sell IPO shares within a certain time period (generally 60-90 days), which prevents any short-term gains.

The other, more-realistic way to profit from IPOs is to buy into some carefully chosen stocks after they've become available to the broad market. In a suitably-hot IPO, institutional investors will not get as many shares as they want before the stock becomes available on the broad market; thus, an individual investor can buy the stock as soon as its available, and count on the institutional investors to drive the price higher. And, of course, the stock may rise purely because the share price is undervalued. We should point out, though, that historically stocks tend to fall slightly in the first several months of trading, so it's often best to not buy on the first day.

As with any investment, proper education and careful research are vital to profiting from IPOs. Research should include a measure of the risks involved with investing in an IPO. Business, financial, and market risk are several of the risks that should be included in the evaluation process. Researching business risk involves examining the business model of the corporation and the management team of the corporation. Researching financial risk involves examining the corporation's financial statements, capital structure, and other financial data. Researching market risk involves examining the appeal of the corporation to current and future market conditions .

You should also inquire about the purpose of raising capital through an IPO. If the corporation were issuing an IPO just to get out of financial problems, is investing in this corporation a wise decision? Those previous problems could be indicative of other problems, such as weak management. Similarly, if the company was having an IPO just because the IPO market was hot and investors were currently paying too much for IPO shares, then you would want to think twice before buying. On the other hand, if the company has some smart plans for the money, then the IPO might be justified. The investor must thoroughly investigate all available information to obtain an objective view on an IPO.

DPOs

A direct public offering (DPO ), like the more traditional IPO, is a stock's introduction to the stock market. The stock is offered to the public for the first time.

Unlike an IPO, which utilizes an underwriter to sell shares to the public, DPO shares are purchased directly from the issuing company. Individual investors have limited opportunities to participate in IPOs, so DPOs give the average person a chance to invest in a public offering. However, because DPOs are typically low-profile, it can be difficult to research and locate these offerings. These are less common and more difficult to research than IPOs.

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Alibaba's IPO debut roars, shares soar 38%

Alibaba, BABA the Chinese e-commerce giant whose magical name and real-world business prospects inspired frenzied interest for months ahead of its record-setting initial public offering, surged 38% in its Friday debut on the New York Stock Exchange.

Order i mbalances over the intensely hyped, widely sought Alibaba IPO d elayed initial trading for nearly 2 1/2 hours before American depositary shares of Alibaba Group Holding Ltd. began trading.

Mark Lennihan, AP

Jack Ma, founder of Alibaba, smiles during the company's IPO at the New York Stock Exchange, Friday, Sept. 19, 2014 in New York.

Jack Ma, founder of Alibaba, smiles during the company's IPO at the New York Stock Exchange, Friday, Sept. 19, 2014 in New York. Menos

Priced at $68 late Thursday, Alibaba opened at $92.70 shortly before noon, climbing to $99.70 before closing at $93.89.

More than 100 million shares traded within 20 minutes and over 271.6 million shares exchanged hands by the day's end. Early NYSE indicators had shares opening at $80 to $83. But demand was so strong, the offering price was hiked 10 times.

Scott Cutler, NYSE's global listings chief, said trading was delayed by massive order imbalances.

"We've got hundreds of thousands of orders,'' Cutler told CNBC an hour into the delay. "We're chasing to find sellers. Even at these levels, there doesn't appear to be a lot of sellers."

Representatives from Alibaba applaud IPO launch at the New York Stock Exchange.

Representatives from Alibaba applaud IPO launch at the New York Stock Exchange. Menos

"There's a lot of hype over this stock. An $80 price is not unreasonable - demand could stampede the price,' noted Drew Dorweiler, a Montreal-based business valuation expert with Dartmouth Partners and a trustee of The Appraisal Foundation. "The fundamentals are there for incredible volume and excitement."

Alibaba's IPO raised $21.8 billion, surpassing the $17.8 billion raised by credit card marketer Visa's 2008 IPO and Facebook's $16 billion IPO in 2012. Alibaba's IPO falls just short of the record $22 billion raised in Hong Kong and Shanghai by Agricultural Bank of China's 2010 stock offering. But given Frida y's demand, Alibaba's underwriters could add additional 40 million shares, bringing the IPO to $25 billion.

At current price levels, Alibaba's $231 billion market capitalization is greater than blue-chip giants IBM, Procter & Gamble and General Electric.

Alibaba's business model -- unlike other young Internet-focused companies with more prospects and buzz than actual earnings and revenue growth -- created swelling demand for its shares.

China e-commerce giant Alibaba shakes up corporate world order after huge IPO (AP photo) http://t. co/i6zSFrvCuf pic. twitter. com/54EtZzRMGa

& Mdash; USA TODAY Money (@USATODAYmoney) September 19, 2014

A holding company that combines the sales, merchandising and financial services reach of Amazon, eBay and PayPal, Alibaba had revenue of $8.5 billion in its last fiscal year, up from $5.5 billion in 2013. Revenue for the second quarter ended June 30 jumped 46% to $2.53 billion and net income jumped 137% to $2 billion.

Governance experts, including Harvard University's Lucian Bebchuk, have warned of the "serious risks" tied to Alibaba, mostly over the grip insiders have. But most investors have shrugged off governance concerns over Alibaba's lack of independent directors and 30 managing partners, who have the right to nominate a majority of directors.

A successful pre-IPO roadshow seemingly allayed concerns, and demand for shares prompted the company on Monday to raise the IPO's price range to $66 to $68 a share, up from an initial $60 to $66. Most shares were allocated to large institutional shareholders, not individual shareholders. Alibaba options will begin trading Sept. 29.

Company insiders and early investors will be able to cash out today, unfettered by typical pre-I PO lockups.

Billionaire founder and executive chair Jack Ma, the diminutive former English teacher who started the company from his one bedroom apartment in 1999, plans to sell about 6% of his stake, or about 12.8 million shares. He'll remain Alibaba's biggest individual shareholders, with a 7.7% stake.

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Speaking to CNBC ahead of trading, Ma said the IPO would not change the culture of the company.

"I don't want to disappoint shareholders. I want to make sure they're making money,'' said Ma, who noted that his favorite film is Forrest Gump . "I worry about making my customers happy."

Japanese wireless carrier Softbank, an early Alibaba investor, which provided the then-startup with $20 million in 2000, has a 37% stake in Alibaba that could be worth more than $60 billion. But Chairman Masayoshi Son, an Alibaba director, reiterated that Softbank will hold its shares.

"Alibaba still has lots of growth opportunities inside China. But overseas is yet another horizon of opportunities. This IPO will give lots of opportunities for expansion," Son said.

Yahoo! could eventually be among Friday's biggest Alibaba winners, but shares slumped nearly 7% in early trading before ending the day down 2.7% to $40.93. The company has previously said it plans to unload about 5% of its 22.4% Alibaba stake.

Cantor Fitzgerald's Youssef Squali, who raised his target price to $43 from $39, says Yahoo! should gross about $9.5 billion from the Alibaba stock sale.

Squali also initiated coverage of Alibaba with a buy rating and set a $90 price target.

London-based stock research firm Atlantic Equities initiated coverage of Alibaba with an "overweight" rating and a price target of $100. "With a roughly 80% (marketshare) of Chinese e-commerce, the company has established a strong position in this rapidly growing market, which we expect it to maintain despite ongoing intense competition," said Atlantic's James Cordwell.

Others aren't so sure Alibaba is a buy at current levels.

"There is no way of knowing," says money manager Gary Kaltbaum of Kaltbaum Capital Management. "It is random on whether it is buyable up here."

But Kaltbaum stresses that the strong IPO is a sign that investor enthusiasm is rising along with the IPO's pre-market price hype. "We have a greed based market this second, not fear based, so I wouldn't take higher prices off the table," he says, adding that buying shares at these high levels are "risky."

"There is a ton of stock that could be sold at any tim e by insiders, and very often, frothy opens get sold off," Kaltbaum says.

At current levels, Alibaba's valuation is less attractive than it was at the offering price, says Alan Skrainka, chief investment officer at Cornerstone Wealth Management.

"Alibaba seems to have a sustainable business model with a very bright future," says Skrainka. "The real question is what is the proper valuation for the company. At $68, the stock traded at 29 times forward (12-month) earnings projections. At $90, the stock trades at 38 times forward earnings. That's a pretty full valuation for Alibaba. Anyone buying today will likely need to hold for the long term to make money in the stock."

Dorweiler warns that Alibaba shares should be volatile going forward.

"It will be interesting to see if there's a bit of a correction in the stock price. A lot of people are steering clear for several days or weeks, just to see what happens," Dorweiler says. "The company is a winner with global growth potential. It could be a $100 stock sooner than later. But there could be volatility over the next few trading sessions."

Follow story stocks on Twitter @gstrauss_

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IPO spinoffs are a solid basics of stock options trading trends to work with. A company that’s going to spin off a part of itself as an IPO tends to move steadily up in price until the IPO date, starting a week or two before that date. On the day the IPO starts to trade, the parent company`s stock options typically dips sharply. The best strategy is to buy the parent once it starts moving in anticipation of the spinoff, sell it the day before the IPO is to begin trading, and then short the parent just after the IPO starts to trade.

Another basics of stock options trading trend to consider is the `quiet period` trend. The `quiet period` for IPOs is the twenty-five days after a company goes public. During this time, the SEC forbids the company and the IPO`s underwriters to say anything that isn`t covered in the company`s prospectus or final registration statement. The underwriters face further restrictions on issuing any research.

Another basics of stock options trading tip is that as stocks near the ends of their quiet periods, they tend to steadily rise in price in anticipation of the `strong buy` recommendations most will receive from their underwriters after the quiet period ends. The run-up usually begins about ten days prior to the quiet period expiration, and is often accompanied by steadily increasing volume. It`s wise to sell quiet period stocks the day before the recommendations come out. Why not hold the stock options after it gets a `strong buy` recommendation? It`s another case of buy the rumor, sell the news. It`s also best to trade this trend with stocks that have highly respected underwriters and are in hot sectors.

Another basics of stock options trading play is to short stocks with upcoming IPO lockup expirations. An IPO lockup is a period of time, usually from six to eighteen months, when insiders who obtained the IPO at the offering price or less cannot sell their shares. Once this time period has elapsed, insiders often sell their shares. This trend is shortable because the greater the number of shares unlocked, the more likely it is that insiders will start to sell their shares, particularly if the market is not doing well but the share price is still higher than the IPO offering price. And the more shares freed, the better the chance of a negative effect on the share price. This trade works best when the number of shares being unlocked is more than 25% of the current market capitalization.

You should short the stock options roughly ten days before the IPO lockup expiration date, since anticipation of the event usually scares traders out of the stock options well before its actual date. Cover the short about five days after the expiration date. By that time, most insiders will seem to have sold, and the news will be priced into the stock options.

Like any other trade, these basics of stock options trading tips are not foolproof. Often one of the underwriters will upgrade the stock options as the lockup expiration approaches, or the company will release news to boost the stock options price to counter-act the selling. Be sure to check company news closely, since if the market is bad and share prices are down, lockup periods may be extended.

But when the IPO market is hot, a lot of traders buy into any new company. They commit a trading mistake that`s like placing an overnight market order: They place market orders for an IPO before it starts trading on its first day, which leads to outrageous run-ups in price right when trading opens. For the trader, these orders are a sure way to lose money. Your order will end up being filled at a ridiculously high price that the stock options may never see again.

If you`re going to try to trade an IPO on its first day, don`t place a pre opening market order. Don`t use market orders at all. The way to buy is with a limit order after the stock`s price has pulled back a bit and is about to bounce and continue upward again. The goal is to buy at the bottom of the bounce, hold it as the price rises, and sell just as the price is about to fall again. You may be able to do this several times, until the stock`s momentum drops. Remember, you can`t short an IPO during its first thirty days on the market.

If you want to hold the IPO past its first day, it`s hard to know exactly when to jump in, but wait until after the initial volatility has ended. The higher the IPO has opened the less chance it has of continuing to climb throughout the rest of the day. If the IPO has opened at an extremely high price, it will probably sink to a fairly stable level in an hour or two. If not, and you think the price could go higher, you might want to buy fairly soon after the initial volatility has ended. One option is to buy half your shares and then wait to see whether there`s a slump in the price later in the afternoon when you can buy the rest for less. IPOs can be incredibly volatile, and like with any other trade, setting stops is critical. But, traded carefully . these basics of stock options trading tips are a consistent way to create trading profits.

David Jenyns is recognized as the leading expert when it comes to designing profitable Options trading systems.

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Fitbit (NYSE: FIT) IPO Date Is Approaching – Here's a Breakdown of the Deal

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The deal is one of the most anticipated tech deals of 2015. Fitbit will be the first standalone wearable tech company to go public. That's significant considering wearable tech is an exploding market. It's projected to be worth $19 billion by 2018.

With the Fitbit (NYSE: FIT) IPO date just three days away, here's everything you need to know about the deal – including whether or not you should buy Fitbit stock when it begins trading…

Fitbit (NYSE: FIT) IPO Date Is This Week! Here Are Your Biggest Questions Answered

What is the Fitbit IPO price?

Fitbit Inc. (NYSE: FIT) set a price range of $14 to $16 a share for its IPO. The company will announce a final IPO price the evening of Wednesday, June 17.

How much money will the Fitbit IPO raise?

Fitbit will sell 29.85 million shares. At the midpoint of the price range, the Fitbit IPO will raise $448 million.

How much is Fitbit worth?

After the IPO, Fitbit will be valued at $3.7 billion. It will be tied with Black Knight Financial Services Inc. (NYSE: BKFS ) as the most valuable tech IPO of the year, followed by Inovalon Holdings Inc. (Nasdaq: INOV ) at $3.4 billion and GoDaddy Inc. (NYSE: GDDY ) at $3 billion.

What kind of company is Fitbit?

Founded in San Francisco in 2007, Fitbit is a consumer electronics company known for its wearable devices of the same name. According to its website, Fitbit's mission is to make products that "fit seamlessly into your life so you can achieve your health and fitness goals, whatever they may be."

Fitbits are wireless activity trackers that measure health metrics like calories burned, quality of sleep, and number of steps walked. There are six different models – Zip, One, Flex, Charge, Charge HR, and Surge.

The products caused controversy last year when Fitbit did an involuntary recall of the Fitbit Force. The recall came after roughly 9,900 customers who purchased the Force experienced skin irritation and rashes. The Consumer Product Safety Commission said it was caused by "allergic contact dermatitis." The Fitbit Force has since been made unavailable to buy on the company website.

Fitbit has enjoyed enormous sales growth over the last five years. Sales skyrocketed from $14.5 million in 2011 to $745.2 million in 2014. Over the same period, Fitbit went from a loss of $4.3 million to a profit of $131.8 million.

Last quarter, its devices constituted 85% of U. S. wearable fitness devices and revenue grew 209% to $337 million. According to market research company The NPD Group, Fitbit has sold 20.8 million devices as of March 31.

Who are the underwriters of the Fitbit IPO?

The joint underwriters for the deal are Morgan Stanley (NYSE: MS ), Deutsche Bank AG (NYSE: DB ), and Bank of America Merrill Lynch.

Does Fitbit have any competition?

Fitbit admitted in its IPO filing that it faces stiff competition from both electronics and traditional fitness companies.

"We expect competition in our market to intensify in the future as new and existing competitors introduce new or enhanced products and services that are potentially more competitive than our products and services," the filing stated.

Fitbit's most dominant competitor is Apple Inc. (Nasdaq: AAPL ) and its Apple Watch. which has health and fitness tracking capabilities. According to a survey by Fortune . Apple Watch sales estimates in 2015 range from 8 million to 41 million, with an average of 22.6 million. That average beats Fitbit's total sales of 20.8 million by 8.7%.

Apparel companies like Nike Inc. (NYSE: NKE ) and Under Armour Inc. (NYSE: UA ) also pose a threat. These firms are starting to produce tech-supportive apparel – or "smart clothing." Smart clothing sales are supposed to hit more than 10 million units this year and 26 million in 2016.

As wearable tech grows into a $19 billion industry, there may be enough room for both Fitbit and its competitors. But since wearable tech is still in its infancy, there's no telling who will survive.

But does that mean you should buy into the FitBit IPO?

Twitter Surges in Trading Debut After $1.82 Billion IPO

Twitter Inc. jumped 73 percent in its trading debut, as investors paid a premium for its promises of fast growth.

The stock rose to $44.90 at the close in New York from the initial public offering price of $26, delivering the biggest one-day pop for an IPO that raised more than $1 billion since Alibaba. com Ltd. debuted in 2007, according to data compiled by Bloomberg. Twitter sold 70 million shares, raising $1.82 billion.

The microblogging website picked a price that valued it higher than Facebook Inc. and still drew more interest than anticipated. The San Francisco-based company, which is unprofitable and has one-fifth as many users as Facebook, is benefiting from investors’ thirst for companies that will grow quickly in expanding markets like mobile advertising.

“The company did everything to secure the most cash for itself while leaving some money for the IPO buyers,” said Josef Schuster, the founder of IPOX Schuster LLC, a Chicago-based manager of about $1.9 billion. “You need a pop at the opening to leave a good taste with everyone. They did a pretty good job managing the whole situation.”

At the current price, Twitter is valued at $24.9 billion, or 22 times estimated 2014 sales of $1.14 billion, according to analyst projections compiled by Bloomberg. That compares with 11.2 times that Facebook traded at today, and price-to-sales ratio of 11.7 for LinkedIn Corp.

Facebook declined 3.2 percent, and LinkedIn fell 4.2 percent today. At its market debut in 2012, Facebook’s stock was flat, propped up by bankers, while LinkedIn’s more than doubled on the day it went public in 2011.

Price ‘Hype’

The pricing puts the onus on Twitter to deliver on its promises of fast growth after earlier pitching shares as low as $17. Chief Executive Officer Dick Costolo has rallied investor interest in Twitter’s rapid sales curve -- with revenue more than doubling annually -- even with no clear path to making a profit.

The company received orders for about 30 times as many shares as it offered at the $26 IPO price, a person with knowledge of the matter said. About 8 million of the shares, or 11 percent of the total in the IPO, were allocated to retail investors, the person said, asking not to be identified because the information is private. A typical retail allocation is 10 percent to 15 percent.

Still, any price over $40 reflects “hype” and makes Twitter too risky of an investment, said Jeffrey Sica, president and chief investment officer of Sica Wealth Management LLC in Morristown, New Jersey.

‘Absolute Froth’

“I anticipated a very strong open, but when you start to approach these levels this is absolute froth,” he said. “There is nothing supporting this range. I think this is just way, way above what realistically we should be considering a stable open.”

Brian Wieser, an analyst at Pivotal Research Group in New York, downgraded Twitter to a sell rating with a $30 price target.

“If you’ve got it, sell it,” Wieser said in an interview. “If there are willing buyers who have a view of the business today that gets them comfortable with this valuation then those people should hold it, but I can’t get there, and I’m not recommending my clients to hold it.”

CEO Costolo was at the New York Stock Exchange for the stock’s debut under the TWTR symbol, along with CFO Mike Gupta and co-founders Evan Williams, Biz Stone and Jack Dorsey.

Executive Tweets

After the celebration at the exchange, executives dispersed. Costolo went to the New York Twitter office to talk to employees, then flew to Twitter’s San Francisco office to do the same. Twitter’s website and applications let people post 140-character messages to friends and online followers. Dorsey sent a tweet to congratulate the company’s executive team, receiving more than 200 retweets.

“My first of four client presos today starts in 10 mins. Back at it,” Adam Bain, Twitter’s president of global revenue, said in a tweet.

Twitter’s $1.82 billion IPO is almost as much as the $1.9 billion that Google Inc. raised in its 2004 IPO and makes it the largest IPO by a U. S. technology company since Facebook’s debut in May 2012. Goldman Sachs Group Inc. led the sale, working with Morgan Stanley and JPMorgan Chase & Co.

Anti-Facebook IPO

The price rise underscores how Twitter has so far sidestepped some of the pitfalls that befell Facebook’s IPO last year. Facebook’s offering was marred by a trading snag on the Nasdaq Stock Market and investor backlash over its valuation. The company at the time was priced at 107 times trailing 12-month earnings on a fully diluted basis, making it more expensive than 99 percent of all companies in the Standard & Poor’s 500 Index. Facebook saw its stock quickly sink below its $38 debut price, a level it didn’t cross back above until this August.

By contrast, Twitter decided to list on the New York Stock Exchange and chose Goldman Sachs to lead its offering, while Morgan Stanley led Facebook’s IPO. The company also sought to avoid hype by filing for an IPO secretly with the Securities and Exchange Commission and earlier setting a price range for its shares at a discount to competitors.

