Sometimes you can jack up prices and people still offer you more money. Especially if you’re an Internet company doing an IPO.
That’s what happened to webMethods.com, a company that links other companies doing business over the Internet, which saw its share prices rise a staggering 505 percent in first-day trading Friday.
After originally pricing at $35 apiece, webMethods (WEBM) shares soared $177 to close at $212. The stunning performance marked the fourth-largest first-day percentage gain in IPO history.
Funny thing was even before trading started, shares were going for way more than the company had planned. When webMethods originally set prospective terms for its offering, the company expected to sell its shares for about $11 to $13. The ranged got upped to $28 to $30, and then raised yet again as investors clamored for shares.
WebMethods wasn’t the only company to recently jack up its price just before going public.
Internet consulting firm Organic (OGNC) and software developer Witness Systems (WITS), both priced their initial stock offering this week at $20 per share, well above the original price targets of $12 to $14 per share. Even with the price hike, shares of both companies doubled in first-day trading Thursday before dipping Friday.
The pre-trading price hikes make sense because they let the company to keep more of the profits from a lucrative public offerings, said Vincent Slavin, an institutional trader with Cantor Fitzgerald who tracks IPOs. When a company soars in first-day-trading, those gains go to shareholders.
"I think it’s a far more intelligent way to do the deal," Slavin said.
Still, sometimes even tripling the price of an offering doesn’t keep investors away.
Much of webMethods’ appeal was that it straddled a couple of trendy areas among investors: business-to-business commerce and Internet services. Companies in a similar space, like Internet Capital Group and Commerce One, have also seen shares rise strathospherically since going public last year. The size of the offering -- 4 million shares -- was also relatively modest by Internet standards, spurring demand.
But even in hot sectors, it’s difficult for underwriters to estimate how much demand exists for a particular new stock from regular retail investors.
In contrast to webMethods, Cypress Communications (CYCO), which provides high-speed Internet and phone service in office buildings, rose only a respectable 20 percent about its offering price in first-day trading last week. The company got more liftoff before it hit market -- with an offering of 10 million shares at $17 a piece -- above its already ambitious earlier range of $14 to $16.
Even though Cypress didn’t have a splashy opening day, the deal worked out well for underwriters and the company, who got to pocket more of the proceeds of the offering themselves.
