Ferrari's Stock Enters the Slow Lane
In its first day of trading, Ferrari’s stock isn't exactly taking off like a race car. In fact, it’s moving more like a 1993 three-cylinder Geo Metro.
Shares of the luxury automaker opened about 15 percent higher than their offering price before paring the gain and trading about 7 percent higher. A respectable, if not eye-popping, debut.
That’s not necessarily a bad thing. Pricing shares in an initial public offering requires a delicate balance. Underwriters want some pop in the stock price so that the buyers are glad that they bought. They may not necessarily want TOO much of a pop, however, since that could make the clients who are selling the shares wonder if they left money on the table. And no one wants to see a drop in price, most of all the underwriters who may have to go into the market and buy the shares to prop them up.
Ferrari offers a great opportunity to write about IPOs because:
a) This is Ferrari, after all, so people will actually read about it.
b) IPOs are quickly becoming the new bond-market liquidity: i.e., people are worried about them.
A look at the moves on the first day of trading in recent IPOs shows that shares of companies that open way higher than the offering price don’t necessarily sustain that rally. This is especially true when it comes to buzzy companies that, like Ferrari, are well-known to consumers and theoretically could be luring investors based on brand-name recognition.
Among recent IPOs, the biggest gap between the price offered by underwriters and the opening price on the stock market was Danny Meyer’s Shake Shack, which had investors salivating over the shares as if they were a double ShackBurger with a ShackMeister Dog on the side. The stock opened 124 percent above the offering price, but has since fallen 6.4 percent from that level.
The same holds true for Etsy Inc., the online doily bazaar that opened 94 percent above its offering price and is down 63 percent since. LendingClub Corp. opened 65 percent above its offering price and has since fallen 42 percent. Grubhub Inc.’s first trade was 54 percent above its offering price and the stock’s now down 23 percent from there.
So the point here is that it’s not necessarily a disaster that Ferrari shares didn’t explode higher in their debut. They opened at $60, above the $52 offering price. That 15 percent initial gain is actually just about average for IPOs these days, according to data compiled by Bloomberg on companies of at least $100 million in market cap that went public this year. As a group, those stocks are up an average of 3.2 percent from their offering price and down 2.5 percent from the price they opened on exchanges. In other words, not exactly a boom time for IPOs but not necessarily a bloodbath either when compared with a stock market that is lower for the year. (Market-cap weighted indexes of recent IPOs are telling a more dire story because of the huge influence of Alibaba, which is down more than 30 percent this year.)
In any event, the successful debut of Ferrari should ease some nerves about the market for IPOs, although its pedigree as a maker of high-end sports cars may have provided some shield against souring investor attitudes. This month alone, Digicel Group Ltd. canceled its listing, First Data Corp. priced shares below a marketed range and Albertsons Cos. postponed its offering.
There are worse things than entering the market in the slow lane.
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