Twitter’s stock gain may erase some of the aftertaste of the Facebook, Zynga Inc. and Groupon Inc. IPOs, each of which lost half their value within six months of their debuts, sending a chill over consumer-technology IPOs and some Silicon Valley startup valuations.

Twitter’s Journey

Demand for Twitter’s stock exceeded the supply even before bankers started formally asking for orders, people familiar with the matter have said. On Monday, Twitter raised the proposed price range for the 70 million shares sold in the IPO to $23 to $25 each, up from the earlier range of $17 to $20.

“People are really looking all the way out to their 2015 and 2016 revenue estimates to price this,” said Larry Levine, a partner in financial-advisory firm McGladrey LLP in Chicago. “The risk to buying Twitter is if Twitter does not achieve its very lofty growth estimates.”

Twitter will have 544.7 million shares of common stock outstanding after the IPO, its filings show. Including restricted stock and options, Twitter will have about 694.8 million shares outstanding. The sale didn’t include an extra 10.5 million shares that underwriters have an option to buy, according to the company’s prospectus.

Right Time

The offering caps a journey for Twitter from a niche short-messaging service to a global social-media platform for celebrities, politicians and others. Started in 2006 as a project at failed startup Odeo, the website now logs more than 500 million tweets each day, the company has said. That’s up from 2 million a day in January 2009.

“I have e-mails going back to 2009 asking me about when Twitter is going public,” said Bijan Sabet, a general partner at Spark Capital, which owns about 6 percent of Twitter’s shares, worth $1.46 billion. “And before that, e-mails asking when Twitter is going to generate revenue. This company has always had a lot of pressure. They took their time in figuring out the best way to go public and the right time to go public.”

Twitter still needs to deliver on its business model. Twitter’s loss widened to $64.6 million in the September quarter from $21.6 million a year earlier, and it is unlikely to be profitable until 2015, according to the average estimate of analysts surveyed by Bloomberg. LinkedIn and Facebook were both profitable at the time of their IPOs.

Mobile Users

While Twitter’s revenue has surged, reaching $534.5 million in the 12 months that ended Sept. 30, user growth is slowing, filings show. The service had 231.7 million monthly users in the quarter that ended in September, up 39 percent from a year earlier. That compares with 65 percent growth in the prior year.

Twitter has been touting its engagement with mobile users, where other Web companies have struggled. About three-fourths of Twitter’s active users accessed the service from mobile devices in the three months ended in September, compared with 69 percent in the year-earlier period, according to the filing. More than 70 percent of advertising revenue comes from those devices, a higher proportion than Facebook .

The money from the public offering will help Twitter build its business outside the U. S. where it got 77 percent of users yet only 26 percent of revenue in the third quarter. The company will also expand its infrastructure and work on products that will help it attract more users and advertisers.

“All that points to a lot of upside,” said Paul Zwillenberg, a London-based partner and managing director at the Boston Consulting Group.

Asesoría de Opciones de Acciones - Servicios Legales para Individuos. La abogada Mary Russell aconseja a los individuos sobre la evaluación y negociación de ofertas de acciones, el ejercicio de opciones sobre acciones y las opciones de impuestos, y las ventas de acciones de inicio. Por favor vea esta FAQ sobre sus servicios o comuníquese con ella al (650) 326-3412 o por correo electrónico.

This is a companion piece to the Gold Standard of Startup Equity - A Guide for Employees. It describes why startup employees should ask about Standard #1: Ownership: Can the Company Take Back My Vested Shares?

Image republished with permission of Babak Nivi of Venture Hacks , who warns startup employees to "run screaming from" any startup equity offer that gives the company the right to repurchase vested stock: "Some option plans provide the company the right to repurchase your vested stock upon your departure. The purchase price is 'fair market value.' Guess whether the definition of fair market value is favorable to you or the company. Founders and employees should not agree to this provision under any circumstances. Read your option plan carefully."

The news loves a gold rush story about a Google chef or a Facebook muralist who made millions on startup employee equity. But not all startup equity is created equal. If a startup adds "repurchase rights for vested shares" to its employee stock agreements, its employees have to keep their jobs all the way until an IPO or acquisition in order to get the full value of their shares. If you're working at a tech startup with a gold rush dream, make sure you avoid the dreaded:

Repurchase rights for vested shares are "horrible for employees" - YC's Sam Altman

In a true startup equity plan, employees earn shares of common stock which they continue to own when they leave the company. Just as they would own shares of public company stock they bought through a broker, they own their startup stock until they are paid for the shares when they company is acquired or they are able to sell them on the public markets after an IPO. There are special rules about vesting and requirements for exercising options, but once the shares are vested and purchased, the employees of true startups have true ownership rights.

But some startups design their equity plans so that employees earn shares that they don't really own. If the company includes repurchase rights for vested shares, the company can purchase the employees' shares upon certain events, most commonly after an employee leaves the company or is terminated by the company. Most repurchase rights expire after an IPO or acquisition so that if the employee is still there at the IPO or acquisition they get the full value of the shares. If not, the company can buy back the shares at a discounted price, called the "fair market value" of the common stock on the date of the buyback ("FMV").

These repurchase rights are included in stock option plans, stock option agreements or company bylaws, but most employees do not know about these value-limiting terms when they join a company or even when they choose to exercise their stock options. That's why the Gold Standard of Startup Equity - A Guide for Employees - suggests that employees ask before they accept startup equity: Can the Company take back my vested shares?

How Repurchase Rights Take away Employee Equity Value

One might think that an employee might be happy to sell their shares to the company. But repurchase rights are not designed with the employee's interests in mind . They allow the company to buy the shares back against the employees will and at a discounted price per share. As Y Combinator head Sam Altman wrote, "Some companies now write in a repurchase right on vested shares at the current common price when an employee leaves. It’s fine if the company wants to offer to repurchase the shares, but it’s horrible for the company to be able to demand this."

The common price at the date of repurchase is not the true value for two reasons. First, the true value of common stock is close to the preferred stock price per share (the price that is paid by investors for stock and which is used to define the value of the startup). Second, the real value of owning startup stock comes at the exit event - IPO or acquisition. This early buyback prevents the employee realizing that value.

Example - Company Does NOT Have Repurchase Rights for Vested Shares - Employee Value: $1.7 Million

Here's an example of how an employee in a true startup earns the value of startup stock. The company cannot buy his or her shares at departure, so he or she holds them until IPO. In the case of an early employee of Ruckus Wireless, Inc. the value would have grown as shown below.

This is an example of a hypothetical early employee of Ruckus Wireless, which went public in 2012. It assumes that the company did not offer equity with the "horrible" repurchase rights for vested shares. Therefore, the employee was able to hold his or her shares until IPO and earn $1 .7 million. These calculations were estimated from company public filings with the State of California, the State of Delaware, and the Securities and Exchange Commission. For more on these calculations, see The One Percent: How 1% of Ruckus Wireless at Series A Became $1.7 million at IPO.

Example - Company DOES Have Repurchase Rights for Vested Shares - Employee Value: $68,916

If the company had the right to repurchase the shares at the fair market value of the common stock at the employee's departure, and the employee left after four years of service when his shares were fully vested, the buyout price would have been $68,916 (estimated). This would have taken away a value of $1,635,054 by the time of the IPO:

Hypothetical - If the company could have repurchased the vested shares at departure, the employee would have lost $1,635,054 in value. When you are evaluating an equity offer, always ask: Can the company take back my vested shares? For more, see Gold Standard of Startup Equity - A Guide for Employees. If you want to see the working calculations, visit the document on GoogleDocs.

When you are evaluating your startup equity, find out if the company has the right to repurchase your vested shares. If they can do so, you don't really own them. That changes their value significantly . If you have the power to negotiate this term out of your documents, do so. If not, incorporate this value-limiting term into your evaluation of your equity. Not all equity is created equal.

How NASDAQ IPOs Work

When Krispy Kreme had its IPO on the NASDAQ stock index, shares opened 11 points higher than their offering price.

Photo courtesy Chris Hondros/Getty Images

The next step is to raise the money from the IPO. This happens through a process known as the road show . in which the company makes presentations to large investors and investment banks to sell large blocks of stock at the IPO price.

This may seem odd. It would seem that, in the IPO, the shares would be offered to the general public. But in most cases they're not. Large investors and investment banks buy big blocks of stock after private conversations with the company. They pay for the stock with big chunks of cash.

Up Next

So what happens on the actual morning of the IPO? The money from the big investors flows into the company's bank account, and the big investors start selling their shares at the public exchange. All the trading that occurs on the stock market after the IPO is between investors; the company gets none of that money directly. The day of the IPO, when the money from big investors hits the corporate bank account, is the only cash the company gets from the IPO.

The fact that investors start trading the stock on the morning of the IPO controls the offering price in the IPO. The company can choose any price for its initial shares. If the company chooses a price that is too low, it leaves money on the table. The price of the stock will jump up as soon as people start trading it. But if it chooses a price that is too high, the opposite happens. The stock price falls, and that can leave a stain on the company's reputation. Therefore, companies and their bankers spend lots of time considering the IPO price.

When the money hits the bank account, it is a little less than the total raised in the IPO. For example, the company might get 92 percent of the money. The other 8 percent goes to pay the people who helped usher the IPO through the process: law firms, accountants and the primary investment bank that handled the IPO.

Still, the company receives a huge amount of cash -- cash it can now use to grow the business.

On the morning of the IPO, the NASDAQ exchange often has an IPO ceremony. Executives, employees and family members from the company come to the NASDAQ studio at Times Square to celebrate the IPO at the opening bell. The CEO signs in and the event is broadcast on the NASDAQ MarketSite tower in Times Square as well as on TV networks around the world. On that day, the company morphs into a publicly traded entity and starts a new phase in its corporate history.

Print | <a data-track-gtm="Byline" href="about-author. htm#brain"> Marshall Brain </a> "How NASDAQ IPOs Work" 14 August 2007.<br />HowStuffWorks. com. <http://money. howstuffworks. com/nasdaq-ipo. htm> 24 March 2016" href="#">Citation & Date

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“Backdoor Loophole” into the “Biggest IPO in History”

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There have been two pretty big promo campaigns about the Alibaba IPO in the last week or so — one from Bill Patalon in an ad for his Private Briefing . and the other from Mike Palmer for Jeff Clark’s S&A Short Report … so I thought we should try to take a look, answer some reader questions, and see if these two folks are touting the same “backdoor” play on Alibaba.

Alibaba, if you haven’t yet heard the buzz and hype, is a huge e-commerce company based in China — they offer a variety of different transactions in their marketplace(s), including business to business ordering (like for companies seeking Chinese suppliers) as well as direct-to-consumer sales (Taobao and others) much like those handled most often by Amazon or eBay in the US, with similarly huge market share to those two but in a faster-growing market, and they have a large payment network (AliPay) that is essentially their homegrown version of eBay’s PayPal.

They’re huge, and as one of the largest tech companies that is not public there has been a surge of interest in their IPO — something that’s been on many investors’ radar screens for several years but has really hit public attention now that they’ve actually filed their first registration for the public offering (that was a couple weeks ago) and a listing in New York (I think the Nasdaq and the NYSE are still fighting for that listing, don’t know where it will end up).

The likely date for their IPO seems to be sometime in August, though these things aren’t that predictable far in advance (it could easily be sooner, any later would be perceived as a delay), and it will almost certainly be a massive and heavily covered event — much like the facebook IPO two years ago or the Google IPO ten years ago. And Alibaba Group has some other similarities with those two — it will have a complicated ownership structure that keeps the current managers in control even without majority ownership, and added to that it’s got the complication of being a tiered ownership structure that’s designed to get around Chinese ownership restrictions (more on that from the NY Times here ).

So these aren’t likely the last teasers we’ll see that focus on Alibaba, which will probably emerge as a $100+ billion company after the public offering (there are estimates that put it above $250 billion). And small investors obviously can’t buy directly into Alibaba shares before the IPO, even if we wanted to, so what is this “backdoor” that the folks from Money Morning and from Stansberry are touting?

The Stansberry pitch for the S&A Short Report opens like this:

“How to get in on the biggest IPO in American History… before it goes public.

“Normally, Initial Public Offerings (IPOs) are completely useless for ordinary, retail investors. But our expert trader has found a rare opportunity that allows you to jump in front of investment bankers and hedge fund managers to potentially make a small fortune on what is being dubbed, ‘The largest IPO in U. S. history.'”

And the Private Briefing spiel starts similarly:

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“Chinese Internet giant Alibaba recently filed papers for what will surely be the biggest IPO in history… virtually guaranteeing ‘millionaire status’ to a swath of insiders, high-net-worth investors, and bankers.

“But on this particular deal, a lot of regular folks will get rich, too.

“That’s why I want to send you this urgent report.

“You see, under normal circumstances, mega-IPO profits are reserved for the ultra-rich.

“But the Alibaba IPO – a potential $20 billion deal – comes with a little-known ‘exception.’

“And for you, it could be a hugely profitable one.

“My newest research has led me to a backdoor way for you to make a fortune on the Alibaba deal RIGHT NOW… long before the shares go public.”

And what is it that they’re touting?

“… there’s an American company that was smart enough to build up a huge position in Alibaba over the years.

“And now that the Chinese firm has decided to go public, this savvy American firm is about to cash out. Big time.

“It could reap a $12 billion windfall on the deal. A payout that would more than double this company’s cash flow… in a day.

“I’m talking about an estimated 153% pop in the quick action – with the potential to rise as high as 400% if you’re patient and willing to ride the upside. It’s up to you.

“I’m anticipating the initial gains to come fast – springing directly from the massive ‘Alibaba Shockwave Effect’ that’s already spreading through global markets – and will most likely end minutes after the IPO goes live several weeks from now.”

Well, that’s quite clearly a reference to Yahoo (YHOO), which owns 24% of Alibaba Group (and has otherwise been such a mess that it has often been valued based mostly on the anticipated return on their Alibaba shares).

But are they really touting Yahoo shares as some “secret backdoor” into Alibaba shares? That’s a little hard to swallow, given the overwhelming, breathless coverage the Alibaba IPO has received and the impact that estimates of Alibaba valuation already have on YHOO shares every day. But I suppose folks who don’t generally read the business press or watch CNBC might not know that YHOO isn’t really Yahoo these days.

Here’s how they put it:

“Take the backdoor company’s share price (which is currently very cheap) and add in the ‘Alibaba Effect’… those shockwaves I was telling you about being created by the IPO offering.

“Well, the calculation can only come up one way.

“And that’s with the backdoor play’s stock price rising substantially.”

The spiel goes on to say that the unnamed secret company (clearly YHOO) could do a few things with their windfall — they’re selling part of their stake in the IPO so they can either dividend it out, buy back stock or make acquisitions, and the remaining shares they hold they could sell in the future or simply hold onto if Alibaba turns out to be as spectacular a grower as some predict.

Unmentioned, of course, is the fact that Yahoo will owe taxes on their Alibaba gains when they sell… or that they could always indulge themselves in the other popular tech company strategy, “sit on giant pile of cash for year and chuckle like Scrooge McDuck in his Money Bin.”

And though there are no further specifics save the prediction that this windfall will boost an investment in [Yahoo] by 153%, they also suggest that there are other ways to profit from this IPO:

“The first bonus play is yet another small company that figures to reap about $58 billion from the IPO. I expect its share price will get a sizeable boost – and fast.”

“Small company” my hiney — this one is Softbank (SFTBY for the ADR), the Japanese tech conglomerate run by Masayoshi Son (they’ve been in the news lately as well, following their effective merger with Sprint last Summer), and they are not small. Softbank invested about $20 billion in Sprint, and has a market cap of roughly $80 billion… probably a bit smaller than Alibaba will be if the optimistic projections about their share price are correct, but certainly not small (or even medium sized) in any way. Softbank owns even more of Alibaba than Yahoo does (this is why Alibaba is still not public — they got large investments from Yahoo and Softbank many years ago, so they didn’t need capital to grow), but is not selling any Alibaba shares in the IPO (recent speculation has been that the IPO will price at $72 a share, which Barron’s says would mean Yahoo’s stake is worth $37 billion, Softbank’s $57 billion.

So Yahoo will be cashing in to at least some degree, and has substantially more exposure to Alibaba as a percent of market cap (Yahoo’s market cap right now is $35 billion, and they have a billion or two of net cash on their books as well), partly because the after-tax value of Yahoo’s major assets (Alibaba and Yahoo Japan, which they own in partnership with Softbank) is so unclear… not just because we don’t know how much the taxes will be if and when Yahoo completes an “exit” of those holdings, but also because both are private companies with little disclosure and are difficult to value. That Barron’s article cites Yahoo’s stake in Alibaba Group as being worth $37 billion, the more conservative Morningstar analyst puts it at $17 billion (Yahoo has almost exactly a billion shares outstanding, so that makes the math simple as long as we’re talking rough numbers, that would be either $37ish or $17ish per share, YHOO currently trades just under $35 a share).

Alibaba Group isn’t a teensy little startup going public with just a sliver of equity for sale, this is a big stake in a huge company — we can guess at what it’s worth, but we shouldn’t take those estimates as being particularly reliable, anyone trading YHOO or SFTBY because of Alibaba will have to accept that the volatility might be quite high. Alibaba could go public in a hot market and get bid up to a massive valuation, or it could fall on its face if investors stop looking at their growth numbers with starry eyes and get nervous about China… or it could end up pricing roughly where the banks expect it to price, and Yahoo and Softbank might both see a post-IPO “sell on the news” effect.

Yes, you can absolutely make the case that Alibaba should be worth $250 billion (partly because Amazon, the most comparable US company, is so incredibly richly valued) and that Yahoo’s stake would be worth $100 billion and therefore, after taxes, Yahoo’s share price could double or triple as Alibaba booms. You can also make the case that Alibaba will go public at $100 billion and dwindle to $50 billion and Yahoo’s stake will be worth, well, something close to the $17 per share estimated by Morningstar. A lot of this has to do with how you think the hype cycle will hit the IPO — will it be facebook again, with a flat IPO and a six-month decline, or will it be a mega-hype IPO that everyone’s clamoring for a piece of that triples on the first day? If you can predict that, you win a job at Goldman Sachs.

If you flip through the registration filing, which doesn’t yet include their anticipated pricing for the offering (that usually comes at the last minute), you see that Alibaba Group reported nine-month earnings to December of last year that, if annualized, would mean the company had net income approaching $4 billion over the last year and was on pace to pretty much double its earnings year over year. So the big numbers are impressive, and it’s easy to be comfortable with a $100-150 billion valuation for Alibaba given that growth rate … even if you take account for the dilution that will come with the IPO sale of shares (some of the shares that are being sold, like part of Yahoo’s stake, already exist… some are being created, presumably to fund investment in growth — I don’t think it has yet been disclosed exactly how many shares will be offered, or what percentage are from selling shareholders vs. the company).

So yes, there’s a good reason for the hype about Alibaba — it’s huge, it’s successful, it has its fingers in e-commerce, mobile commerce, business-to-business commerce, payments, online shopping of all kinds, and is growing fast and really without peer in what is gradually becoming a massive consumer economy in China. And Yahoo owns 24% of the company, which if you ignore the details about taxation and how much they’re going to sell and what demand will be for the shares, means YHOO should reap a cash windfall.

But Yahoo has also more than doubled over the last two years mostly due to Alibaba and Yahoo Japan, with a (small, I’d argue) additional boost coming from the enthusiasm for new CEO Marissa Meyer after the company had been given up for dead. Yahoo used to own 40% of Alibaba, but sold 40% of that position back to Alibaba in 2012 for $7.6 billion, and they used about half of that to buy back shares and half to fund investments in Yahoo’s growth, including acquisitions and restructuring. Alibaba may not have had the flexibility to plan an IPO if Yahoo had held that 40% and Softbank 40%, so the point is perhaps moot, but Yahoo sold that 16% stake for a lot less than people think it’s worth today.

Yahoo’s core business is still, I would argue, very threatened and not worthy of a particularly high valuation — their search partnership with Microsoft has been pretty fizzle-y and there hasn’t been any real revenue or earnings growth to get excited about from the core web portal and advertising business. They just can’t compete with Google for advertising reach and scale or with Facebook for “eyeballs” and display ads, though it’s certainly possible that they’ll continue stabilizing and will eventually grow — they certainly have almost unmatched scale (unmatched by anyone except Google and Facebook, at least), so if they can light the right fire under their user base it might help them.

