The greater fool theory states that the price of an object is determined not by its intrinsic value, but rather by irrational beliefs and expectations of market participants. A price can be justified by a rational buyer under the belief that another party is willing to pay an even higher price. (Wikipedia)
Alas, a “tech” IPO.
Los Angeles based Snap Inc, the parent company of Snapchat, recently filed for its initial public offering. The IPO is expected to occur in early March, and would be the year’s first major “tech” listing. The underwriters are hoping to sell shares at a valuation of between $20-25 Billion and raise $3 Billion. It will trade on the NYSE with the ticker SNAP.
Overvalued? You betcha!
Does it matter? Not at all. The IPO will perform well.
The IPO is being so well rigged by the investment banking teams at Goldman and Morgan Stanley that they have almost guaranteed SNAP an initial pop and healthy premium in the aftermarket.
Let’s face it, Goldman, Morgan and the rest have the distribution power to put the issue away in safe hands.
But like any big new story stock, new cult buyers and greater fools will need to be convinced of the story and pay up.
The GoPro (GPRO) shares were priced at $24 in June 2014, went off at $35, headed north to $87 by October then straight south to a current price of $9.75.
I anticipate SNAP to follow a very similar pattern to that of GPRO.