A Look At How Much VMware Left On The Table

from the ipo-madness dept

Back during the dot com bubble when startups with no track record were going public on a regular basis with huge first day pops in stock prices, it got many people thinking that such first day jumps were a good sign. In fact, some companies bragged about having the largest first day jump. We haven't seen much of that lately, but it may be coming back after VMware's public offering. VMware shares priced at the top of their range at $29/share, but opened this morning at a whopping $52/share. VMware, of course, was supposed to have been one of the potential hot IPOs in the class of 2004, but decided to accept a buyout offer from EMC instead. This turned out to be a great decision, as the company has grown a tremendous amount under EMC, and today's IPO is for a much more substantial VMware than we would have seen three years ago.

However, since there are plenty of folks who probably weren't around during the last bubble to learn this lesson, it's important to remind everyone why first day stock pops like VMware's are not a good thing, and certainly not something worth bragging about. The difference in price is actually an indication of how much money VMware left on the table. Yes, the company raised nearly a billion dollars by selling shares at $29, but it missed out on the money it could have taken if the shares had been priced closer to the $52 the market has clearly valued its shares at. In other words, it sold all those shares at about 55% of what the market valued the company at. Not such a great thing to brag about now. Of course, there are some advantages to having the first day pop. It does act as a PR mechanism, and it certainly does bode well for VMware if they want to sell more shares to raise more money. However, right now, it certainly looks like the company left approximately $750 million on the table that was snapped up by those trading the stock, rather than the company itself.

Filed Under: first day pop, ipos
Companies: vmware


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  1. identicon
    Anonymous Coward, 14 Aug 2007 @ 9:07pm

    Re: Learn then speak

    As to VMWare leaving money on the table, that is true. But what you have to understand is that while they left $750 on the table today, the positive PR and momentum that an explosive IPO like this will give the stock will likely enable them to do a secondary offering in 6 months for a few billion dollars in additional stock at a very healthy price.
    Only $750? So, at $23/stock that's around like, what, 32 or 33 stocks? That sure doesn't seem like very many. How do you even get Wall Street interested in such a small deal?

    IPOs are complicated and its uneducated blathering like yours that only solidify investment bank's choice to exclude the average investor from the IPO process.
    So Mike is an uneducated blatherer? You should read some of the stuff he has written on the economics of scarcity. That would probably really set you off.

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