I admit to being tempted by Alibaba, which is easy until they tell you the price you’ll have to pay, but I’d be more likely to go with Softbank personally if I wanted to buy into the Alibaba story before the IPO — Softbank’s stake is larger, their core business is more diversified and could easily grow (or provide a substantial catalyst, if they are able to merge T-Mobile with Sprint as is so often rumored), and they’re not going to sell their Alibaba shares right away so it’s more of a play on Alibaba ownership and growth than simply on the possible Alibaba IPO pop that may or may not come this Summer.

So our best guess is that Private Briefing is probably simply recommending a purchase of Yahoo shares — and a 100%+ gain in those shares is possible if the frenzy over Alibaba heats up, though I think that’s probably too aggressive. They may be suggesting a Yahoo options trade, perhaps, but in that case the likelihood is that they’d tease a much higher potential return to really get us excited.

And on that note, we should check in on what exactly the S&A Short Report folks are teasing … since that newsletter, edited by Jeff Clark, is generally options-focused. What are they recommending?

Well, it clearly also has to do with Yahoo — here’s how they tease it:

“Since Alibaba filed their paperwork with the SEC earlier this month, that gives us between 30 and 90 days to make what could be a very nice gain, with almost no risk. That’s the standard lag time between when a company files and open bell on day one of trading.

“I say ‘with almost no risk,’ because Jeff Clark has figured out a way to structure a trade in the options market that essentially allows you to make a trade with “no money down.” It’s a unique anomaly that sometimes occurs in the options market… and it’s available to savvy traders right now.

“I realize that may sound a little outrageous to you. You and I both know there’s no such thing as a trade with zero risk. But given the current state of our trade’s pricing, the options market “wrings out” most of the risk from your trade. As Jeff told me recently, “This is the type of trade I would put my Mother’s money into.”

“So as with any investment… there is risk — but I believe this is the smartest, absolutely lowest risk way to play the Alibaba IPO.”

Huh … so we can infer that it’s some kind of options trade on Yahoo, how about some more clues?

“The first is a very conservative trade. Jeff explains, “there’s no need to second guess this trade, or breathlessly watch every up-tick and down-tick in the stock. We can just stick with the plan… hold it through the hype period and take profits.”

“The second trade is a more aggressive play. Jeff recommends this trade if you want a very legitimate shot at cashing out with gains of 200% or more.

“And remember: Both of these trades will most likely be done before October. You don’t need to sit on your position for years to see gains. There’s a very good chance you’ll even be able to cash out WELL BEFORE Alibaba’s IPO.”

I’m not much of an options trader, so it’s quite likely that I can’t tell you exactly what Clark is suggesting… but he also does say this:

“He’s confident this is the only way a regular investor can make some real money with the Alibaba IPO because he’s actually seen this exact set up before…

“Huge company with a unique ownership structure announces IPO…

“Hype about the stock rages on for months…

“People do stupid things with their money.

“In fact, the last time Jeff saw the set up for this trade was during the Palm IPO of March 2000…

“And he walked away with nearly DOUBLE his net worth… by making a trade similar to the one he’s recommending today for Alibaba. Yes, you read that correctly — he nearly doubled his net worth with a single trade… remarkable.

“You see, Jeff understands that simply getting into the IPO by purchasing ordinary shares of Alibaba is probably a recipe for disaster.”

Clark has written before about his (risky) options trade that tried to fade the hype of the Palm IPO — it’s an interesting story, you can read his free article about it over at the Growth Stock Wire. but my key takeaway is this:

“The market was already pricing in the increased valuation of 3Com shares as a result of the PALM IPO. In the option markets, the expectations had risen to purely foolish levels.”

When prices rise to foolish levels, the expectation then is that you’re trying to sell into the foolishness… which is what he did:

“The pricing of these options was just nuts, and it was the result of tremendous hype surrounding the PALM IPO – hype that would disappear as soon as the stock went public. I did the only thing I could do… I sold the call options and collected $600 on each contract. In fact, since the premium was so large and the potential for profit was so high, I took a position that was about three times my normal size.”

You can read that story for the details, but he basically kept selling more options and would have driven his firm into bankruptcy, he says, if the hype had been correct and the stock had kept going up… but it didn’t, it faded after the IPO as he was expecting, and he booked all that money from selling options. Presumably these were naked call options, where he didn’t have the cash to buy the shares he would have had to supply to the buyers of those options if the stock price kept climbing — which meant he would have gotten margin calls quickly from his broker and it would have gone downhill quickly. While very profitable, clearly, he says he would do it more wisely today:

“The option market provides any number of ways to take advantage of mispriced, overhyped situations without exposing yourself to tremendous risks.”

I could have employed a relatively simple strategy that would have been equally as profitable, but considerably reduced my risks had I just done a little extra homework.”

What might that strategy be? It could be almost anything, but the likelihood is that you would bracket your trade in some way to cut off the unlimited downside that a naked call option sale presents — the simplest would be a short call spread, meaning that you sell a call because you think the stock is rising unsustainably but you buy a higher-priced call to cut off the potential losses just in case you’re wrong… with the ideal result being that both of those options expire worthless and you just pocket the difference. You can see this explained a bit more technically here on a TradeKing page. or CBOE has a free seminar in trading spreads here if you want more detail.

I have no idea whether or not this is specifically what Jeff Clark is recommending to his subscribers, but if it’s a “no money down” trade then he’s selling options — selling means you take on the obligation of either buying a stock or selling a stock, and if he’s skeptical about the hype surrounding Alibaba, as it seems from the tone of the pitch, then a short call spread/bear call spread makes sense.

Frankly, the valuations are not so out of wack that I’d compare this to the 3Com/Palm IPO and the wild speculation going into that one, so it might be that this particular trade isn’t as directly comparable as the ad implies — he may not be acting nearly as aggressive as he was then. Which is probably wise — I agree that Yahoo is probably a bit overvalued because of the Alibaba stake and is likely to deflate a bit after the IPO… but it’s not horribly overvalued, and you can make a case for Alibaba being really, really huge so the risk of betting against Yahoo is real. He might even be saying that we’re still early in the hype cycle and suggesting a bullish no-money-down trade similar to the ones Porter has been teasing for his Stansberry Alpha service. where he sells a put against YHOO and uses it to buy a call because he’s so certain that YHOO stock will get bid up crazy in the next two or three months. (You could, for example, sell a July $33 put for about $1.50 and use half of that to buy a July $39 call — netting a small bit of cash and giving you upside if the hype takes over in the next month or two, with the risk that you have to buy it at $33 if it falls below that. Not suggesting this, of course, but it’s another “no money down” possibility for riding hype.)

I find it interesting that we see two newsletter teasers about Alibaba in one week, with one of them pitching a purely bullish scenario and a way to get in early on the excitement… and the other implying that the hype is going to go over the top and crash, and you can profit from it in the short term. Me, my impulse is to stay away from Yahoo and think about a long position in Softbank as a long-term position… but that’s just “think about,” I’ve never gotten particularly close to actually buying Softbank and I can’t really get my head around what Alibaba should be worth yet. s

But really, all I can tell you is that these newsletters pitching a “secret” backdoor loophole that lets you get access to Alibaba shares are both talking about Yahoo, and it obviously ain’t so secret. It’s your money, though, so — secret or not — what do you think will happen? And do you feel like betting on it? Let us know with a comment below.

I expect the IPO to probably be priced pretty high, like Facebook’s, but you never know — might work out. The six banks doing the lead underwriting are Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Citigroup. This IPO is big enough that there may be allocations for small individual investors at retail brokerages, but if the hype spools up that could easily not be the case, whenever you’re interested in an upcoming IPO your broker is usually the best source of information about availability for you, specifically.

Kipley klein says:

Maybe they will screw it up like Facebook and I can get it a week later for half the cost of day of the IPO. Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Citigroup you listed 6 of the Alibaba’s 40 thieves mentioned earlier.

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PETER SCHELKER says:

I have always liked Softbank since 2000 when it was over $1k per share and I think Son is really a smart guy. I want to buy Softbank here with the Alibaba catalyst but should I be put off my SFTBY, as an UNSPONSORED ADR Travis ?

Unsponsored ADRs don’t put me off, personally, the “unsponsored” just means that Softbank didn’t pursue the ADR and it was created by a depository bank buying shares to trade in the US. Many stocks have more than one US trading symbol, I typically go with the one with higher volume to get better pricing. SFTBY has much higher volume than the non-ADR SFTBF that theoretically represents a market maker effectively buying it in Japan for you, sometimes ADRs have (usually small) fees, particularly on dividend distributions, that go to the depository bank, don’t know if that’s the case with Softbank.

vivian lewis says:

unsponsored ADRs are more likely to incur depositary fees which are per share, so they are particularly galling if you have a large position. by the way there are other was to buy into China internet: My fave is Tencent, which like Alibaba is run by a guy named Ma (Horse) but a different one. Jack Ma and Pony Ma are not related I think. TCTZF is tough to buy right now since they did a 5:1 split a week ago and the dumb US depositary trust co still hasn’t put out the split shares, according to my broker, e-trade. High speed internet my foot. I think maybe when the split shares start trading in the US (not before Tuesday) there may be pent up selling pressures. Another way to own Tencent is via its 39% owner, Napsers, NPSNY, the S. African media group. It is also a shareholder in Russian and Brazilian net companies. This is risky of course given Russia but it is sure less risky than naked options.

Pancho Villa says:

Article states it is illegal for foreigners (non-Chinese) to own shares in Alibaba. Those buying these “tracking shares” are buying shares that can be declared worthless by China whenever they decide to enforce their laws.

I’ve seen that risk mentioned a couple times — certainly worth a thought or two, though the same basic concern applies to pretty much all Chinese companies, many of whom do something similar with offshore parent companies or tracking stocks or holding companies to get around the letter of the law. I don’t know what the risk level is.

Larry Allbritton says:

Anyone out there in Gumshoe Land know anything about Robert Rapier’s The Energy Strategist? He is touting “The Bakken Phase 2; How to Profit from the Millionaire-Making Wave”. He’s making it sound like the Second Coming of JC.

Map Press’ Micheal Robinson also made the case that YHOO was sure to be worth lots more as they believe that Alibaba may instead offer to buy up YHOO after the IPO as to not have to deal with YHOO as a major shareholder (American?). Anyhow, any news or even rumors of a buy out would certainly send the SP skyrocketing for sure. Not sure though how viable the ideal of YHOO being bought out is?

The third option from Map Press that was suggested was an ETF as back door to the IPO. Here’s what they had to say:

“If you’re a bit more risk-averse, but still want to make a move before the offering, you might want to consider our third “back-door” Alibaba IPO play: The KraneShares CSI China ETF (Nasdaq: KWEB). This exchange-traded fund (ETF) is a relatively new profit play, having debuted last July. As such, it had less than $80 million in assets, according to our most recent research. But here’s why we like it: In a recent appearance on CNBC’s popular “Fast Money” segment, KraneShares Managing Director Brendan Ahern said KWEB can “fast-track” Alibaba into its lineup and add the stock following its eleventh day of trading.

In effect, Ahern gave us a peek at the future. The fund’s relatively small size would magnify the impact of a longer-term Alibaba run, and would therefore be a major beneficiary.”

I’ve bought YHOO last month based on price as opposed to SoftBank but I do believe that SoftBank is a much better long term play. The ETF is not for me..

Like SFTBY as a back door play. Son has been compared to Buffett and Softbank has higher ownership in Alibaba than Yahoo.

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PETER SCHELKER says:

Travis, Just a follow up to the great info u provided re: unsponsored ADRs. I read where Yahoo (YHOO) might have to divest itself of it’s 22% of its Ali Baba shares in preparation for the BABA IPO in August. However, Softbank is in Japan and is not affected by any SEC ruling. Do I have it right ?

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There have been two pretty big promo campaigns about the Alibaba IPO in the last week or so — one from Bill Patalon in an ad for his Private Briefing, and the other from Mike Palmer for Jeff Clark’s S&A Short Report… so I thought we should try to take a look, answer some reader […]

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Posted by Hank Erbes on Sep 27, 2013 @ 10:34 am

I’ve had SR for many years, The first year I would have made some money If I had learned about position sizes early. The losses in the first 3 trades held done to first year to almost breaking even.

I eventually found out 1) do not exceed the Buy up to Price.- If it goes wrong, you have risked too much money. and if it goes right, you have made less for higher risk. 2) if you miss the recomendation because the price has run away, that’s going to be a great trade, and makes his overall success rate look decent. 3) even if get a winner, it can turn out to be a loser, if you don’t get out at the right time.

Posted by Jake Berghamer on Apr 10, 2013 @ 1:32 pm

No need to repeat all of what has been already written. It is all true. Trust me, the only way to make money with the Short Report is to do the exact opposite of what is recommended. I would give 5 stars for consistency – consistently wrong.

Posted by Robert Terlaak on Mar 3, 2013 @ 1:37 am

Unfortunately I didn’t read the comments on Gumshoe before I took the subscription. It was actually the subscription to Jeff Clark’s Pro Trader service but you get the S&A Short Report as a bonus. Well, what a bonus that is. All recommendations lost money because Jeff is a gold stock lover and if the first time it doesn’t work out he just tries again, and again, and again! I should have been wiser not to follow his opportunism. His ideas might be right but his timing is way off. I cancelled my subscription with a refund of 90% so another 10% loss can be added. If you want to lose money consistently you can sign up with Jeff…

Jeff Clark is full of shit. Not many of his option recommendations make any money at all. The DHI and FAZ options picks lost a bundle for investors. People did exactly what he recommended and ended up losing. This guy is so full of Bullshit it’s rediculous. Jeff Clark is a total baffoon. A Scam artist. Stay away from the S&A Short Report or anything Clark is involved in.

Posted by Hangman on Apr 8, 2012 @ 3:07 am

I cannot still rate Jeff Cark’s performance, but I do like his educational material. The one thing that annoyed me is that on March 26 2012, Mr. Clark published ‘We’ll Live to Trade Another Day’, in which he explains the failure (over 50%) of his TVIX recommenadation. Some days later this commentary vanished… Rewriting of history is a bad thing that causes me concern about the good faith of S&A staff. It is a matter of principal that S&A should explain why it has happened.

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Why do an IPO? Objectives of IPO and Alternatives

Taking Your Company Public

For the small to medium range company without the experience or expertise, the concept of taking the enterprise to the public market is often considered the ultimate corporate success. This goal is often re-reinforced by certain capital investors which view an initial public offering ("IPO") 5-7 years "down the road" in the investment cycle as a means to achieve their economic goals on return as well as a convenient exit strategy -

For the owners of a private firm, it is suggested that the expected benefits from an IPO strategy should be carefully and objectively weighed, since the dream and reality can often be two entirely different things. Firms may go public for any number of reasons, but the common elements tend to be cash and/or additional leverage opportunities. There are accordingly two separate issues - (1) do the expected benefits of an IPO outweigh any disadvantages; and (2) is success from an IPO that clear and is there exit strategy for any downside possibilities?

There are various alternatives to an IPO if cash and stable financing are the only issues. The real issue is how much new responsibility is the company prepared to assume for its expectations. For example, the entire preparation and process for an IPO (i. e. time and costs for professional assistance, internal company support, and underwriting) is substantial, as well as the on-going compliance with regulatory and new stockholder requirements. Investor relations will take on a whole new and far broader meaning, both in terms of time and money.

Once the IPO step has been taken, the company's options may in fact be become more limited. Unless the company is thereafter successful, "going back to the well" may not be either feasible or available. Reversing the public ownership process may be either difficult or impossible.

For example, many firms in the bio-industry were selling in the $50 a share range not long ago, and currently are down under $10. The public markets tend to have a rather short term focus and success of an IPO and its value longevity may be based on factors even unrelated to the particular company's results or future products.

The above areas are noted solely to emphasize the need for the private firm to objectively investigate all available options, weighing the costs versus benefits across the entire spectrum, with the input of experienced and trained professionals. Certainly, if the owner is seeking an exit strategy as well, an IPO may be a very successful option. if the owner seeks to manage and/or be a part of the "bigger picture", then the issue may be entirely different.

One alternative to the IPO approach is "strategic partnering". Although it can be fashioned in number of forms to suit the venture and the players, at its essence, it is the partnering with one or more investor companies, which in addition to cash, typically brings valuable industry expertise, resources, and/or bargaining power to the enterprise. The investment decision, unlike the public market, is usually not driven by "internal rate of return" expectations on the cash invested. Rather, the investment view tends to be long-term in nature and predicated on product market share considerations/expectations.

Strategic partnering opportunities may be more difficult to obtain, but then the potential benefits of remaining private with "deep pockets" and/or significant resources support may indeed make it worth the effort. Large companies are usually not known for innovation, quick and creative answers/solutions to product/service market needs. Large companies do typically have significant cash and very effective sales and distribution resources. To that end, one should seek partnering relationships with companies that understand your specific company business and can benefit from the arrangement on a long term basis.

Strategic partnering can be a very flexible arrangement, custom fitted for the parties and their needs. Once the arrangement has been established, the relationships need to be well structured, clearly delineating the rights and responsibilities of each party. As in any transaction, all parties must be comfortable with and trust the relationship to ensure the benefits to each as originally envisioned.

Successful partnering can as well provide more flexibility in obtaining additional outside financing, both public and private, as well as better rates, terms, and conditions. Even the public market option may still be available.

It must be noted that almost 95% of all companies $10 million to $100 million in revenues never go public. As well, there are many large companies which are not, and would not consider the public market for financing, a notable local example being M&M Mars in McLean, Virginia (multi-billion dollar enterprise).

If your firm is approaching or at the critical stage for determining and acquiring significant capital for firm expansion or increased market share, this overview may be of immediate benefit. The key, as in any good business decision, is professional input on the available options, objective evaluation, and aggressive implementation. Strategic partnering is one of those options with a proven and very effective means to achieve a wide range of management and investment goals.

Henry Barratt, Partner Boles & Co. McLean, VA (703-35&2117)

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The Initial Public Offering (IPO) Process: Got Facebook Shares?

Or just muddle along and die a slower, more painful death.

And then one company came along and changed all that.

While everyone has been obsessing over Facebook’s IPO today, the great irony is that Facebook itself has made IPOs less relevant than ever before .

Here’s how the IPO process normally works when you’re at a bank, and what Facebook did to upend most of that – and make thousands of people very wealthy in the process:

What is an Initial Public Offering (IPO)?

It’s the first time that a previously private company can sell its shares to “the general public” (mostly institutional investors at first).

Usually the company issues around 20-30% of its shares (free float), though this varies by industry, company stage, and so on.

Most investors consider it riskier if the company only makes available a low number of shares – but if the company is “hot” enough (see: Facebook, with its 11% offering) they’ll overlook this and dive in head-over-heels anyway.

You probably associate IPOs with tech, healthcare, or biotech start-ups, but they apply to a much wider range of companies than that.

You see everything from mature business service companies to energy firms to transportation firms going public, but they get far less attention than hot tech start-ups (see Renaissance Capital for updated lists ).

Most companies go public to:

Raise capital for expansion efforts or to pay back debt.

Provide an exit for existing investors – whether the company is PE-owned, VC-backed, or owned by a small group of individuals or a single person.

Get an acquisition currency – most private companies’ stock is not highly valued, so it is much easier to acquire other companies using stock once they’re public. And raising debt to do deals can be easier once you’re public as well.

Reward employees – Making employees work crazy hours for 5-10 years is tough to pull off, but the lure of an IPO that will make them all wealthy is a great incentive for them to stick around.

Market themselves – Especially for lesser-known companies in “boring” industries, an IPO is a great way to increase prestige and attract new investors, partners, and customers.

And sometimes there are technical reasons as well: in the US, for example, the “500 shareholder rule” used to require any private companies with more than 500 shareholders to publicly disclose their financial statements…

…So they might as well just go public and get the other benefits – this was one of the key reasons why Google decided to go public in 2004.

Why is Facebook going public? None of the above!

It’s cash-rich and massively profitable, so it has no need for capital.

Many of its investors and early employees have already exited by selling to others via secondary exchanges or in late-stage growth equity financings – options that didn’t exist in the past.

It has always had a great acquisition currency because its private stock was worth a lot and was actively traded on these secondary exchanges.

Come on, does it really need more marketing and hype?

And oh yeah, the 500-shareholder rule is in the midst of a revamp and Facebook got around it anyway by issuing Restricted Stock Units (RSUs) rather than actual shares or options to employees as the company grew.

A number of theories have been put forth for why it’s really going public:

Some people still think the 500-shareholder rule forced their hand even though it’s being raised to 2,000 shareholders soon .

Many believe that long-term capital gains tax rates will increase in the near future – if they go public and employees sell stock now, they’ll pay 15% rather than a potentially much higher rate. You can ask Eduardo Saverin about that one…

Others have theorized that they’re using the money for mysterious new monetization methods that will expand their revenue base beyond advertising.

