Offering Price

Think: volatile IPO, pre-pricing. Lots of ambiguity. Is this company AMZN? Or is it uh...Groupon. Or worse?

The offering price is the price the bankers are setting such that buyers...buy. So if a given company is going to come public by selling 10 million shares at an offering price of $20, then the company itself might keep $19.50 times 10 million, or $195 million; the bank keeps 50 cents a share, or $5 million. If the IPO is hot, then the first publicly traded print might be like $32.40 and go up from there. That price doesn't matter to the company, however. They've already sold their 10 million shares at $19.50, "under pricing" themselves by a dozen bucks or so a share.

And this whole notion of under pricing is kind of a kitschy click-bait-getting thing from journalists who don't really live inside or understand the trenches of how companies actually come public. In fact, IPOs generally "need to be" under priced so that there is certainty of getting all the shares placed, and so that if the markets are choppy, the IPO price doesn't trade below the offering price. If it does, then original buyers who paid $20 will be angry and not return when the stock is at $18 or $15 or $10. Huge work then to repair damaged relationships.

So, in fact, in most cases, it's the company itself who leans conservative in the pricing of their IPO, because they'd rather raise a bit less money, sell a few fewer shares, but have a public currency...than wrest evey penny from the offering and then go into a soft market (through no fault of their own) and have their IPO be quickly underwater, and lose sponsorship from the Street. If they get greedy later, they can always sell more shares in a secondary offering at that $32-ish price and go nuts. High-priced nuts.