Square’s IPO did something that hasn’t been done since 1998. It was priced below the target range listed in the company’s prospectus, and then it went up. A lot.
Shares in the payments company run by Twitter CEO Jack Dorsey, priced for the IPO at $9 rather than the $11 to $13 that had been expected, rose 45% yesterday (Nov. 19) in their debut session on the New York Stock Exchange, closing at $13.07.
According to the University of Florida’s Jay Ritter, who studies IPOs, a bump like this for a company whose IPO was priced below the expected range is very rare. The last time it happened? November 1998, at the dawn of the ”dot-com” bubble, when TheGlobe.com’s IPO set a record for the largest first-day gain in US history.
Similar to Square, the expected range for TheGlobe.com’s stock price was $11 to $13, and it was priced at $9. Except the shares wound up opening at $87, and went all the way up to $97 before settling that day at $63.50—a 606% increase. (The social network’s stock price would collapse in the dot-com bust, and the company went out of business in 2008.)
Historically, stocks that are priced below the expected range do see a pop (except from 1980 to 1989, when there were no such returns to be found). But the pops are usually much milder than Square’s. Between 1980 and 2013, the average first day gains for IPOs priced below the target range was 3%.
Square’s jump doesn’t prove there’s another bubble in tech stocks, but it does underscore the complexity of pricing tech companies. Match Group, which owns Tinder and other online dating services, also went public yesterday and was priced on the low end of the range, but saw a 22% jump in its market debut.