Personally, I don’t buy into any of those as individual reasons – it was likely a combination of some of the points above, plus the fact that late-stage investors still need someone to sell their shares to.

The Downsides of Going Public… and Why Facebook Made IPOs Irrelevant?

Some companies don’t want to go public (or can’t go public) because:

They have to give up control and answer to shareholders with quarterly earnings reports.

They aren’t VC or PE-backed and therefore don’t need an exit .

They’re already highly profitable and have no need for cash.

Compliance costs are much higher as a public company due to legislation like Sarbanes-Oxley.

They’re too small – it’s tough to go public if you have under $50 million in revenue.

But Facebook changed the rules here because:

1) Mark Zuckerberg maintained far more control than typical founders by splitting the stock into voting and non-voting shares, by controlling the Board, and by selling almost nothing along the way; y

2) It raised $200 million from Digital Sky Technologies (DST) in May 2009, and then an even bigger round of $1.5 billion in January 2011, which effectively gave early investors the exit they needed.

The rise of secondary exchanges like Second Market. where investors can buy and sell private company shares, has made it much easier for early employees to cash out long before the company ever goes public.

Who Decides if the Company Should Go Public?

In most cases, it’s up to the Board and major shareholders.

So if a private equity firm owns a company and they need to achieve an exit in year 4 or 5 to get acceptable returns, they might push for the company to go public (or get acquired) around then.

And it has traditionally worked the same way with venture capital firms that often end up controlling tech start-ups.

But since Facebook’s CEO owns 28% of its stock and 56% of its voting rights, he has significantly more leeway than the usual founder/CEO – and can make decisions on billion-dollar acquisitions in a weekend without even notifying the Board .

Even with that much control, though, he would not be able to initiate something like an IPO without pulling in everyone else – there’s far too much work to do and too many decisions to be made in the process.

The IPO Process, Part 1 – The Pitch

If not, the company itself will reach out to bankers and invite them in to pitch for the business.

This is when you, the banking analyst or associate, get to stay up all night crafting 100-page pitch books and hoping you’ve remembered to dot all your i’s and cross all your t’s.

Afterwards, the company selects banks for book runner roles and picks other banks to be co-managers . based on its relationships with them, their pitches, and what the banks have done for them in the past.

Other factors might include banks’ IPO track records and their reputation and relationships with institutional investors.

In the case of Facebook, at first people thought that Goldman Sachs would land the lead role because it helped arrange $1.5 billion of financing in 2011…

Most IPOs have at least 1-2 banks as book runners and then a few more as co-managers ; Facebook is unusual because it has 12 banks due to the size and prestige of the offering.

Part 2 – The Kick-Off Meeting

Everyone involved in the IPO – company management, auditors, accountants, the underwriting banks, and lawyers from all sides – attends this meeting.

You spend the day discussing the offering, the required registration forms, figure out who’s doing what, and determining the timing for the filing.

And then you have similar all-hands meetings like this throughout the rest of the process.

It’s actually quite boring for you as a junior banker attending these because you don’t participate too much – you’re mostly just there to take notes.

Ongoing Due Diligence

After that initial kick-off meeting, all the bankers, accountants, and lawyers involved need to do a lot of due diligence on the company to make sure that their registration statements are accurate.

Common tasks here include:

Customer Calls – This is probably the most interesting task, because sometimes you hear crazy / interesting things from customers that you’d never learn about otherwise.

Industry / Market Due Diligence – You’ll have to research the market, speak with experts, and figure out where it might be headed in the future.

Legal and IP Due Diligence – Lawyers handle most of this – it consists of reviewing contracts, registrations, and other documents. Aren’t you glad you don’t want to be a lawyer ?

Financial and Tax Due Diligence – Accountants do most of this and comb through historical financial statements, tax returns, and so on, and look for irregularities.

Facebook is an interesting example because “customer calls” apply in a different way from what you might expect – their “customers” are not individual users so much as the companies that advertise on the site.

So bankers here likely called the larger advertisers and also spent time talking to key partners such as Zynga.

They might ask questions like:

Are you planning to increase / decrease advertising spending?

What’s your relationship with the company been like so far?

What do you see as key risks going forward?

What other social networks do you advertise on, and what do you think of them?

Part 3 – The S-1 Filing

The end result of this entire process, which might take months, is the S-1 Registration Statement (names vary in other countries).

This is where all the juicy information comes out – historical financial statements, key data, who’s selling shares and how many they’re selling, the company overview, risk factors, and more.

When Facebook filed its own S-1. there were so many visitors that the government’s site actually crashed.

The company waits 30 calendar days for comments from the SEC (or equivalent organization in other countries), and the legal team responds to everything once they hear back.

Note that the company never lists projected financial statements in its S-1 – they might have projections internally, of course, but they’re not part of the registration statement.

Part 4 – Pre-Selling the Offering

Once the S-1 is filed and the team is working through revisions, the company can hold a pre-IPO analyst meeting where they educate bankers and analysts on the company and “teach” them how to sell it to investors.

It can also start speaking to investors and issue a “red herring” (preliminary prospectus), which bankers draft (similar to the S-1, but shorter and more focused on sales).

Companies are encouraged to wait until the SEC responds to the S-1 with comments before printing the red herring.

This document may omit the offering price, underwriting discounts / commissions, discounts / commissions to dealers, the amount of the proceeds, and so on – it’s just about selling the company’s story to investors.

Once this document is in place, pre-marketing starts and usually lasts around 2 weeks.

Research analysts meet with institutional investors 1 on 1 and tell them about the company, and sales teams at banks maintain close contact with investors and figure out what they think – do they like the sector? The company itself? What price will they pay?

Based on feedback from these meetings and their own internal valuations, banks set a price range for the offering.

With some companies this can be enlightening; with Facebook it was quite boring because the company had already been actively traded on secondary exchanges long before the IPO, so everyone knew what the rough price range would be.

Picking Investors to Market To

A bank doesn’t just pick the investors randomly – they select firms based on criteria like:

Brokerage Commissions – If you’re making tons of money from certain institutional investors, they’ll be high on the priority list.

Interest and Track Record – If the firm never does tech investments, for example, the bank may just skip showing them tech IPOs.

Potential Brokerage Fees – If a bank wants to win more business from institutions in the future it might show them a “hot” IPO as a favor.

The equity syndicate. sales, and road show management teams handle this process.

Amending the S-1 Filing

After all this pre-marketing work is done, banks amend the S-1 filing with a revised price range based on feedback from investors.

Sometimes there are dramatic shifts in the price range, but it’s more common to see small moves in one direction or the other.

Once again, since Facebook stock had already been actively traded long before the offering, this part of the process likely wasn’t as interesting for them.

Part 5 – The Roadshow

And now for the fun, exhausting part of the process: management gets to travel all over to meet with investors and market the company for 1-2 weeks.

Sometimes management teams make themselves very open and accessible and go out of their way to win over investors and answer questions.

Mark Zuckerberg took the exact opposite approach, mostly because he could afford to – he could show up to 0 meetings and investors would still be falling all over themselves to get shares.

For normal companies, though, this process is extremely important because orders are also taken at this time – investors can state how many shares they want and what price they’re willing to pay.

Management gets daily updates on what the orders are looking like, and the banks involved in the process all try to one-up each other by claiming that they won the biggest orders from investors.

During this time, bankers keep getting more and more feedback from investors and may further revise the price range – that’s why Facebook changed its own range from $28 – $34 to $34 – $38.

It’s a tricky balancing act because no one wants to leave money on the table – bankers want a higher share price so they can earn higher fees, shareholders who are selling obviously want a higher price, and the company wants as high a price as possible to maximize their cash proceeds.

But if the price range is set too high, bankers may have to revise it downward, which sends a negative signal to the market.

During this time, the company might also increase or decrease the number of shares it’s offering – but if it does that too much (in either direction) it may be taken as a negative sign because investors might think the company doesn’t know what it’s doing with the proceeds.

There’s been a lot of debate over both the size of Facebook’s offering (as a percentage of the company, small, but very high in absolute dollar terms) and the price .

Relatively few companies worldwide are actually worth more than $100 billion USD, sand many observers think that Facebook may be overvalued at its current price range and that growth could be flattening out.

Part of what makes Facebook’s valuation so uncertain is that its future business might be far different from what it looks like today – advertising revenue might not even be significant in 5-10 years and payments, mobile, or something else entirely might take over.

Part 6 – The Pricing Meeting

Once the roadshow is over and the order book is closed, the management team will meet with bankers and decide on the final price of the deal based on the orders received.

If a deal is over-subscribed, the company will price the company at the high end of the range and will do the opposite for under-subscribed deals.

Sometimes management will deliberately price the company at a lower price (leaving some money on the table) so the stock can trade up on the 1 st day of trading – always a positive indicator to the market.

Usually companies that tank after the 1st day of trading have a hard time recovering and getting back to their initial price.

Feedback was clearly very positive for Facebook, since it set its price at $38 – the high end of the range.

Once the deal is priced, the syndicate team of the banks will allocate shares to investors.

While banks try to allocate to investors who will be long-term holders of the stock, banks may be biased at times to reward investors that generate the highest brokerage commissions (e. g. hedge funds who are trade very actively).

The syndicate team usually works overnight to allocate the deal.

Once the deal is allocated and everyone has their shares, the stock starts trading and “the general public” can buy and sell shares.

So, How Much Do Banks Earn From All This?

IPO fees typically range from 3 – 7% depending on the size of the company, how well-known it is, and how much extra work and risk banks have to take on to sell it.

Yes, you read that correctly: for a $100 million offering, banks could potentially make $7 million (now you really understand why they make so much money ).

But for extremely large offerings the fee drops, and it drops even further when it’s “hot” and everyone wants to be involved.

So Facebook is only paying bankers a 1.1% fee on its offering, which will still equal $176 million when all is said and done.

For bankers, being involved in the largest tech IPO ever is worth far more than even a substantial increase in fees because they market themselves based on their track records.

Are the Fees Justified?

It depends on how much the bankers actually help.

For something like Facebook, the fees are less justified than normal – sure, the bankers help manage the process and do a lot of the grunt work, but who really needs convincing to buy Facebook stock?

The fees are more justifiable for smaller and lesser-known companies that require real selling – and when bankers actually help with addressing key investor concerns and winning more interest in the company.

Back in the day banks used to take on substantial risk themselves by buying the shares first and then re-selling them (“firm commitment”), which they used to justify higher fees.

But this is less common now, so there’s certainly downward pressure on fees.

Will You Be Buying FB Shares?

I’m staying away because great companies don’t necessarily make for great investments .

Also, IPOs have historically under-performed the market by 2-3% – not a great sign if you’re going by statistics.

Of course, by the time you read this the share price will probably have “popped” to a much higher number and I’ll look silly for not having invested.

But we’ll see where things stand after a month, 6 months, or a year.

And if you decide to invest, let us know how it goes and what price you get in (and out?) at.

For Further Reading:

Definite bubble brewing in the IPO brewery.

Congratulations to the whole team at Facebook but the company is a black swan, rare, beautiful and it may be gone if they can’t create actual products.

The US used to be known in the world for creating amazing products (Cadillac, Ford Mustang) but now things in the US seem more geared towards making a tech company this, tech company that – I don’t think Facebook as an investment will last.

Now if they make a phone on the other hand to tap into emerging markets and actually charge people, that could be something.

I think the economy has just shifted to services/knowledge so it’s not as common to create physical products anymore… their entire service is itself a product. Intangible assets are more valuable than tangible ones now. I think they may change their focus a lot in the next few years but would be shocked if they’re not around.

Now that we’ve had the FB IPO, we can see that the company and bankers didn’t leave much on the table. There was obviously a battle to keep it from closing below the offer price.

The collateral damage was seen with LNKD and ZNGA, which have nobody to support them at this point, plus now that it’s easier to own FB, there’s less of a reason to own the smaller players in the social space.

Yeah, very interesting to see what actually happened… I was somewhat surprised that it didn’t pop more even though I thought it was already overvalued.

Hi Brian, I just wanna ask you, how much is the spread for the investment bank on an IPO, say if it was just one bank running FB IPO. And how much of that spread translates to profit, like how much lawyers would charge, fees etc.

Lawyer fees might be in the low millions and they’re relatively fixed. For banker fees the profit margin is very high – maybe 50-60% because banks have few actual expenses, which is how they can afford to pay out high bonuses.

For IPOs it might be a bit lower than that due to the roadshow and so on, but it’s still a healthy margin.

“Of course, by the time you read this the share price will probably have “popped” to a much higher number and I’ll look silly for not having invested”

should be glad you didn’t..first day showed how exactly the bankers failed in pricing, and not only bankers, Nasdaq failed too, funny..

Yeah, all of that was pretty funny today. I was running around between meetings but saw glimpses in between. Pretty shocked that it traded the way it did.

Another fantastic post by M&I! I knew the basics about an IPO process but this post has definitely helped in consolidating my knowledge and in fact has further strengthened it (thanks to PWC, as well). I have always been thinking that the reason for FB going public is the 500 shareholder rule! Look forward to more such posts.

M&I - Nicole says

Thank you for your support!

“Back in the day banks used to take on substantial risk themselves by buying the shares first and then re-selling them (“firm commitment”), which they used to justify higher fees.”

So this means now with the allocation process, banks no longer buy IPOs first and sell it. It certainly reduce the risk of not being able to find enough investors. ¿Derecha?

So it seems to me that Ibanks don’t bear too much risk.

Yeah, occasionally it may happen these days but it’s less common than decades ago so banks are taking a lot less risk… in most cases. And even when they do buy shares first and sell them, there’s more liquidity in the markets now so there’s arguably still less risk.

Morgan Stanley made only a modest $67mm out of $176 mm. With FB’s terrible aftermarket performance, i bet the gain has been totally wiped out by the stabilization effort in the secondary market, if not worse. the biggest winner is, goldman…

Yeah, could be. I think MS will have a tough time winning another lead book runner spot in the near future for a tech IPO…

really interesting article. I wish u guys would give us more articles on current affairs such as FB and combine it with something like the IPO process. I think that would be a great concept for the future.

Thanks for your suggestion. I don’t like doing current events-type articles unless it’s something really big because they go out of date quickly and they get very little traffic in the future, but we may do a few more of these in the future.

I know, I have read that reply from you multiple times already (and it makes sense), I just thought combining it with something else like the IPO process makes it stay relevant for a longer time.

This is great! And a question –

So basically, investors (not bankers)will “choose” the IPO’s share price? They will each keep suggesting a price and an average will be taken?

Do bankers give them a range of where the share price should be? And if so, how was that price range calculated?

M&I - Nicole says

No, investors will indicate a price that they’re willing to invest in. Bankers will then give the feedback back to the issuer. Bankers and issuer will then decide on a price that meets both the company’s needs and investors’ demanda. There’s an art to this.

Yes bankers usually come up with a range based on feedback from investors. They will then revert range to issuers and set up a price range meeting. Once the price range is determined, they will market to investors and seek feedback. Depending on demand and how deal is structured, etc, price range may change. Otherwise, issuers and bankers will usually decide on a price after the pricing meeting.

'Candy Crush Saga' maker King files for IPO

The creator of the hit mobile game Candy Crush Saga has filed papers to become a publicly traded company.

Game company King. com filed its F-1 form with the Securities and Exchange Commission on Tuesday for an initial public offering. The company plans to trade on the New York Stock Exchange under the ticker symbol "KING." The company did not disclose the stock's IPO price. Banks J. P. Morgan, Credit Suisse Securities and BofA Merrill Lynch will lead the offering.

Candy Crush, no. 1 downloaded Apple app of the year.

Candy Crush, no. 1 downloaded Apple app of the year. Menos

The company, founded in Stockholm in 2002, will attempt to raise as much as $500 million for the IPO.

According to its IPO filing. King boasted an average of 128 million daily active users last month who played their games more than 1.2 billion times a day. The smash hit Candy Crush Saga . which first launched on Facebook before surging in popularity on mobile devices, makes up a significant portion of those numbers. The game has 93 million daily active users who played 1 billion times a day.

However, that one game has proven to be highly lucrative for King. According to financial information shared in its IPO filing, the company pulled in $568 million in profit off of $1.9 billion in total revenue last year. In 2012, the year Candy Crush Saga was introduced, King generated $164 million in revenue and $7.8 million in profit.

"We believe we have a repeatable and scalable game-development process that is unparalleled in our industry," said King in its filing.

"We've tried to change the market — not follow it," King CEO Riccardo Zacconi told USA TODAY in an exclusive interview in London in September.

Gartner analyst Brian Blau says the most important issue facing King is convincing investors it can continue growing without leaning on Candy Crush Saga . which has generated the bulk of its revenue.

"While Candy Crush has been a huge success, and that's great for the company, the big question is, can they do that again, or can they use it to propel themselves into a spot to have other successes?" él dice.

King will need to convince investors their company is more than just one game, that it's part of a broader foundation for attracting a wide mobile audience, says Forrester analyst Julie Ask. "This is a company that has learned how to monetize mobile moments," she says.

Analysts cautiously point to Zynga. It went public in December 2011, riding high on hit products such as FarmVille and CityVille . But its IPO landed with a thud, amid concerns about its overreliance on Facebook, dimming growth prospects and outsize control by then-CEO Mark Pincus. Soon, the products weren't hits, either.

King isn't a one-crush pony, however. Three of its games rank among the top 10 on Facebook. "They are simply good at what they do," says Sean Ryan, Facebook's director of games partnership worldwide.

King's IPO filing is the latest in a string of high-profile public tech offerings. Last November, social network Twitter began trading on the New York Stock Exchange at $26 a share. Its stock closed at $58.18 on Tuesday.

As with many social-media stocks such as Twitter and Facebook, King's mobile growth will likely be a key figure watched by investors. King says during the fourth quarter of 2013, 73% of the revenue paid by users for virtual items for skill tournaments came from mobile.

"They've cracked the code with how to get consumers to engage with them daily," says Ask.

Contributing: Associated Press

Follow Brett Molina on Twitter: @bam923 .

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08 de septiembre de 2014

Put your books away, class. Time for a pop quiz:

Can you define a corporate change of control?

In what ways can equity awards be handled in a corporate merger, acquisition, divestiture, or spinoff?

How can a pre-IPO company create liquidity for its stock other than being acquired?

Why do some privately held companies grant early-exercise stock options?

How soon after an IPO can you sell company shares?

What is a lockup, and how do the lockup requirements differ from those under Rule 144?

The current back-to-school climate makes this an appropriate time to announce two new quizzes at myStockOptions. com. Bringing our total number of quizzes to a dozen, the recent additions test your knowledge of equity compensation issues in M&A transactions and pre-IPO companies .

Our quizzes are free to all users of our website (companies can license and customize them for their stock plan participants). All 12 are available by links from our home page, and each quiz also appears on the landing page the relevant content section. The answer key of each quiz has links to relevant articles and/or FAQs, making the quizzes not just gateways to our award-winning content but also helpful learning tools in themselves—and much more fun than homework.

Our short quizzes are separate from our Learning Center. which has in-depth courses and exams offering continuing education credits for Certified Equity Professionals (CEPs) and Certified Financial Planners (CFP). Our quizzes are also part of our growing body of interactive and multimedia content, which includes podcasts and videos .

03 June 2014

At myStockOptions. com, our array of award-winning articles on all aspects of equity compensation has grown. In recent weeks, we have welcomed new contributions from expert authors on three crucial topics.

Importance Of Diversification For Employees With Equity Awards And Company Stock

Through its author's personal example, a new article at myStockOptions. com presents the dangers of a concentrated stock position, discusses why diversification may be hard for employees with shares from equity compensation, and explores strategies for preserving your net worth. In Your Company Stock: The Importance Of Diversification . CFP Laura Tanner recounts her experience with stock compensation at a company where she used to work as a research scientist, and she explains the lessons she learned.

To read the article and find more insights into investment diversification for employees with stock options, restricted stock/RSUs, or ESPPs, see our section Financial Planning: Diversification .

Careful Planning For Pre-IPO Equity Comp When The Company Goes Public

Initial public offerings (IPOs) are on the rise. The high-profile IPOs of Facebook and Twitter are just two of many IPOs that have been launched over the past couple of years, including several in Silicon Valley. In the newest installment of our Stockbrokers' Secrets series, our pseudonymous financial advisor W. E.B. Bantling provides a pep talk about smart planning for pre-IPO stock options, restricted stock, or RSUs when the company goes public. At the time of the IPO, when the company finally pours long-awaited liquidity into those grants, planning considerations must be carefully weighed.

