On a day that saw the share prices of several big tech companies tumble, Dropbox defied the negative market sentiment and celebrated a successful public trading debut. Having priced its initial public offering at $21, above the already revised price range of $18 to $20, the cloud storage company saw its shares open at $29 on Friday morning. Dropbox’s share price climbed to an intraday high of $31.60 before closing at $28.48, up 35.6 percent from its IPO price. Such a ‘pop’ on the first day of trading has come to be expected over the past years and is often seen as a sign of a successful IPO as it signals strong demand.
That is only one way of looking at it though. While a big IPO pop does in fact signify healthy demand, it could also mean that the IPO has been underpriced. After all, the ultimate goal of an initial public offering is to raise capital, not to make those buying into the IPO happy. Having share prices jump by 40 percent as soon as the bell rings, means that the offering company, in this case Dropbox, is leaving money on the table as it could have sold the shares for a higher price to begin with.
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