Underpriced or Overhyped?

Thursday was a big day in New York as two high-profile tech startups made their stock market debut. Both Square, the payment company founded and led by Twitter co-founder and CEO Jack Dorsey, and Match.com, the parent company of several dating services such as Tinder, ended the day with a significant increase in their respective stock prices. Seeing tech stocks pop up on their first day of public trading is something people have come to expect and the lack of a significant jump is often seen as an unsuccessful IPO. But is it really?

Take Square for example. By pricing its IPO at $9, well below the expected range of $11 to $13, the company all but made sure that its stock price was going to see a sharp increase once trading started. Sure, a big first-day pop does create positive headlines but it comes at a cost: by lowballing its IPO price, Square left a lot of money on the table. In the end, an IPO is about raising money to grow your business and Square could have raised tens of millions more than it did if it had priced its IPO within the range it had initially given.

Our chart illustrates that big first-day gains are still all but a given for tech companies going public these days. Some may have been underpriced, some may have been overhyped. But that is something that only time (and the market) can tell.