In the author's experience, clients at companies preparing for an IPO are often giddy with thoughts of the wealth and opportunities it will provide. Many of them have worked at these companies since the startup stage, and the IPO represents a long-awaited event that may be life-altering for both their company and them. However, the author always emphasizes five planning points that may help to manage employee expectations in an IPO situation. He shares some of this wisdom in the new article, Stockbrokers' Secrets: Financial Planning For Equity Compensation At IPO Companies . available in our section Pre-IPO: Going Public .

International Equity Awards And Company Stock: Tricky Rules Of IRS Reporting For Assets And Income In Foreign Financial Accounts

United States citizens and resident aliens are taxable on their worldwide income. The related IRS reporting rules are complicated, and mistakes can lead to costly penalties. In fact, the IRS has launched an aggressive initiative to identify taxpayers with unreported foreign income and/or assets in foreign financial institutions. Charges of tax evasion stemming from unreported foreign income have been brought against dozens of individual taxpayers, including bankers, lawyers, and advisors.

In a new article at myStockOptions. com, compensation and tax expert Richard Friedman presents the rules and related issues of IRS reporting for assets and income that an international US taxpayer may hold in a foreign financial account—including those acquired through stock options, restricted stock, RSUs, or other equity awards. The article, International Equity Awards And Company Stock: The Confusing World Of IRS Reporting For Overseas Assets And Income . is available in our section Financial Planning: High Net Worth .

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22 October 2013

When a high-profile company prepares for an initial public offering (IPO), its SEC filings provide an opportunity to analyze the company's stock compensation practices. The IPO of Twitter — about as high-profile as you can get—is expected to occur by mid-November. Twitter's Form S-1 (Amendment No. 1. filed on Oct. 15, 2013) discloses its extensive use of restricted stock units over stock options (see the table on page 88). Apart from awarding stock options to its senior executives (see page 128) and using options in relation to acquisitions (see pages 136–138), Twitter seems to exclusively grant RSUs.

RSU Grants At Twitter

Under Twitter's 2007 equity incentive plan. RSUs granted to domestic employees before Feb. 2013, and all RSUs granted to international employees (the pre-2013 RSUs), vest upon the satisfaction of both a time-based service condition (mainly four years) and what Twitter considers a "performance condition," which is actually more like a vesting condition based on a liquidity event for the company. The performance condition is satisfied on the earlier of either (1) the date that is ( a ) six months after the effective date of this offering or ( b ) Mar. 8 of the calendar year after the effective date of the offering (which the company may elect to accelerate to Feb. 15), whichever comes first; and (2) the date of a change in control. (Details about the company's prior RSU grants appear in a letter Twitter submitted to the SEC in September 2011 to request a Section 12(g) exemption from registering its RSU plan under the Securities Act of 1934.)

While the vesting of these RSUs will cause dilution (see page 47), the amount of dilution will be is much less than it would have been with stock options. (Grants of options have to be much larger to deliver the same compensation grant-date value as RSUs.) The vesting of the post-2013 RSUs is not subject to a performance condition. Instead, the grants have just the standard time-based vesting over a period of four years (see page 86). For future grants after the IPO, Twitter is adopting a stock plan for 2013 that will be effective on the business day immediately before the effective date of the registration statement; it will then no longer make grants under its 2007 plan (see pages 130–132). Twitter is also planning to roll out an ESPP with appealing features (see pages 133–134).

Earnings Charge For Stock Grants

As of Sept. 30, 2013, no stock-based compensation expense had been recognized for the pre-2013 RSUs because a qualifying event meeting the performance condition was not probable (i. e. the grants had not fully vested). In the quarter during which the offering is completed, Twitter will begin recording a stock-based compensation expense based on the grant-date fair value of the pre-2013 RSUs. If this offering had been completed on September 30, 2013, the company would have recorded $385.2 million of cumulative stock-based compensation expense related to the pre-2013 RSUs on that date; and an additional $199.6 million of unrecognized stock-based compensation expense related to the pre-2013 RSUs would have been recognized over a weighted-average period of about three years. In addition to the stock-based compensation expense associated with the pre-2013 RSUs, as of Sept. 30, 2013, the company had an unrecognized stock-based compensation expense of approximately $698.3 million related to other outstanding equity awards (see pages 24 and 86–87).

See myStockOptions. com for additional information on restricted stock units. pre-IPO stock grants, and the rules on the timing of employee stock sales after the IPO.

14 August 2012

Earlier this year, we blogged about the potential stock comp wealth (and related tax issues ) that seemed certain to blossom for Facebook employees amid the company's much-hyped initial public offering in May. Time and the market have popped these balloons of expectation. Although investors were predicted to "like" Facebook stock in huge numbers, skepticism about the company's valuation and prospects has prompted significant investor flight over the past few weeks. The surprising plunge in the stock price has created unexpected difficulties for the company's equity compensation.

Angst among Facebook employees about their equity awards has been widely reported (e. g. by Reuters and Business Insider ). While the expiration date of the lockup on most employee shares (almost 50% of total shares outstanding) is still fairly far off (Nov. 14), Reuters notes that some employees are already adjusting their expectations because of the poor post-IPO performance. Many now plan to sell a smaller portion of their stake in the company than they otherwise would have if the stock price had risen or even just stayed flat. "I will definitely take some," said an employee anonymously quoted in the news report. "But my debate is how much." The article in Business Insider wonders whether Facebook may develop problems with employee retention, at least in the short term.

Additionally, Facebook needs to raise cash for the taxes ($2.5–4 billion) incurred by its share withholding at RSU vesting, and it has been planning to sell shares to cover this. Because of the fallen stock price, financing that tax bill will now be more difficult than expected.

Facebook employees who joined the company during the past 18 months (perhaps half its workforce) were granted restricted stock units (RSUs). This is fortunate for them. Unless the underlying stock price drops to zero, RSUs always have some value. Stock options, by contrast, would be well underwater. as the exercise price would reflect the pre-IPO stock valuation—much higher than the current depressed price. Before the IPO, various option-valuation models gave Facebook stock a worth of $24.10 during the first quarter of 2011 and around $31 in the first quarter of 2012. Now that the stock price is below these thresholds, the golden handcuff would have lost its lure for restless employees.

In this blog we have also discussed Zynga's pre-IPO demand for nonproductive employees to give back large unvested stock grants. Bloomberg has revealed that Zynga is now broadly granting stock options to retain staff after a fall in the company's stock price. Like Facebook, Zynga had previously granted mostly RSUs. The reasoning behind the switch seems clear. Stock options have much more upside than restricted stock. In short, you get more options per grant, and the fixed purchase (exercise) price provides investment leverage. As a result, options have the power to generate much greater wealth from stock-price appreciation than restricted stock/RSUs do. This, in turn, may help to keep employees at the company.

If Facebook believes its stock is unreasonably depressed, we wonder whether it too will start proffering the golden carrot of stock options to motivate and retain employees. This move could also signal some much-needed optimism about Facebook stock. If or when the stock price does rise, these options would be much more valuable and attractive than RSU grants.

25 May 2012

It's been one week since Facebook's initial public offering. Last month. this blog provided various insights into the company's stock grants and the related tax issues for Facebook employees.

As we mentioned then, and as Facebook's registration statement (page 48) explains, the restricted stock units granted by the company before 2011 will not pay out and fully vest until six months after the IPO. They face two vesting hurdles: time worked at company and a liquidity event (i. e. the IPO). We have seen these types of vesting requirements in grants made by some other pre-IPO companies, such as Twitter (see an FAQ at myStockOptions. com).

Facebook continues to rely on the broad use of RSU grants, though these will vest in the standard time-based way. In the 6th amendment to its S-1 registration statement. the company disclosed that in early May it awarded more than 25 million RSUs in what it termed "employee refresher grants" (see page 78 of the S-1 and an article at the blog TechCrunch ).

Now for the million-dollar question (literally). How much wealth has the IPO created for employees at Facebook? How many are now millionaires? According to Aaron Boyd, Director of Research at the compensation research firm Equilar. at the time of the IPO the average paper value of equity per employee was $4.9 million (excluding CEO Mark Zuckerberg's vast holdings). Equilar used the information in the prospectus for the most recently completed quarter for the number of options and restricted stock outstanding as of March 31, 2012, and calculated the values with the IPO price. In an article on May 21, The Washington Post reported that 600 of Facebook's 3,700 employees and 250 former employees will become millionaires, according to PrivCo, a research firm.

The wealth created for senior executives will be much greater. An insider of a company registering stock for the first time under Section 12 of the Securities Exchange Act must file Form 3 under the SEC's Section 16 rules no later than the effective date of the registration statement. It's worth looking at the data in these fillings by Facebook insiders for the stock grants and outright stock holdings and how they are reported with the SEC on Form 3.

For example, the Form 3 for CFO David Ebersman shows he holds 1.2 million RSUs that vest quarterly between early 2012 and early 2019, along with options to buy 4.5 million shares at $3.23 per share. These began vesting in 2010, starting with a fifth of the grant, followed by monthly tranches that will bring the grant to full vesting by 2015. In a footnote, the Form 3 also discloses that the RSUs he holds in which vesting is based on both continued service and liquidity (additional 6.75 million RSUs) are not considered reportable under SEC rules. The Form 3 for COO Sheryl Sandberg also contains new details on her options and RSU grants, such as the vesting provisions. Mark Zuckerberg's Form 3 discloses his stock options, along with the company stock he owns through various trusts (an estate-planning technique to minimize taxes).

When these executives and other senior executives at Facebook get more stock grants or sell company stock, they will have to make filings on Form 4. In addition, sales will also need to follow the SEC's Rule 144 requirements. These will be worth following, as they may reveal some information about individual financial planning, such as whether sales are made under Rule 10b5-1 trading plans. along with showing any changes in Facebook's stock compensation practices after the IPO .

[For more on Facebook stock compensation, see our blog entry of October 29 about the end of the lockup.]

23 April 2012

With Facebook planning to go public next month, its S-1 registration statement is worth perusing for details about its stock plans and some of the tax issues the company and its employees face (other than the obvious fact that they will be very rich and can thus afford the best tax and financial advisors !).

Below are a few of the tidbits that can be gleaned from the SEC filing to go public.

Switch To RSUs; Tax Bill Due

Facebook initially granted stock options to employees during its early days but switched almost entirely to restricted stock units in 2007. RSUs granted by Facebook before January 1, 2011, vest after two conditions: a specified length of employment at the company plus a liquidity event such as an IPO (see page 48). Grants made after that date do not have this liquidity condition, as they vest over four or five years (see page 60). We have been seeing this two-part vesting grant structure at other large pre-IPO companies.

Vesting will occur six months after Facebook's IPO. At that time, employees will owe taxes on the income from these pre-IPO RSUs at ordinary income rates. (In comparison, employees who had stock options before the move to RSUs will see most of the stock's appreciation taxed at capital gains rates, assuming they exercised them more than one year ago.) The company expects that many of its employees with RSUs will see 45% of the value of their shares withheld for taxes (see page 56).

Facebook intends to net-settle the shares at vesting, instead of leaving employees to sell shares for the taxes they owe. To come up with the cash needed to meet its withholding obligations and remit the funds to the IRS, the company plans to sell stock near the settlement date in an amount that is roughly equivalent to the number of shares of common stock that it withholds for taxes (see page 21).

Stock Option Grant Held By Mark Zuckerberg

In 2005 Mark Zuckerberg, the CEO and founder of Facebook, received nonqualified stock options to acquire 120 million shares of Facebook class B (voting) stock (see page 113). These have all vested, and the option term is scheduled to expire on November 7, 2015. With the exercise price of 6 cents per share and Facebook's valuation of over $100 billion, he will owe a giant amount of taxes at exercise. Some of the tax issues he faces are covered in The Federal Taxation Developments Blog .

Company's Tax Deduction & Earnings Charge

The company's tax deduction for the income realized by employees, from both RSU vesting and NQSO exercise, could generate a tax refund of up to $500 million in the first six months of 2013 (see page 63). This attracted attention when Senator Carl Levin again proposed his bill to limit the corporate tax deduction for stock compensation. According to an article on this in The Washington Post . some analysts calculate that the tax savings from stock compensation at Facebook could be much higher than the figures mentioned in the company's registration statement. (Estimates run up to $7.5 billion in deductions, translating into $3 billion in federal and state tax savings.)

According to Amendment 4 of Facebook's S-1 registration statement, as of March 31, 2012, Facebook had $2.381 billion in unrecognized stock compensation expenses on its income statement, with $2.319 billion for RSUs and $62 million for restricted stock and options (see page 53 of Amendment 4). For pre-2011 RSUs that met the first vesting trigger of a service condition on or before March 31, 2012, Facebook will recognize a $965 million expense when it goes public at the start of the IPO (see page 53), though net of income taxes this amount will be $640 million (see page 37 in Amendment 4).

Would Stock Options Have Been Better?

The move to granting restricted stock units instead of stock options may have been better for the company for many reasons, including the prospect of minimizing share dilution, along with the relief of having fewer post-IPO multi-millionaire employees to retain and motivate (well, fewer with gains of $10–$100 million, anyway). Depending on the size of the RSU grants relative to previously made stock options grants at Facebook, a basic calculation shows that, given the stock-price appreciation, employees with RSUs would be sitting on much larger gains if they had received stock options.

Example: Regardless of whether employees exercise options earlier or later after the IPO, the following example shows the potential magnitude of their gains from receiving stock options instead of restricted stock (pre - and post-tax calculations are easy to do with the tools on myStockOptions. com ). For this example, let's use the exercise price of 6 cents for the options Mr. Zuckerberg received in 2005 (other employees would have received grants at same price at that time, assuming these were not discounted stock options). Let's assume Facebook granted four times as many stock options as RSUs (the actual ratio may have been much greater). With the current value of Facebook stock at $30.89 (see page 77 of Amendment 4 ), the following shows the pre-tax gains: Current gains/spread for grant of 400,000 stock options made in 2005 ($0.06 exercise price): $12.332 million (400,000 x [$30.89 – $0.06]) Grant of 100,000 RSUs: $3.089 million

The blog Inside Facebook also wonders whether Facebook employees would have been better off with options, at least from a tax perspective. While employees would have had the opportunity to exercise shares earlier, when the spread was small, and to start the capital gains holding period sooner, they would also have had to come up with cash to hold the stock while risking the possibility that a liquidity event did not occur.

Given the big tax bills that employees at Facebook will incur, along with the much larger upside they would have realized if they had received stock options instead of RSUs, we wonder whether other pre-IPO companies will rethink whether to grant stock options again. Some private companies use a special type of stock option grant that allows immediate exercise. after which the stock received is subject to vesting. One reason for granting this type of option is to let employees start the capital gains holding period earlier and to allow them to decide when they want to pay the taxes (i. e. early if the options are granted with little or no spread. or later if employees are certain the stock will eventually have real value).

[For more on Facebook stock compensation, see our blog entry of October 29 about the end of the lockup.]

As the online-games company Zynga approaches its initial public offering, it has garnered attention for reasons far removed from the innocent fun of FarmVille and Mafia Wars 2. When the headline Zynga Leans On Some Workers To Surrender Pre-IPO Shares appeared in The Wall Street Journal on Nov. 10, observers across the worlds of compensation and pre-IPO business sat up and took notice. Allegedly, Zynga is demanding that certain unproductive employees with large early-stage stock grants give back some of their unvested grants. If they don't return these grants, they will be fired.

The WSJ article does not make it clear why the company is taking this hard-line approach. Its share pool for grants may need replenishment to make new grants to more skilled employees. However, the article seems to imply another reason: the company may find it unfair that certain employees should greatly profit from the upcoming IPO merely because they started working there before better-performing employees were hired.

Avoiding the temptation to criticize Zynga's move, some observers have proposed the consoling idea that through the giveback Zynga is actually making an effort to keep some employees it otherwise might have fired. This was the view put forth by Dan Primack of CNN Money on Nov. 10. He finds it reasonable that Zynga is willing to give these employees another chance, perhaps in another position, as long as they give back some of their unvested stock.

However, much of the reaction to Zynga's move has been grumpy. The reasons become clear when you read some of the internet comment forums frequented by tech employees with experience in the startup arena. See, for example, the remarks at HackerNews in response to the WSJ report. As one commenter points out, "getting a chance of a huge upside is one of the reasons employees take lower salaries and work longer hours at startups in the first place. A company that abused its bargaining position like this should not expect to be able to hire good employees in the future."

Zynga's move underscores the risks that many employees joining startup companies may not consider or fully understand, whether they receive stock options, restricted stock, or outright grants of pre-IPO shares. The risk of company failure at a startup is obvious enough. Less well understood, however, may be the problems of share dilution and the demands of cash investors (preferred shareholders) who want most of the sale proceeds in an acquisition. A recent informal employee survey that we found at another blog indicates some of these issues in pre-IPO companies, and shows that employees often don't know enough about them.

In the Pre-IPO section of myStockOptions. com, articles and FAQs cover some of the risks with suggestions on how to handle them. The steps employees can take with their equity grants depend on their leverage and what the company is willing to negotiate. Whatever the case, they should set foot in the pre-IPO employment world with a realistic understanding of the risks as well as the potential upside.

23 August 2011

As fast-growing young companies such as Facebook, Groupon, and Zynga prepare to follow their peer LinkedIn down the road of an initial public offering (IPO), we at myStockOptions. com expect lots of questions in the coming months about post-IPO stock sales. In particular, shareholding employees often want to know how soon after the IPO they can sell their company stock, given SEC rules and contractual restrictions.

The answer depends on:

the registration exemption the company used to issue the pre-IPO company options or restricted stock

whether a form S-8 registration statement is now filed with the SEC for the stock-plan shares

the terms of the lockup period

If the company went public without filing an S-8 registration form for the shares under the stock plan, employees will have to adhere to the waiting period and other requirements for resales under Rule 701. This federal securities-law registration exemption, used for stock plans in privately held companies, allows post-IPO resales without the need to follow certain requirements of Rule 144. such as the holding period.

Therefore, 90 days after the date when the company becomes subject to the ongoing SEC reporting requirements, usually the public offering date, employees can sell their shares. Almost all companies try to fit their pre-IPO option and stock grants into Rule 701. Otherwise, the company would need to make a rescission offer, as Google did before its IPO. (See its SEC filing amendment and later SEC settlement, which explain what happened.) If there is no lockup or if the shareholder is no longer an employee, the holding period rules can be different under Rule 144.

In addition, even when the company registers the stock-plan shares on Form S-8, employees must hold shares for the duration of any contractual lockup agreement with the underwriters. Regardless of when the company went public, your sales will also be limited by company policy for preventing insider trading .

Finally, people considered affiliates of the company for the purposes of securities laws will be generally required to sell shares in accordance with the volume restrictions and notice requirements of SEC Rule 144.

As even this brief explanation showed, stock compensation issues surrounding an IPO can be complex. A full suite of clearly written articles and FAQs on these topics, see the section Pre-IPO at myStockOptions. com.

08 September 2010

However, some questions really do come up repeatedly. One of these recurring inquiries prompted an FAQ we published just today: Do I need to sell my shares at the vesting of restricted stock, RSUs, or performance shares?

En resumen, no. The vesting of restricted stock, RSUs, or performance shares is separate from the sale of the shares. Whether you sell the shares at vesting depends on various factors, some of which you can control:

Methods of tax withholding available to you through your company's stock plan, or any mandatory share surrender. The shares can be a source of the proceeds needed to pay the taxes.

Tax planning. Whether you hold the shares and for how long will affect your capital gains tax at sale. Any holding period after vesting does not affect the amount of income tax due for the value of the shares at vesting.

Your needs for the cash proceeds and other financial-planning goals. such as diversification, dividends paid on your stock, and alternative investments.

Whether your company is publicly traded or privately held. In a privately held company, you will not be able to sell the shares immediately at vesting because of restrictions that are likely to exist in your grant and/or because of the SEC rules on resales .

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Biggest ever Alibaba IPO to raise $20.1B

The Chinese Internet company Alibaba disclosed terms of its massive upcoming IPO, putting the wheels in motion for it to launch its “roadshow” next week and woo investors in a deal expected to start trading Sept. 19 or shortly thereafter.

After much anticipation, Alibaba Friday filed with the Securities and Exchange Commission its prospectus giving investors the first look at the company’s valuation and expected price range for its shares.

According to the documents, Alibaba is expected to raise more than $20 billion making it the biggest U. S. ever, says Renaissance Capital, the IPO exchange-traded fund manager.

This is just the first in what will be a number of steps before the stock actually starts to trade. Now that the initial deal terms are set, it usually takes two to three weeks afterwards for trading to begin, which would put the launch of trading as early as Sept. 19 but as late as the week of Sept. 22, Renaissance says.

