With the rise of social media companies in recent years, there's been a rise of social media company IPOs, creating a frenzy almost on par with some tech company IPOs of the late 1990s, especially for big, high-profile companies like Facebook and more recently, Twitter.
Yet along the way, it seems that we've lost perspective of what constitutes a "successful" IPO in the first place; while Twitter has been hailed as a success, with its whopping 73% pop in its IPO, while Facebook was viewed rather negatively, as the company struggled to even hold its IPO price in the open markets, the reality is that from the perspective of the companies themselves, arguably Facebook was the success and Twitter marks Wall Street at its worst. After all, think about it from the perspective of the company - if you were selling a portion of your business to raise capital, you want to see your portion of the sale occur at the best price possible, not at an lower price that limits the benefit for the company and maximizes the short-term profit for those lucky enough to get their hands on an "underpriced" IPO!
While the reality is that some price "pop" on the day of an IPO is healthy, inasmuch as it alleviates fears of IPO buyers and makes them more comfortable to take on the risky unknown that is IPO pre-commitment of share purchases. Nonetheless, the fact remains that expecting a pop as big as the one Twitter saw may be more notable for the amount of money Twitter left on the table - money that the company won't be able to use towards justifying the market capitalization that has now been established. And from the individual investor's perspective, arguably buying IPO shares on the open market when they start trading - the practical reality for most retail investors who don't have access to direct IPO shares - represents the worst of both worlds, simultaneously paying the maximum price for the shares, and investing in a company that doesn't even get the full benefit of its own IPO value. So perhaps its time to stop celebrating the idiocy of the big IPO price pop, something that benefits neither the retail investor, nor the company they're buying!