The initial price range of the shares will be set between $60 and $66 a share, according to the filing. Including stock sold by insiders, Alibaba is to sell 320.1 million shares. That means $20.1 billion will be raised from the offering. The company itself is selling 123 million shares. The initial price range of an IPO can be adjusted higher or lower as market conditions change and investment bankers have an opportunity to measure investor interest.

The company says it will have roughly 2.5 billion shares outstanding following the IPO, including shares issued in connection to options and restricted stock units. That means the company would have roughly a $160 billion valuation at the midpoint of the IPO offering range. At that valuation, the company would be the 24th most valuable company in the Standard & Poor’s 500, just behind Bank of America at $161 billion and ahead of Amazon. com at $159 billion.

Big insiders and investors will also be selling in the deal. Struggling online portal Yahoo (YHOO). which was an early investor in Alibaba, plans to sell 121 million of its 524 million shares in the deal. That would raise $7.6 billion for the company, a tidal-sized cash infusion for the company which has $2.7 billion in cash and equivalents. The value of Yahoo’s 524 million Alibaba shares is $33 billion, which is 84% of Yahoo’s total market value of $39 billion.

But in what appears to be somewhat of a vote of confidence in Alibaba’s future, the biggest outside investor, Japan’s SoftBank is not planning to sell any of its 797.7 million shares in the IPO. SoftBank owns roughly a third of Alibaba.

The road show is the series of meetings between the company and prospective investors. Company management meets with large institutions — such as pension funds and mutual funds — to go over the company’s financials, prospects and opportunities. Alibaba’s massive global roadshow — spanning North America, Asia and Europe — is pivotal since the company is poorly understood outside of Asia, says Max Wolff, chief economist at Manhattan Venture Partners. “Alibaba is a behemoth in China but is relatively less well known in the U. S.,” él dice.

Alibaba is a Chinese-based Internet business that operates everything from behind-the-scenes, business-to-business e-commerce capabilities to retail services. Few if any U. S. consumers interact with the service personally, so professionals don’t expect the same level of interest in this deal as was seen in the IPOs of Facebook and Twitter.

But the sheer size of the offering makes it impossible for the professional investors to ignore. If Alibaba raises north of $20 billion, that would make it the largest U. S. IPO in history, topping the $17.9 billion raised from the IPO of payment processing company Visa in March 2008, Renaissance says.

The exact timing on the roadshow and the pricing of the deal remains fluid. Sam Hamadeh at private company tracking firm Privco expects the roadshow to start Sunday, which is Monday in Asia. The roadshow will happen on three continents, Europe, North America and Asia, at the same time, he says.

The roadshow’s first stop will be Hong Kong on Monday morning, Hamadeh expects, then moving to Singapore. Next up will be Europe, where Alibaba will meet with investors in the afternoon of the 9th, Hamadeh says. CEO and founder Jack Ma will personally meet with the largest European investors since they are expected to be pivotal to the success of the deal, Hamadeh says.

Finally, Alibaba’s management team will head to New York for a lunchtime meeting on Sept. 10, Hamadeh says. Due to the expected high level of interest, smaller investors will be asked to go to the roadshows scheduled after the New York meeting in Boston, Philadelphia or Baltimore, Hamadeh says. These cities are home of many of the giant U. S. mutual funds.

On Thursday, the show moves to the Midwest, Kansas City, and then Denver on Thursday. Finally the road show moves to Silicon Valley with breakfast and lunch meetings scheduled there, Hamadeh says.

But again, such IPO timetables can be very loose and subject to change. Investors need to be flexible until the deal nears and more concrete information is known.

Alibaba’s management will need to use the roadshow to better educate investors outside of Asia. “This is a a somewhat opaque company that is very large, not well known, complicated and Chinese. So you have to do a lot of messaging and education to get everyone ready,” Wolff says.

Below are the five largest U. S. IPOs in terms of dollars raised:

Source: Renaissance Capital via Microsoft Excel

The Etsy IPO Explained

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Etsy sent out an email to all sellers on Wednesday stating that the company is going public. The Etsy Initial Public Offering (IPO) could take place as early as April, but we won’t know in advance the exact date or share price.

I thought I’d take a look at what an IPO really is, how it works, and what might be motivating Etsy to go public. I’m always interested in the “why” behind these things.

An IPO is an indicator that a company is ready to grow and needs a lot of money to do so. It’s often the only way that a company can fund a huge expansion. Etsy is hoping to raise $100 million in the IPO.

Let’s look at how Etsy has been funded up until now. Since its founding in 2005 Etsy has been a private company. Private companies have just a few shareholders. Right now Etsy has 312. These shareholders help fund Etsy’s operations and in exchange have voting rights. The main shareholders now are four venture capital firms:

Accel Partners controls 27% of Etsy

Index Ventures controls 12.8%

Tiger Global Management controls 7.3%

Union Square Ventures controls 15.2%

Venture capital firms and individuals invest in a private company like Etsy because they are hoping that the company will grow, go public, and eventually they’ll be able to sell their shares and make a large profit. They offer their guidance and expertise along the way.

Now, Etsy is ready to expand. To do so they need to raise money. One way to do that is to borrow it. Another is to bring on more investors. A third way is to go public.

When you go public you sell off tiny shares of the company to the general public. In order for shareholders to have a say in the company’s management they would need to buy as many or more shares than the company’s management and largest investors. This typically means owning at least 5%-10% of the company’s stock. So people don’t tend to invest in public companies solely or primarily to influence their management or change their way of doing business. People buy shares in a public company for the same reasons investors invest in any company – they believe that the company will become more profitable at some point in the future at which point they could sell their shares and make money.

A few months after the IPO the venture capitalists will be able to sell their shares to the public and realize (meaning make money from) their original investment in Etsy. In all likelihood they will make an enormous profit on these sales.

Once a company goes public they are held to strict rules and regulations. They have to have a board of directors, for example, and they have to submit detailed quarterly financial reporting to the public. They also have to have their financial results and operational procedures audited and certified by a major public accounting firm. These audited financial statements are in turn made public and have a lot of detailed information about the company, but can be challenging to understand if you don’t have an accounting background.

Once the company is public they’ll be better able to raise capital for future growth and to repay debt by issuing more stock.

It’s also easier for public companies to buy other companies, public or private, because they can offer stock as part of the deal. Etsy has bought four companies over the past few years:

in 2012 they bought Trunkt for $200,000

in 2013 they bought Lascaux (an iOS app) for $750,000

in 2014 they bought Jarvis Labs for $3.2 million

also in 2014 they bought Incubart (which owned the French online marketplace A Little Market) for $30.8 million

If Etsy wants to buy more companies in the future it will be easier to pull together a deal because they’ll be able to use their publicly traded stock as currency to exchange for control of the companies.

The increased reporting and financial scrutiny that is required of a public company can also allow them to get better interest rates if they need to borrow money in the future.

A final advantage of going public is the ability to attract top talent to work for you. Being public means you can offer stock ownership to your employees through stock options that they can sell in the public markets. Right now Etsy’s employees own private stock and options to acquire private stock, but have very limited ability to turn it into cash.

Taking a company public is a long and involved process.

The company works with several investment banks who help assess the value of the company and handle the sale of the first stock offered. In Etsy’s case they’re working with Goldman Sachs, Morgan Stanley, and Allen & Empresa. Once the shares sell the banks keep a portion of the proceeds as their fee.

The banks look over the financials and help Etsy put together a prospectus that they file with the Securities and Exchange Commission (SEC). Etsy filed their initial prospectus on Wednesday. In the prospectus Etsy explains it’s strengths and weaknesses. They also file a registration statement indicating their plans to go public. As the IPO gets closer, these filings will be updated and additional details disclosed as they are finalized or at the direction of the SEC.

Now it’s the banks’ job to find some big investors. The banks go on what’s called a “road show” traveling all over the country talking with potential investors and trying to convince them that they should invest in Etsy. These investors are typically institutional investors such as mutual fund managers and hedge funds. Occasionally very wealthy private investors are invited to the presentations as well. During the road show Etsy goes into a “quiet period” in which they can’t comment on anything related to the IPO just in case they say something that affects the stock price. If they break this rule there can be enormous fines and criminal penalties.

There are significant legal fees, accounting fees, and marketing costs involved in going public that often add up to millions of dollars. It’s also incredibly time-consuming for the top management, taking about a year to complete in total.

Public companies have to disclose detailed information that competitors might use to their advantage. For example, we now know that “seller services” (promoted listings, direct checkout, and shipping labels) is Etsy’s fastest growing revenue source, growing from $43 million in 2013 to $83 million in 2014.

How will being a public company affect Etsy’s behavior? I think this is the key question for those of us who sell on Etsy now. Reading the Etsy forums and looking at responses to the announcement on Facebook people are really worried that shareholders won’t care about values, they’ll only care about profits which means Etsy will be overtaken by resellers, or that we’ll start seeing pop-up ads or other aggressive marketing tactics used to try to increase profitability

While it’s impossible to predict how Etsy might change once it’s public, there’s no reason to think that the business model will shift fundamentally. In fact Etsy’s shareholders will be eager to see them sustain their current business and business model which has been so successful. If they want to buy shares in a company that is a platform for resellers they can buy shares in Alibaba.

But that said, going public makes a company’s management focus on the share price and on their quarterly financial reports to the shareholders and the public in a way that a private company doesn’t. This can be distracting and in some circumstances leads companies to make huge mistakes and bad decisions.

There’s no way to know exactly how Etsy will look a year after the IPO, or three years out, but at least we can get a better understanding of what’s going to happen over the next few months. Etsy has always had investors. Soon it will have exponentially more.

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HOW TO BUY ALIBABA STOCK

3/18/2016 Update: Alibaba stock closed Friday’s trading at $76.25 which was about a $2 rise from last week. The stock market did well overall this week as did most stocks and bad news about the Chinese economy took second stage to news about the US elections and the Apple/FBI court battle. Even though Alibaba announced good earnings last month, investors may still not be convinced that the deteriorating Chinese economy will not slow down future growth.

2015 was not a good year for BABA and 2016 has gotten off to a rough start as well. With this recent news that the Chinese economy is weakening, Alibaba’s stock may come under additional pressure in 2016, at least during the first half of the year.

The biggest IPO of 2014 and of all time was Alibaba. Investors, both novice and experienced, from all over the world were interested in buying the stock and wondering whether they should buy it at the open on the first day or wait for a better price later on. The ticker symbol “BABA” was chosen and it is now listed on the New York Stock Exchange. This came after months of uncertainty and speculation about which exchange (NASDAQ or NYSE) Alibaba would choose.

Alibaba listed 27 names of directors and board members who will manage the company after they go public. You can view the latest filing of paperwork with the SEC here to read all the details. After the first day of trading, Alibaba was worth approximately $170 billion which made it the largest IPO of any Chinese company and actually the biggest IPO ever in America. By comparison, Facebook’s IPO price of $38 valued the company at $104 billion dollars so Alibaba’s exceeded that by a considerable amount.

How To Buy Alibaba Stock And Get The IPO Price

The Alibaba IPO took place on 9/19/2014 and that was the date regular investors were able to buy the stock for the first time. Unfortunately, you had to be friends, family, or some other insider to get any shares before that date. Like all IPO’s, only people with industry connections and very deep pockets had the ability to be able to secure stock shares at the $68 IPO price.

For everyone else, buying the stock on that first day of the iPO was the only option. And now that BABA trades every weekday on the NYSE you need to have an online broker account ( I use and recommend TD Ameritrade ) that is set up with money in it and ready to go before you can buy the stock. So, if you are interested in buying Alibaba stock now, please open an open an account with my preferred choice of online brokers, TD Ameritrade.

Buy Alibaba Stock Via Owning YHOO And SFTBY

There are two companies that hold large stakes in Alibaba and you can buy both of them as a possible way to get exposure to Alibaba without actually owning BABA stock. Those two companies are Yahoo (YHOO) which now holds close to a 16.3% stake and SoftBank (SFTBY) which holds about a 33% stake. Obviously, having a large percentage of ownership in Alibaba as these two companies have, the higher the price of Alibaba goes, the more Yahoo and SoftBank stock should theoretically benefit.

Both stocks ran up in the months before Alibaba’s IPO but now that it has taken place, YHOO and SFTBY have stalled and have headed down. Investors might be taking their profit on those two stocks and investing directly in Alibaba. Of course both of those companies have their own businesses and that affects their stock price as well. Buying either Yahoo or SoftBanks is NOT something I am recommending but it is an alternative way to own some Alibaba.

The Alibaba IPO In The Summer Of 2014

Interestingly, one of Alibaba’s competitors (JD. com) went public on May 23, 2014 and had a successful IPO. JD. com’s stock closed up the first trading day and then has lost ground since then but the general consensus is that it was a good IPO and it showed strong demand for the stock.

This IPO was viewed as very positive news for Alibaba as they are a much bigger company than JD but in the same general business. Because JD’s IPO went well, investors hoped that meant there would be even more demand for Alibaba stock, which ultimately proved correct .

Alibaba’s IPO offering garnered an unprecidented amount of interest from the media and investors. The company is a little bit of Amazon, Google, and Ebay all combined into one gigantic Chinese company. Investors worldwide were extremely interested in this IPO and it did live up to all the hype on its IPO day with more than 270,000,000 shares being traded.

193 Responses to “HOW TO BUY ALIBABA STOCK”

IPO Initial Public Offerings

Information on Going Public

We take companies public. If you would like to take your company public, please contact us at (310) 888-1195 or email us for a free report. We believe advisors should be properly paid for referrals when applicable

Pros and Cons of an IPO

The pros and cons of going public or an Initial Public Offering . The process is an expensive consideration, and even more so for small cash-strapped young companies. When a company is contemplating the IPO process of going public to become a public traded company, it must consider the advantage and disadvantage of going public or an IPO . You will want to have a group with IPO resources and IPO services involved in making that decision. It is important to have a good IPO guide and to accept and to follow the advice of IPO advisors .

The Going Public process, what is it and is it right for your business?

Once a private company becomes publicly traded, it will register securities with the SEC so that it can make an offer and sell those stocks. This is the biggest difference in operational status of a private vs. public company: The public company can offer its stock to the public, whereas the closely held private company is restricted to private venues, such as: friends, family members, and very close business associates.

The above paragraph contains very important considerations, since most companies that go public are interested in raising capital. Furthermore, investment bankers and FINRA member broker-dealers and market makers prefer to deal with a public company when underwriting an investment. A well ran private company with a healthy bottom line, quarter after quarter, is an excellent candidate to go public and attract outside investment capital.

Once your company goes public and you have satisfied all regulatory requirements may be able to sell stock directly to investors. The lack of funding alternatives inherent to private companies will hopefully become a thing of the past! No longer will your funding initiatives be restricted to only private venues. The unsavory terms offered private companies from Angel Investors and Venture Capitalist will become a distant memory.

Once you go public and file a registration statement with the SEC (Securities and Exchange Commission), and follow other guidelines, you can even advertise that you're a public company and perhaps contract for the services of an IPO underwriter to sell your stock.

This allows you to go public without having to depend entirely on outside parties to connect you to capital sources. It is important to note that you can become a public company without raising any money and without investment bankers. We can introduce you to sources of capital including our network of Investment Banking Firms and other financing groups. Our direct IPO advisory services will allow your company to be able to compete with the big firms when trying to raise capital

IPO News: The Main Advantages of an Initial Public Offering (IPO)

The increased capitalization for the issuing business is a strong point to consider, since a public offering creates a market value on a companyвЂ™s stock. Company directors and shareholder can retain their stock and use it for varied activities, such as: currency for mergers and acquisitions, as stock options to help retain key personnel, they may also sell their shares in the open market.

Additionally, the business will have greater access to the capital markets for future capital inflow, guided by IPO advisors . In general terms, a companyвЂ™s valuation should improve after going public, making it possible for the company to receive much better terms from lenders.

Undertaking IPO services and offering securities to the investment public will help a companyвЂ™s management and directors retain a large degree of control. For example, if a private company decides to use the services of venture capitalists to raise capital, instead of going public, the VCвЂ™s (Venture Capitalists) might insist on a decision-making position, such as a seat on the board of directors. When a company decides to raise capital via the going public process, those unpleasant considerations are avoided with the help of an IPO adviser.

No doubt the prestige related with becoming a public company has a definite appeal. The fact that itвЂ™s easier to promote a public company is also a pertinent consideration. Public companies have historically achieved higher recognition than private companies; hence, the public relations image and the perceived stability of being a public company is good news and a plus.

Are there Disadvantages to Going Public?

Some of the typical expenses associated with taking a company public include fees for legal and accounting services. Of course the SEC (Securities and Exchange Commission) quarterly and yearly reporting requirements are a burden for small companies.

Is There an Easier, Better Way to Go Public?

The easiest way for most companies to go public is to get listed on the Pink Sheets OTC Markets or the Over the Counter Bulletin Board OTCBB. Going public via the Pink Sheets is an excellent first step for smaller companies to become publicly traded entities. Here are some further advantages offered by our IPO adviser:

• There are no reporting requirements

• There is no business longevity requirement

• No Revenue or earnings requirement

• No minimum asset requirement

As IPO advisors we always suggest that even smaller companies consider the possibility of going public. Remember even a start up company can go public.

For a more in depth study of how to do an IPO, and to learn how to take a company public, please visit www. tcc5.com

The price to go public is usually $100,000 and the services are offered by the president of Tiber Creek, a going public services attorney in business since 1975.

IPO Information, News and Educational Articles

References in periodicals archive ?

Mayur Pau, MENA IPO Leader, EY, says, " IPOs on the Tadawul and the Egyptian Exchange continue to attract strong demand, with offerings up to 11 times oversubscribed, highlighting positive investor sentiment in these markets in particular.

The healthcare industry continued to lead IPO market activity with 31 IPOs or 41 percent of total volume - the high demand for these smaller biotechnology and biopharmaceutical IPOs showcases the interest among IPO investors for high-growth companies.

The regional IPO market has seen some notable developments in terms of new deals.

The number of IPO focused funds in the Mena could be on the rise with more IPOs set to enter Mena markets in the next two years, which could bring in greater investment and IPO opportunities.

Investors increasingly doubted the future potential and growth of IPO firms,'' said Takashi Nishibori, chief editor at Tokyo IPO .

When the number of IPOs drops to this level, investors should realize that the supply-demand dynamics of the IPO market become different than in an ordinary year.

Globally, Asia plowed full steam ahead in 2003 while IPO activity in the U.

Liz Murray, chief financial officer of executive recruiting firm Korn/Ferry International, traced the details of the company's IPO. including the alternative options considered and the "buy-in" required from senior partners -- in effect, an "internal roadshow.

CHATSWORTH - Optical Communication Products proved Friday that the market for IPOs is not dead but merely more selective.

Bear in mind that for every IPO like Commerce One, there's a Value America (Nasdaq: VUSA) waiting to implode; it's plunged 83% since going public last year.

Not surprisingly, however, investment bankers and CFOs who have taken their companies public recently dispute the notion that IPO pricing rules have changed.

The recap was so successful that two years later, in March 1995, the company finally undertook an IPO. selling 2.

5 Reasons Investing In An IPO Could Be A Terrible Idea

With the recent announcement of TwitterвЂ™s public offering, we may see вЂњMom and Pop, вЂќ or retail, investors racing to invest in the вЂњnext hot IPO. вЂќВ

Unfortunately, many of these investors will come out on the losing end of the equation.

Granted, some IPO deals are good for retail investors, but IвЂ™d argue the odds of that happening are stacked against you.

Regulatory rules, designed to protect IPO investors, generate reams of disclosures about the company and the offering process, but unfortunately, many investors neither read nor understand these. В

On an individual level, of course, there are strong companies that go public and yield high returns for initial investors. В However, what IвЂ™m concerned by is a certain вЂњnarrativeвЂќ about IPOs that relies heavily on several perceptions that are highly problematic. В

Myth #1: Investing in an IPO gets you in on the ground floor.

People assume an IPO is an opportunity to вЂњget in on the ground floorвЂќ of owning a good company. In reality, youвЂ™re coming in on something like the fifth floor. By the time you buy shares of a company on Wall Street, other parties have almost always invested earlier at lower prices -- often, much lower prices. В В

Before you even knew about the company, there probably were three or four rounds of private investment, and the per-share price of ownership usually goes up with each round. Understandably, parties to each of those rounds expect a return for the risk theyвЂ™ve taken, and that return often is realized following the IPO вЂ“ when the investors are able to sell their ownership stakes for a profit. In fact, one of the big incentives for an IPO is so that previous investors вЂ“ founders, venture capital firms, individual investors вЂ“ can вЂњcash outвЂќ at least a portion of what theyвЂ™ve invested. В

This makes sense, as earlier investors get bigger returns for bigger risks. В Face it: You could be late to the party. В In the case of some weak companies that should not even be going public, you are in reality investing in a legal Ponzi scheme where a year later the price per share will be much lower than the offering price once the market moves towards rationality, which is usually the case. В

Myth #2: If everyoneвЂ™s excited about the IPO, it must be a good investment.

At each stage of a companyвЂ™s life, new players enter the mix, and they might benefit even if the stock falls from its IPO price. Too many people assume that if the investment banks and analysts and earlier investors like the company, it must be a good investment now. That may or may not be true.

A public company is born after an entrepreneur grows the business and along the way, gets capital to grow via bank loans, investments by family members or private investors such as venture capital firms or private equity firms. Each time the company raises new money, new investors are willing to pay more for the stakes, so long as the company is performing well.

When a company decides to offer shares to anyone through a public offering, it will receive most of the proceeds from the sale. But existing shareholders gain a more liquid market to sell, and even if the stock price drops from the IPO, these investors will likely receive more than they paid.

In addition, the underwriter hired to buy the shares and re-sell them to other investors will get paid whether the stock soars or tanks when it opens on the exchange (called the secondary market). UnderwritersвЂ™ fees typically range from 5 to 7 percent of the gross IPO proceeds.

Underwriters are going to sell IPO shares to their favored customers, usually big mutual funds or pension funds. В There is much pressure on pricing an IPO high, therefore, since commissions are a function of the price of the stock. В В

ItвЂ™s typically very difficult for the average individual investor to get in at this stage of a good IPO. В As a result, when trading begins on the exchange, the only way most regular retail investors can buy shares is to be a big client of the underwriter or to pay a premium to any investors that sell immediately.

Myth #3: IPOs outperform their peers.

A key part of the IPO narrative is that they offer something, new, fresh, and somehow better than what is out there. В The facts unfortunately say otherwise. В Recent data from the University of Florida shows that IPOs from 1970-2011 underperformed other firms of the same size by an average of 3 percent in the five years after issuing.

Between 2000 and 2011, the underperformance gap in 5-year returns narrowed to 1.8 percent, but it was biggest right after the IPO; in years one and two, IPOs underperformed by 18 percent and 6.3 percent, respectively.

Myth #4: If a company is going public, it must be strong financially.

The floor of the New York Stock Exchange is littered with companies that went public when they shouldnвЂ™t have. В Companies go public for a variety of reasons. В Financial strength is, unfortunately, not always one of these reasons.

Vonage (VG) was posting losses equal to 72 percent of sales and was using $189 million in cash for operations in the year before its 2006 IPO. (Shares, which had an IPO price of $17 traded recently at $3.18.)

Plenty of warnings signs for Pets. com didnвЂ™t stop its 2000 IPO at $11 a share. The pet-supply retailer had only three quartersвЂ™ worth of historical financial data to show potential investors, and even that was bad: A loss of $61.8 million and $65.3 million in cash used for operations. The company folded by the end of the year.

Some more recent IPOs also had no business going through. Groupon (GRPN) has improved revenue since its 2011 IPO, but itвЂ™s still not profitable, its cash flow has slowed and margins are narrowing. SharesВ are slightly more than half the IPO price.

And FriendFinder Networks (OTC: FFNT) had lost money for several years in a row and had negative net worth before it raised $50 million in a 2011 IPO priced at $10 (the company just recently filed for Chapter 11 bankruptcy).

Myth #5: All IPOs are high risk, high reward.

ItвЂ™s important to remember that not every IPO is bad. The danger lies in the assumption simply that IPOs are inherently good investment opportunities. Some are riskier than others and some have more potential for higher rewards than others. Fairly straightforward evaluation methods can be applied to companies filing for a public offering. В

When you filter companies through this evaluation, you can clearly discern that many of these companies are lousy performers. On the flip side, some companies like Microsoft (MSFT) are objectively good from a financial perspective, and they would have been great IPOs to get in on both because of their financial performance and their valuation at the time of IPO, which was reasonable. В

How the IPO is priced matters. If the company is valued the right way, if itвЂ™s profitable and growing, then maybe the first-day price on the exchange is a good one. Certainly, investors who bought shares of Chipotle Mexican Grill (NYSE:CMG) at the 2006 IPO price of $22 have been rewarded (shares now trade around $432). Before its IPO, Chipotle was posting 7 percent margins and generating about $39.7 million in cash from operations.

Twitter might be a fantastic investment opportunity, and it might not; the truth is that we wonвЂ™t know until they share their S-1 filing with the public. В As long as TwitterвЂ™s filing and financial statements remain вЂњconfidential, вЂќ an accurate analysis of their value is impossible.

Hype and excitement doesnвЂ™t necessarily equate to a good investment opportunity. В В If stocks continue to climb this year and the IPO line lengthens, IвЂ™m afraid youвЂ™ll have plenty of opportunities to see if IвЂ™m right.

Mary Ellen Biery, Research Specialist at Sageworks, contributed to this article

Brian Hamilton is the chairman and co-founder of Sageworks. В He is the original architect of the companyвЂ™s artificial intelligence technology, FIND, the leading financial analysis technology for analyzing private companies. В HamiltonвЂ™s area of expertise is the financial performance of privately held U. S. companies. He identifies high impact, macro trends with the Sageworks private company database and provides insight on the health of private companies for print, radio, and TV media outlets. В

Brian has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

SEE ALSO: How Your Middle Name Could Hurt Your Credit

5 Reasons Investing In An IPO Could Be A Terrible Idea

How Does an IPO Affect Stock Value?

IPOs in volatile markets are risky for stock values.

An initial public offering (IPO) is the first time a company sells its stock to the general investing public. This process can ease a company’s access to finance for future acquisitions and growth. It also provides a reward for existing private investors and company management in the form of stock options. An IPO is a time-consuming process, fraught with risks that could impact the company’s stock valuation.

Timing

The timing of an IPO is crucial to its success. Since the world recession that started in 2008-09, there has been a lack of other funding sources for companies other than an IPO at a non-optimal time. Even during times of world economic growth, some market sectors, whether commodities, engineering or financial products, may be experiencing their own slump. Favorable market conditions can vanish quickly. Owners who plan to launch an IPO into a volatile, uncertain market risk the danger of it failing as investors sit on their funds. In this case, the stock value slumps.

precio

In general, capital markets anywhere in the world do not respond well to high IPO prices. Investors usually accept prices that are lower than a company’s owners would anticipate. Consequently, stock prices after an IPO can rise, and indicate that the company could have raised more money. But too high an offer price, and possibly flawed investor expectations, can result in a precipitous stock price fall.

Scrutiny

After the IPO, a company is open to substantial scrutiny both by the general public and media as well as by capital-market analysts and investors. Investors want the company to provide regular cash flow and distributions to shareholders. Without this, they will sell the stock and the price will fall. Analysts scrutinize quarterly statements for growth that enhances stock trading. A lack of growth prospects depresses the company’s stock value.

Long-Term Growth

The trade in a company stock following an IPO is, by definition, short-term. A company may find itself concentrating on short-term growth to produce excellent quarterly results for the capital markets and shareholders, rather than looking to long-term growth potential. Extra debt that finances new acquisitions will have a negative shorter-term impact on stock values. But, without this new investment, a company could fail over the long term.

I've been working for an employer for the last 8 years and there are rumors that the company will be coming up with an IPO very soon. If the rumors turn out to be true, how does it impact me (either positively or negatively) as an employee?

The company has grown tremendously the past few years and I am excited to be a part of its growth. I haven't been granted options. Is it a norm for the management to offer shares of the company to employees based on their tenure? What other changes can I expect? Gracias por leer.

asked Oct 24 '13 at 4:47

It really all depends on the intent and structure of the IPO. Here are some of the things that can happen.

IPO is largely for raising some cash to get more breathing room. Current ownership stays at the helm and maintains control: this scenario will probably result in the smallest number of changes.

Current ownership/leadership cashes out and rides into the sunset: This is on the other end of the spectrum. Massive changes, new ownership, new management, etc. Can result in a completely different company or no company at all.

Anything in between. New stakeholders could mean different set of directions and some change in company governance and leadership. New cash could mean expansion and new investments. Stock options will entice people throughout the organization to cash in and they may or may not stick around.

answered Oct 24 '13 at 11:38

What's the general rule with stock options? When are they awarded and when can they be cashed? Are they granted based on how long an employee has been with the company or the employee's designation? & Ndash; DotnetDude Oct 24 '13 at 11:46

@DotnetDude - They are offered as compensation during hiring and occasionally during your yearly review. If you don't have them, you very likely won't get them. As for cashing them, some IPOs place a limit on the sales date (

6-12 months is what I've seen) but it varies on the company and the class of your stock. & Ndash; Telastyn Oct 24 '13 at 13:31

@telastyn Are you sure that none of the pre ipo employees get any stock if they already don't own them? The company is driven by a handful of individuals who probably own stake in the company and they make up only 1% of the total work force. Will the rest of them not be benefited financially by this move? & Ndash; DotnetDude Oct 24 '13 at 13:42

@DotnetDude - I'm not sure but in my experience, only the first 20 or so employees (and valuable employees/upper management) get options as motivation to take less salary during the startup period. The rest of the workforce will not benefit with an IPO (except that the company is more financially stable and/or growing, which can create career opportunities). & Ndash; Telastyn Oct 24 '13 at 15:21

It sounds to me that you are not quite clear on what the difference is between an IPO, stocks, and stock options.

I am not a certified financial adviser, but here is a VERY rough overview of them.

Cepo. Stocks are shares of a company. They document a percentage of ownership of the incorporated entity. Shares can be either publicly or privately traded. Privately held companies' shares are usually traded among a very small number of people. Usually the partners who formed the company and some "angel investors" who funded the initial version of the company. Privately held companies' share-trades are not regulated by the Securities and Exchange Commission, but are still regulated by state and federal regulations.

Opciones de alamcenaje. Options are an offer to sell a specified range of shares at a certain price on or before a certain date. They can be valuable if the stock's price rises higher than expected. If you are offered an option to buy 100 shares at $10 each on or before January 1st of 2015, and when that date comes the shares are worth $20 each, you can buy the 100 shares for $10 per and sell for $20 per, netting $1,000 (minus trading fees, of course). If the stock is only worth $5 on 1/1/2015, you are not required to purchase at $10 per, thus the term "Option."

IPO - Initial public offering. A company is valued by underwriting financial institutions and certified to the Securities and Exchange Commission. Shares are issued based on the percentage of the company that is being "Offered" for public trading. As of that moment, all significant financial dealings and all intended and actual share trading by senior management and board members are required to be reported to the Securities and Exchange Commission quarterly, annually, and a whole new regulatory environment is entered.

When a company "Goes IPO," employees are often given the opportunity to buy a limited number of shares at the initial offer price. They are sometimes given the opportunity to buy at that price for several months after the IPO in the form of stock options. The reason for this is that it's actually quite difficult to buy a stock on its IPO. You have to be well-connected. Usually you will end up buying them after they've traded hands through a brokerage or two. The "buzz" around IPO's is that if investors feel a company was undervalued by the underwriters of the IPO, the stock will immediately go up. The $10/share IPO may be trading at $11.50 later that day, and whoever got the $10 shares makes a good profit. It's hard to be in that group, so that's why employees are sometimes given a chance to "cut in line" and get the IPO price for a limited number of shares.

Now unless you seriously know what you're doing in the markets, you really don't want to try to time your transactions by buying at pre-IPO and selling a few days later. Also, if 500 employees each got 5000 IPO stock options, and they all buy them on Monday and sell them on Thursday, that can seriously distort the stock's trading performance. That's why there's usually a restriction on how long you have to hold pre-IPO purchased shares before you are allowed to sell them.

Now as verbose as the above is, it represents a tiny amount of the information you need to know about investing in the company you work with. I strongly recommend consulting with a licensed broker or certified financial planner before making any decisions. However, be aware of your Non-Disclosure requirements with your company at the same time. If you tell a broker, "My company's doing an IPO next year, and I wonder if. " Guess what the broker heard? "Company XYZ is going IPO next year." He's going to use that. Make sure you're not violating any NDA's.

answered Oct 26 '13 at 0:26

How to Buy IPO Shares

How to Buy IPO Shares. The letters IPO stand for "initial public offer". IPO shares are common shares issued by a company via a stock exchange such as the NYSE or NASDAQ. IPO share offerings are critical for a company seeking to raise market capital. Market capitalization is typically utilized for growing the business, adding employees and purchasing new equipment. IPO shares are unique since they represent a corporation's first stock share offering. Although IPO shares can be very difficult to secure, there are a few different ways the average investor can buy them.

Things Needed

Paso 1

Abra una cuenta de corretaje. Some examples of brokerage firms include Ameritrade and Scott Trade. Contact account services and request a list of upcoming IPOs for which they will have shares available for purchase. "Economy Watch" states that IPO shares are highly sought after, since historically most rise sharply in value in the months following their opening.

Paso 2

Research the companies that your brokerage house will have available for sale. Consider the future market for their product or service. In his book, "Beating the Street," investment guru Peter Lynch said that if you regularly buy a product yourself, usually the company is worth investing in. Narrow down potential IPOs to the most promising companies based on your research.

Paso 3

Visit the websites of companies you are interested in and contact their investor relations representatives. Ask them if they will be offering "self distribution" of IPO shares. In a self-distribution IPO, you are able to purchase a limited amount of shares directly from the corporation rather than from the underwriter or brokerage house. This will save you the effort of attempting to get available shares through a broker.

Step 4

Determine from investor relations at the company who the "underwriters" of their IPO are. Underwriters decide who can buy IPO shares. Most IPO shares go to large investment banks such as Goldman-Sachs or brokers such as Ameritrade. Establish an account with the underwriters and be very persistent in contacting them for IPO share purchases, since shares are difficult to secure this way.

Paso 5

Understand how to purchase stock through your traditional broker since this method offers you the best opportunity to secure IPO shares. Find out what the new "ticker" symbol is of the IPO you are interested in. On the day of the offering, enter the assigned company trading symbol and number of shares you are able to purchase and hit "buy".

Warnings

Make sure you have done due diligence when researching individual companies since share prices can also go down from the original IPO offering price.

How to Buy Twitter Stock Now, BEFORE the IPO

GSV Capital provides a way into the Twitter IPO months ahead of time

Twitter stock is sure to be in high demand once it hits the market, judging by Twitter IPO buzz in the financial media right now.

But for impatient investors looking for a way into Twitter stock before the social media company hosts its initial public offering, have no fear. There’s a way to buy Twitter stock right now — and share in a host of other red-hot tech companies, too.

Charles Sizemore, editor of the Sizemore Investment Letter . says the closed-end fund GSV Capital (GSVC ) is worth a look for investors looking to ride the Twitter stock IPO.

As a closed-end fund, GSV Capital invests in other companies similar to the way a mutual fund would … except that it has a fixed number of shares that do not grow to meet new investor demand. As a result, a closed-end fund like GSVC can trade at a premium or discount to its book value based on sentiment, instead of the underlying value of its investments.

For instance, as an early investor in Facebook (FB ) stock, this closed-end fund was battered as FB’s public offering sparked a host of negative sentiment. GSVC traded as a deep discount as a result, but Sizemore saw the closed-end fund as a big buy as traders were undervaluing its investments in FB and others.

With the Twitter stock IPO, things are different in GSVC now that the valuation of this closed-end fund has normalized. But there is still potential for early investors to get in and make some money. Here’s what Charles told me recently:

At the beginning of this year, GSVC was just about the most hated pick on Wall Street. The botched Facebook IPO had soured investor sentiment toward social media companies, and GSVC became a punching bag for all the Street’s frustration toward the sector. The stock was trading at a 35% discount to book value … a book value that was itself depressed by bad sentiment toward the underlying holdings. Pre-Facebook IPO, GSVC had traded at a large premium to book value of 20%-30%.

Today, GSVC has no significant stake in Facebook. But Facebook’s recent profit surprises have caused investors to rethink social media in general, and there is a general belief that Twitter’s IPO will succeed where Facebook’s failed. As GSVC has rallied, it now trades at a slight premium to book value, though again, the book value is itself a moving target.

If you believe that the Twitter IPO will lead to several more successful “new tech” IPOs, then GSVC is an excellent way to get access. The easy money has already been made, but I think another 30-50% upside over the next year is feasible if the animal spirits return to the IPO market. It’s really all going to depend on how successful the Twitter IPO is.

In other words, tread carefully but consider a stake in GSVC if you’re a big believer in Twitter stock. It may be your best — and only — way to buy into Twitter stock before the IPO.

Related Reading on Twitter Stock and GSVC

Jeff Reeves is the editor of InvestorPlace. com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace. com or follow him on Twitter via @JeffReevesIP . As of this writing, he did not own a position in any of the stocks named here.

Editor, The Slant

As a closed-end fund, GSV Capital invests in other companies similar to the way a mutual fund would. except that it has a fixed number of shares that do not grow to meet new investor demand. As a result, a closed-end fund like GSVC can trade at a premium or discount to its book value based on sentiment instead of the underlying value of its investments.

Editor, The Sizemore Investment Letter

If you believe that the Twitter IPO will lead to several more successful "new tech" IPOs, then GSVC is an excellent way to get access. The easy money has already been made, but I think another 30-50% upside over the next year is feasible if the animal spirits return to the IPO market. It's really all going to depend on how successful the Twitter IPO is.

Initial Public Offerings

One of the most promising new ventures is ACE-Net, a collaborative effort of the U. S. Securities and Exchange Commission, state securities regulators, the North American Securities Administrators Association and the U. S. Small Business Administration's Office of Advocacy. It evolved out of the recommendations of the delegates to the 1995 White House Conference on Small Business to improve capital formation and regulatory climate for small businesses. Companies seeking investments in the range of $250,000 to $5 million can participate. It is an internet-based, nonprofit listing service for securities offerings of small, growing companies located throughout the nation. Applicants are viewed anonymously by accredited investors. To qualify, the entrepreneur must be in a position to sell security interest in their company under federal securities law and corresponding state securities laws. Additionally, ACE-Net provides mentoring and assistance in developing the business.

Initial public offerings (IPO) are often considered to be the ultimate goal for any entrepreneurial venture. Is an IPO really the right goal for your venture, however? All the hoopla about the quick riches which may or my not be gained masks some serious implications for the future direction of your business. Let's take a look at what an IPO means in reality and how you can evaluate whether it is the right step for you.

An IPO is offering stock to the public on an open market for the first time. Consequently, the alternate term for this process is "going public". The first recorded IPO was in July 1791 when equity in the Bank of the United States was first offered for sale. Wild speculation occurred with many heralding this move as evidence of the economic opportunity in the United States, while others expressed horror at the "get rich" mentality of the investors who were looking for an easy way to money rather than following a path of hard work for their money. The Insurance Company of North America followed shortly thereafter in offering shares to the public. During the 19th century, government bonds were introduced to raise funds for war efforts. The turnpike, canal and railroad companies were also financed through the issuance of stocks and bonds. However, it was not until this century that offering stock to the public became a common form of financing a new business and only recently have IPOs become the glamour business that they now are.

Usually an IPO is part of a business' financing strategy. A well-planned and executed business startup will have specific goals for growth and revenue accompanied by financing needs and options to achieve each step of the path. The typical pattern is to start the business with an initial investment from your own pocket, friends and family, supplemented by loans. Then, when an actual product exists, find an angel or venture capital firm to invest in getting the company growing at a rate that will justify an IPO. The rule of thumb for being ready to IPO is that you are growing, you have a definite need for much larger funding, you have a good story, and this is a good time in the market for your type of company. Each industry has different criteria for growth and revenue in going public; therefore, it is important to research publicly traded companies of similar size in your industry to see how much revenue they were making when they went public. As an example, software companies usually need to be earning at least $20 million in revenues to go public.

Should your business IPO?

One of the most important factors considered in deciding whether a company is ready to IPO is its growth rate. The company should not only have three years history that shows growth, but growth at an accelerating rate. Usual growth rates considered optimal are 40 percent for technology companies and 20-30 percent for manufacturing and service. The "ideal" is considered to be what bankers call "40/40": 40 percent growth rate and 40 percent rate of return. Few companies are this dynamic, but potential growth and revenue are critical to how a company will be valued and how much money can be raised by an IPO.

If you have a winner, why wouldn't you IPO? For a starter, look at the loss of control you experience. Many companies refuse to go public for this very reason. All of a sudden you are accountable to a large number of outside investors, all wanting to see gains from their investment. Wall Street becomes a factor in your life. If they don't like the way your company is being run, your stock price may suffer. Your board of directors may not think you are running the company appropriately and you may find yourself out of a job - in the business you created! You are not just accountable to your investors and your board, however. You must also meet stringent requirements from the Securities and Exchange Commission (SEC), including regular reporting. Most businesses find after they go public that they need to assign at the minimum one full time person just to handle reporting requirements. Additionally, the costs of going public can be very steep in both the short and long run. Costs included are a larger financial staff, external accounting fees for required audits, staff to create material for shareholders, lawyers, bankers, underwriters and brokers whose fees are often in the high six figures.

Factors against an IPO:

Loss of Control

Regulaciones

Reporting Requirements

Costo

Is it worth taking the risk that your IPO will be a winner? Por supuesto. For a start, going public is a way to raise large sums of capital that would be impossible to obtain any other way. It presents you, as the business owner, with access to personal wealth because stock in a public company usually trades at a much higher value than shares in a privately held company. It also gives your company a market-driven valuation which can be used for acquisitions, mergers and licensing agreements. For many, there is a sense of legitimacy for their customers, employees, suppliers and competitors.

Factors for an IPO:

Gain in equity capital with no interest or debt repayment

Allows the company to grow and further develop

Solid financial base on which to build

Legitimidad

Market-driven Valuation

Do note that only .001 percent of all businesses in the U. S. are publicly traded. Part of that is due to the complexity of the process and part because they prefer to be privately held. So if you do decide not to go the IPO route, know that the majority of all businesses have also made that choice.

If you do decide to go public, you have a choice of following the traditional route using an investment banker to help shepherd you through the process or of "doing it yourself" through what is called a direct IPO. The difference is that in a regular IPO you have a team of experts who guide you through the process and your stock is traded on one of the regular stock exchanges. In a direct IPO, you manage all the details and your stock is sold through open markets, not on an exchange. There are internet services available for listing your stock, but the time commitment for the business owner is substantially higher in the direct IPO.

Managing an IPO

Putting together an IPO is not a task for the meek. Most experts estimate that it takes at least one year of intense work above and beyond the day-to-day running of your business. Some of the basic steps needed to prepare for an IPO are:

Complete Business Plan

A detailed (40 to 60 pages) document supporting the corporate profile. Fully disclose all aspects of the business including debt, the use of proceeds, critical processes, and any other factor that may be important in the success of the business. It is important to show that you have considered a wide variety of factors and have a plan of how to deal with them.

Two to four page document describing a company's financials, business, principals, their backgrounds, and a description of the market for their product or service. The corporate profile is presented to potential underwriters (investment bankers) to interest them in participating in the IPO.

Information for potential investors on the economic viability of your business. Absolute necessities are rate of growth and net profit margins. Other financial ratio analysis and market analysis are useful.

Quarterly, audited financial statements for the past three years must be prepared by a professional, accredited accounting firm.

An organizational chart with key players that have strong background and experience that fit with your projected plans.

The IPO process is costly and it can't all be financed by the IPO itself. In addition to internal staff needed to prepare the IPO, there are the external audits, legal and investment banker's fees. The rule-of-thumb is to plan on spending at least $100,000.

A good investment banker is critical for your IPO. They draft your prospectus, assist with the filing, solicit investors, determine the offering price and sell the stock. Their compensation is usually a percentage of the offering plus options on buying a certain number of shares of stock in the future. Conduct due diligence on a number of firms to assess which one is the right one for your particular business. Underwriters usually specialize in different types of businesses or industries and finding the right match for you makes the whole process smoother and more profitable.

The first step in the formal IPO process is for the company to register with the Securities and Exchange Commission (SEC). Plan on it taking at least six to eight weeks to prepare all the documentation. To start the process an "all-hands" meeting is scheduled to determine an appropriate timetable and responsibilities for each member of the team. Included are all of the members of the internal IPO team the accountant, law firm and lead investment bank. One of the most critical documents that needs to be developed by this group is the prospectus. The prospectus is a brochure that is used to describe all aspects of the company - its financial data for the past five years, the management team, the target market, competitors and growth strategy. Since the SEC imposes a quiet period of 25 days between the time you file with them until the stock starts trading, this brochure is all that you can tell prospective investors about yourself so its accuracy and informativeness is a vital part of the IPO. Prospectuses for all U. S. companies are available free from the SEC web site or from the company itself.

Knowing that the quiet period will be occurring, the six to eight week period also includes a multi-city tour, known as the "road show". For a number of weeks the company management goes to a new city every day to meet with prospective investors to present their business plan. Common stops are Boston, Chicago, Los Angeles, New York, San Francisco, and Washington, D. C. with others added that seen appropriate to the business. For internationally placed firms, London and Hong Kong are additional "must" stops. The goal of this tour is to get institutional investors excited enough about the offering to interest them in purchasing a stake. Staging the road show is one of the places your investment banker earns his money. Their sponsorship brings the institutional investors and big money investors in to view the presentations.

Following the road show and the preparation of the prospectus, the management team and the investment banker choose the offering price and size of the offering, based on the expected demand for the stock and market conditions. The price needs to be chosen to provide sufficient funding for the business, yet give investors a sense that there will be reasonable appreciation on their investment. Investors expect to receive at least a 15 percent immediate appreciation on their initial investment.

An IPO is declared effective at least two days after potential investors receive the final prospectus and the offering price is set. This happens after the market closes for the day with trading commencing the following morning. The lead underwriter is responsible for ensuring smooth trading of the stock during the initial few days. They can legally support the price of the stock by buying shares of the stock themselves or by selling them short. They can also impose penalty bids on investors selling shares right after buying them. A company's IPO is considered completed seven days after it officially goes public.

Managing a Direct IPO

Offering an IPO directly to the public became possible in 1982 when the Securities and Exchange Commission (SEC) ruled that small companies could raise up to $1 million in a 12-month period given that they had registered the offer under the securities laws of every state in which they planned to sell stock. With every state having different regulations and forms this was still an onerous burden for a business until 1989 when a 50 question uniform form started being adopted by many of the states. This form allows a business to prepare its own prospectus, eliminating the investment banker from the equation. Costs for a direct IPO average about $30,000, substantially lower than for an IPO run by an underwriter.

To raise capital under a direct IPO, your business will need to file a Small Corporate Offering Registration (SCOR). Stock sold under a SCOR can be traded in established secondary markets making the investments more liquid for potential investors. SCOR has a standardized state filing form, Form U7, a 50 question disclosure document that is similar to a business plan. While external review is not an absolute necessity for this process, having the document reviewed by an attorney and an accountant are a wise course of action. Audited financial statements are not required for offerings under $500,000, but again are wise to have as an attraction to investors. Registration takes about 30 days after filing. The U7 is filed with your state, not the SEC. The SEC requirement is a Form D filed under Rule 504.

This is simpler than it used to be? Seguro. take a look at what the process is for an underwritten IPO to understand the complexity of going public on one of the major stock exchanges. It would be wise to review that process anyway to understand the broader ramifications of going public. Much of the documentation on going public with an underwriter is also useful to the process of managing the IPO yourself.

One of the most difficult parts of a direct IPO is finding investors. Not only are the shares not traded on a traditional exchange, they are also less liquid making potential investors more wary. There are a number of online sites that provide a listing service for direct IPO's. Among the best known are: Direct Stock Market and Direct Hit. Many of these sites specialize in particular types of businesses so explore to see which are the best match for you. Each will also have a fee for listing so be aware of the guarantees, market reach and regulations before making the decision to list with a particular service. If you have a specialized product of interest to a particular audience, it may be as productive to find forums specific to your business to advertise your stock offering. The important factor is to establish visibility to potential investors.

Selling stock in your business through a direct IPO has been likened to selling your house without a real estate agent. It can be done at substantial savings, but marketing is much more challenging. There is a risk that no money will be raised at all in spite of a considerable amount of work on your part. It is estimated that about one in three direct IPOs are successful. You can be one of those successes. Just take one step at a time and complete it thoroughly if this seems to be the right path for your business.

Twitter shares soar in frenzied NYSE debut

By Olivia Oran and Gerry Shih

NEW YORK/SAN FRANCISCO (Reuters) - Twitter Inc shares rose 73 percent in a frenzied trading debut that drove the seven-year-old company's value to $25 billion and evoked the heady days of the dot-com bubble.

The stock closed its first trading day at $44.90 a share from the initial public offering price of $26 set late on Wednesday, falling back from a near-doubling in price at a session high of $50.

Investor enthusiasm for the microblogging company defied traditional valuation analyses. The shares traded at about 22 times forecast 2014 sales, nearly double the multiple at social media rivals Facebook Inc and LinkedIn Corp, even though Twitter is far from turning a profit and posted a loss of almost $70 million for its most recent quarter.

Yet fans believe that Twitter, which has 230 million users globally, has established itself as an indispensable Internet utility, alongside Google Inc and Facebook, and that it has only scratched the surface of its potential as a global advertising medium.

"When people use Twitter they are following certain people, they're searching for specific information," said Mark Mahaney, an analyst at RBC Capital Markets. "There are powerful marketing signals that are almost Google-esque, something that Facebook doesn't really have."

The IPO was shadowed for months by Facebook's troubled 2012 debut, in which the shares quickly fell below their offering price amid trading glitches and subjected the company and its lead banker, Morgan Stanley, to accusations that they had been greedy in pricing the deal.

Twitter's opening appeared to go off without a hitch, prompting Anthony Noto, the Goldman Sachs banker who led the IPO, to write a simple Tweet: "Phew."

Still, Twitter may find itself subject to the opposite criticism, that it had priced the shares too low and left more than a billion dollars on the table.

"In my mind they certainly could've raised the price on this thing and gone into the low 30s," said Ken Polcari, director of the NYSE floor division at O'Neil Securities. "From an outsider looking in I would say they were overly cautious because they didn't want a disaster on their hands. I'm sure the company didn't want a Facebook debacle, I get that, but I think they were overly cautious and it cost them some money."

Heavy demand for the IPO shares was apparent before the final pricing. Market sources said investors had asked for 30 times the 70 million shares on offer in the IPO, representing about 13 percent of Twitter's outstanding common shares.

Twitter could raise $2.1 billion if an underwriters' over-allotment is exercised, as expected, making it the second largest Internet offering in the United States behind Facebook Inc's $16 billion IPO last year and ahead of Google Inc's 2004 IPO, according to Thomson Reuters data.

The NYSE, which snatched the listing away from its tech-focused rival, Nasdaq, marked the occasion with an enormous banner with Twitter's bird logo along its Broad Street facade.

Twitter executives including Chief Executive Dick Costolo and the three co-founders - Evan Williams, Biz Stone and Jack Dorsey - appeared on a packed exchange floor to witness the debut.

At current valuations, the stakes owned by Williams and Dorsey would be worth around $2.7 billion and $1.1 billion, respectively. Costolo, who invested $25,000 in the fledgling company in 2007, holds a 1.4 percent stake worth about $360 million.

They hefty valuations were cause for celebration for some insiders but they sounded alarm bells for some investors who cautioned that the froth was unwarranted.

"With a price that pushes into the high 30s and beyond, Twitter is simply too expensive," Pivotal Research's Brian Wieser wrote in a note cutting his rating on the stock to "sell" from "buy". "One way to justify a $45 price in our model would involve presuming that Twitter could generate more than $6bn in annual revenue by 2018. However, we think that would seem overly optimistic."

British actor Patrick Stewart, of Star Trek fame, rang the opening bell at Big Board together with nine-year-old Vivienne Harr, who started a charity to end childhood slavery using the microblogging site.

"I guess I represent the poster boy for Twitter," Stewart said, adding that he had only been tweeting for about a year.

IN SAN FRANCISCO

At Twitter's headquarters in San Francisco, offices opened early and hundreds of employees flocked to the 9th floor cafeteria to watch the festivities on TV while eating "cronuts," a croissant-donut hybrid, made by Twitter's resident chef, Lance Holton.

The public debut is the latest milestone for a service that was born out of a nearly-defunct startup in 2006 and was derided by many in its early years as a silly fad dominated by people talking about what they had for breakfast.

But Twitter quickly began to penetrate popular culture in unexpected ways, with its open design and broadcasting format attracting celebrities, athletes, politicians and anybody who wanted to share short, punchy thoughts with a digital audience.

Its business potential developed more slowly, and the company appeared to be floundering as recently as three years ago, when it was riven by management turmoil and frequently crippled by service outages.

Under Costolo, who took over as CEO in October 2010, the company has rapidly ramped up its money-making engine by selling "promoted tweets," messages from marketers that are distribute to a wide-ranging but targeted group of users. In the third quarter, Twitter made $168 million in revenue, it said, more than double from a year prior.

The company said in its investor prospectus that more than three-quarters of its users are outside the United States. Despite its early reputation as a hangout for Silicon Valley early adopters and tech geeks, some of its most active markets now include Japan, Indonesia, Brazil and Saudi Arabia.

The three most-followed accounts belong to a trio of pop stars: Katy Perry, Justin Bieber and Lady Gaga. (U. S. President Barack Obama comes in fourth.)

"Twitter has, when coupled with the increasing distribution of smart phones and reach of the Internet, an impact on global connectivity and transparency," said P. J. Crowley, the former U. S. State Department spokesman. "It has definitely contributed to the acceleration of the news process and helped to expand the availability of information sources to a wide range of people."

The 140-character messages have spawned an Internet culture of its own. The "hashtag," a pound symbol devised by early Twitter users to denote the topic of a conversation, has became ubiquitous, with the word even becoming an ironic expression parodied by the likes of "Saturday Night Live."

As Twitter's stock soared after the opening, the company's market value, including restricted share units and other securities that could be exercised in the coming months, was over $28 billion.

Fund managers who got small allocations at the IPO were hopeful the stock would trade down after Thursday's pop.

"We have a target of $40 and we won't buy more as long as it is trading above that," said Mark Hawtin, portfolio manager of the GAM Star Technology Strategy.

Jerry Jordan, manager of the $48.6 million Jordan Opportunity Fund, who got a small allocation, said he would buy more of Twitter if it trades down around $30-$35.

"A lot of these sexy IPOs have a big pop on the first day and then they grind sideways," Jordan said.

Twitter's successful debut is likely to stoke interest in other up-and-coming consumer Internet companies such as Uber, Pinterest, Airbnb and Square, all of which boast private-market valuations well north of a billion dollars and could go public in the coming years.

Still, two early social media success stories, Groupon Inc and Zynga Inc, have suffered major reversals since going public last year. Groupon, despite big gains in its shares this year, still trades at less than half its 2011 IPO price. Zynga is worth about a third of its 2012 IPO price.

And first-generation social media firms such as MySpace have all but vanished as fickle users moved on to the next big thing.

(Additional reporting by Jessica Toonkel and Christian Plumb in New York, Bill Rigby in Seattle and Sruthi Ramakrishnan in Bangalore; Editing by Jonathan Weber, Tiffany Wu and Tim Dobbyn)

Nasdaq moves toward pre-IPO stock listings

The Financial Industry Regulatory Authority, the regulator funded by broker-dealers, approved NPM Securities LLC on Jan. 15, according to information on Finra’s website.

In March 2013, Nasdaq NDAQ, +0.34% announced a joint venture with SharesPost Inc. to launch a market for “private growth companies.” Nasdaq still needs to get approval from the Securities Exchange Commission for the launch of the market, to be called Nasdaq Private Market.

NPM Securities, based in San Francisco, is listed in the Finra profile as at least 75% owned by Nasdaq OMX Group through Nasdaq Private Market LLC. SharesPost is also listed as an owner.

NPM disclosed in its Finra profile that it is “in the process of registering with the SEC as an alternative trading system assisting in the matching of buyers and sellers in primary and secondary offerings of the securities of privately held companies.”

The venture signals Nasdaq’s interest in getting involved with companies long before they issue stock to the public under traditional requirements, especially technology start-ups in Silicon Valley.

Robert Greifeld, Nasdaq’s chief executive, said at the Goldman Sachs Financial Services Conference in December that recent changes in regulations have made staying private longer an attractive proposition for some companies.

The 2012 Jobs Act allows companies to remain private with up to 2,000 shareholders without being subject to public information-disclosure requirements. The old regulation required companies to begin publicly disclosing information after reaching 500 shareholders.

“There literally are thousands of companies that are good companies that are not on the path to go public and we’re going to build a market just for them that’s coming out in 2014,” Greifeld said at the conference.

The new marketplace will be highly controlled. Companies listing their shares on Nasdaq Private Market will approve all transactions of their shares, according to Nasdaq marketing materials.

Nasdaq’s biggest competition will come from SecondMarket Inc. which was founded in 2004 by Barry Silbert as a secondary market for pre-IPO shares of companies. SecondMarket gained attention for handling the trading of private shares of Facebook FB, +0.26% before the company’s IPO .

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New Trade – $BABA: Lock-up Look Down?

12:54 pm EDT - January 23, 2015 By Dan

Two months ago when Alibaba (BABA) was $111. I talked about what I considered to be a a serious headwind for the stock in 2015, an onslaught of shares coming off of a series of lock-up expirations. Per the USA Today:

181 days after the IPO date, or March 18, 2015. That’s when 429 million shares are available for sale in the public market, which is more than the 320 million shares the company sold in the IPO and about 17% of the shares outstanding.

But the biggest lock-up expiration date comes 366 days after the IPO, or Sept. 20, 2015, when 1.6 billion shares are allowed to be sold. That is 64% of the shares outstanding.

At the time I outlined a long stock alternative for those who want to have long exposure to the stock but define their risk:

BABA ($111) Buy March 110 /150 Call Spread for $9.50

Break-Evens on March Expiration:

Profits: gains like stock above 119.50 (near previous highs) up to $150.

Losses of up to 9.50 below 119.50 with total loss of 9.50 below 110.

With the stock now at $104, a quick comparison of long stock vs the $40 wide at the money call spread shows a $7 loss vs the call spread worth only $3.50 for a decline of $6. The trade off is pretty simple, under the worst case scenario where the stock goes down dramatically the call spread has defined risk and is preferable. A bad result for those long call spread instead of stock would be a move between $110 and $119.50 as the trade is a loser below $119.50, where the stock would be a decent winner. Between 119.50 and 150 the call spread vs long stock is the same (less the premium paid, while the gains above $150, long stock is much preferable to call spread.) But remember, one considers stock alternatives because they are weighing potential risk vs potential reward and willing to give up a part of the latter to protect against the former. For now, the call spread remains preferable in my mind. At this point I would likely cover the short call strike as the 150 call is only a 3 delta and has a very low probability of being in the money and look to possibly spread again on any bounce, further reducing the break-evens.

BUT a new year brings new perspectives, and it seems the positive sentiment towards the shares in September to the highs in mid November has subsided a bit, and the stock has been in a steady down trend for two months:

BABA since Sept IPO from Bloomberg

So it appears that the stock has reached a bit of an equilibrium between the pre and post IPO excitement and the realization that growth rates may moderate a bit this year, at a time where there seems like no shortage of new stock coming to the market between March and September, with possible risk to the downside.

Implied vol remains fairly high for a stock with a $257 billion market cap, with 30 day at the money iv about 35%, but in some ways it appears pretty fair with AAPL at 32% and FB (which has a $220 billion market cap) at 36%:

BABA 30 day at the money IV from Bloomberg

I would also add that all of the shares coming to market should be vol dampening in the long run, but if the stock were to see heavy selling into the March 18th lock up date, options prices could be viewed cheap in that expiration.

But here is the thing, the options market is implying about a 5% one day move which is shy of the 4% move higher on the company’s fiscal Q2 report back in early November. I want to use the elevated levels of IV in Feb for the earnings event and look to finance the purchase of March downside puts that will catch potential downward volatility relating to the lockup. So here’s the trade:

TRADE: BABA ($104) Buy Feb / March 95 Put Spread for 1.00

-Sell to Open 1 Feb 95 put at 1.00

-Buy to Open 1 March 95 put for 2.00

Break-Even on Feb Expiration:

Max profit at 95, max risk of 1.00 with a sharp move above or below the 95 strike.

Rationale: What I like to happen is the stock continue its downtrend and work lower to my strikes, and then look to cover the short Feb put and possibly look to turn the long March put into a vertical by selling a lower strike put. But here is the thing, the strikes are well out of the money, and if the stock bounces post earnings then I will be far out of the money. With the stock up about 5% the put calendar will probably lose half its value, but with the impending lockup I could still be in the game, but obviously will be more of a lotto at that point. I do like the risk reward of the trading given the stock’s near term poor momentum and the upcoming share overhang and if wrong on the earnings move I would look to adjust to try to recover some of the initial small dollar losses.

Opciones Binarias arauca

Wednesday 15 November 2017

¿Cuándo Cambian Las Opciones Después De Ipo

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